The Passing of the Screen Scraping Baton

The FinTech world is buzzing with news of Plaid buying Quovo. Hats off to Quovo’s founder, Lowell, who’s built an excellent reputation in the industry for innovation, professionalism and proprietary technology to enable screen scraping. We’ve received over a dozen inquiries from partners, investors and prognosticators on what the deal means, and, while we have no insider information, we have a few thoughts given our earlier blog series on screen scraping.

There are a few lenses to look at this deal as it relates to what it means to the FinTech space and why it makes sense. We’re going to break it down based on three factors: market structure drivers, systemic reasons and direct reasons.  

Market Structure Drivers

The FinTech world is embracing APIs as the most effective way to interact between institutions, apps and developers — as PSD2 in Europe leads the way. Asian countries are already adopting API protocols. However, since the US has not developed a standard or unified protocol, we can expect more jockeying between screen scrapers and financial institutions, as we saw earlier this year with Plaid & CapitalOne. As long as the US doesn’t mandate standards, screen scraping companies are going to look to gain greater scale and leverage against the more fragmented financial institutions (when’s the last time you saw Citi, JPMorgan, Fidelity & Schwab join forces to protect customer data?).

With 40-70% of FIs website traffic coming from screen scraping companies providing access to Personal Financial Management apps like Mint, FIs have finally woken up to the need to provide secure, controlled access to their products in an increasingly unbundled and distributed world.  FIs are going to require customers to use oAuth to ensure proper security and controls, but traditional US screen scraping companies don’t look favorably on oAuth due to the user experience. The Plaid/CapitalOne battle was a preview of things to come between screen scrapers and Fis, requiring scrapers to go through the front door, not the back.  

Systemic Reasons

If you’re in the screen scraping business and do a value chain analysis, you want to own your own destiny and technology. Screen scrapers exist for a simple reason: to make it easy for FinTechs to enable their clients or customers to aggregate their data in one spot. The screen scrapers create simple and easy to use APIs that customers can integrate and these APIs use screen scraping technology behind the scenes. The technology learns the layout, data formatting and access placements for thousands of FIs, which allows the scrapers to easily enable customers to share their credentials in order to gain entry into the FI. The FI is not a party to this access, it’s a back door. Not all screen scraping companies do this themselves. Quovo did it with robust and secure technology, as do Yodlee and Finicity who often provide their technology to other screen scraping companies like Plaid and MX.    

Data security couldn’t be more paramount to FIs. As much as customers like to demonize banks, banks have done a lot more to protect customer information than big Silicon Valley tech companies. If your user name and password were breached by a portal, hotel company or social network in the last year, it’s likely that the user name and password combination was sold on the dark web. Bad actors on the dark web then run scripts testing your credentials against FIs to get access to your funds. And, while the Fis are proactively monitoring their front door, what many have found is that the bad actors run the scripts via sites using screen scraping to identify vulnerable accounts via the back door. Herein lies the rub. Screen scrapers don’t want to put speed bumps into the user journey, but FIs are requiring oAuth through the front door.  Something has to give, and hopefully it won’t be caused by a breach of your financial information.

Direct Reasons

Plaid and Quovo were direct competitors with similar offerings which could lead to downward pressure on prices. Consolidation will likely allow the combined entity to test price elasticity. Yodlee was the Grand Daddy of screen scraping. Early on, Yodlee bought Vertical One for customers, pricing power and leverage. Yodlee is now owned by Envestnet who has publicly stated that they’ve been focused on making the acquisition pay, meaning they’re increasing prices.

Plaid stated that Quovo’s offering in the wealth space was a driving force for the acquisition.  Yodlee and Morningstar® ByAllAccountsSM have a solid grip on the wealth space, however a combined Plaid/Quovo could result in a greater penetration. And, it doesn’t hurt that Quovo’s founder hails from a storied wealth management lineage, adding to his wealth sector cred.  

Finally, the brands of Plaid and Quovo resonate differently in the broader financial space. Plaid is loved by Silicon Valley FinTechs and Quovo is well-regarded by the established FIs.

In sum, while the financial terms are not readily available, the strategic fit of Plaid and Quovo makes sense — leverage, scale, reputation and technology. Just as Yodlee’s founder stepped away last week from leading his company, the baton (and screen scraping team captain) is now with Plaid’s leadership — run fast and innovate often.

What does 2019 hold for FinTech?

2018 had its fair share of disruption in the FinTech space, but for the most part, companies and investors sat out the end of the year market fluctuations and are cautiously — and perhaps optimistically — looking to 2019. The latest downturn is definitely not unexpected, and if the market continues to soften as most have predicted, we expect to see more acquisitions in FinTech, as investors tighten their belts.

Here are our thoughts on what potential market moves might include:

Chinese FinTechs make another go at the US market

As highlighted in the MIT Technology Review, the Chinese market is much more innovative and disruptive than the US FinTech Market. While the Alipay-Moneygram tie-up failed with regulators, it won’t deter the ambitions of these cash-rich companies.  Notably, Alipay, TenCent, Fosun, CreditEase and PingAn continue to be ever-present at US FinTech conferences, networking, looking to deploy capital, and tempting entrepreneurs with cash offers. Expect to see Chinese companies buying smaller FinTech companies that allow them to fly below the radar of regulators, yet buy and scale with US teams that have strong operating reputations.  

Betterment or WealthFront might get acquired by a smaller incumbent who’s looking to chase down Vanguard and Schwab’s market dominance

Wealthfront got a bump with a $75M investment earlier this year, but some claim that raising money at this stage (10 years in) is a delay tactic if they’re seeking acquisition. Perhaps a “marriage between two leading independent robo advisors is next,” claims Timothy Welsh of Nexus Strategy. He also states that “if robo advisors were going to disrupt, they would have already.” A very debatable stance, in our opinion. But if a merger isn’t in the cards, it’s certainly likely that acquisition is on the table.

The economics of “set it and forget it” firms might catch up with robos as market prices soften

Robos haven’t had to deal with a down market since their inception. As we head into 2019 and likely more volatility, how will they respond and, perhaps more importantly, how will their clients? With a down market and poor returns, will investors stick it out with a “set it and forget it” or will they just say “forget this” and move their funds back to an incumbent? And, though most robo investors are Millennials, will they be ok getting communication about downturns from their advisors solely via email or social media? More importantly for the bottom line, it will be very telling to see if an electronic relationship has the same stickiness as a personal one. According to Greg Curry, a fee-only financial advisor with Pillar Advisors in Louisville, Kentucky, “In a down market many clients need hand holding and the value of interaction with a human financial advisor can be the difference between them sticking with a well-conceived financial plan and investment strategy and making moves that are detrimental to their financial future out of fear.”

With the loss of Robinhood, APEX Clearing looks to sell

Now that Robinhood has built their own clearing system from scratch, what does that mean for APEX Clearing? The last time a major brokerage built something similar was Vanguard, in 2008. It was only five years ago that Apex claimed it was the only company that had the technology to make Robinhood possible. And while right now Robinhood Clearing will only be used on its own platform, they haven’t ruled out the possibility of commercializing it. So, what does this mean for other FinTechs? Is Robinhood Clearing the potential go-to for these solutions? Or, with Robinhood’s recent insurance snafu surrounding their checking and savings account announcement, did they tarnish themselves as a trusted platform/partner?  

N26’s move to the US from Europe will gain ground in the investment world based on their API platform approach

The German mobile bank just received the largest equity financing round in the FinTech industry in Germany to date, as well as one of the largest in Europe. According to their Americas CEO, Nicolas Kopp, they’re “a technology company with a bank license.” Because N26 was built from scratch, and their European roots means they have to comply with PSD2, they’re prepared for open banking protocols. Their design was specifically built for mobile — to be both visually appealing and user friendly, and they support/use APIs, not siloing technology for different lines of business, creating a seamless user experience. And they’ve AI-enabled their platform, allowing them to create more personalization at scale. We’re curious to see what else they have up their sleeve.

What are some of your FinTech predictions for 2019? Share them with us on Twitter using #TradeIt2019 and #FinTechPredictions


What Does It Mean That Incumbents Are Embracing Crypto?

Has Crypto Gone Legit?

It might have been easy in recent years for incumbents, mass market investors and generally the mainstream to dismiss cryptocurrency for several reasons. It’s volatile. It exists virtually. It’s all about anonymity. It’s not regulated. It cuts out the middleman. It was created by a community of  developers. For years, the virtual currency seemed more an underground fad than a true and legit financial resource. But that finally appears to be changing.

Crypto Gets Institutionalized

With the recent announcement from Goldman Sachs that they’ve teamed with billionaire Michael Novogratz to invest in BitGo, a startup that aims to help institutional investors securely store their cryptocurrency, crypto may no longer be the red-headed step child of finance. Between them, Goldman and Galaxy Digital Ventures are investing about $16 million in BitGo. And while this amount is a drop in the bucket for Goldman and Novogratz, it certainly indicates the incumbents taking crypto seriously and realizing their customers are looking for the option to not only invest but have a safe place to keep these investments.

“Greater institutional participation in the digital asset markets requires secure and regulated custody solutions…We view our investment in BitGo as an exciting opportunity to contribute to the evolution of this critical market infrastructure.” – Rana Yared, MD of Goldman Sachs’ Principal Strategic Investments

Coming to Play

Beyond security, Fidelity is taking it a step further, rolling out their own standalone company, Fidelity Digital Asset Services (FDAS). The world’s 5th-largest asset manager has established FDAS for their clients, hedge funds, and FIs to trade and store cryptocurrency. With $7.2 trillion in assets under management, 27 million customers and 13,000+ institutional clients, Fidelity might seem an unlikely candidate to hop on the crypto bandwagon, but they do spend $2.5 billion per year on technology, partially through incubators that house its artificial intelligence and blockchain projects.

It’s also an accessibility play. According to Fidelity Investments chairman and CEO Abigail Johnson, “Our goal is to make digitally native assets, such as bitcoin, more accessible to investors.” Because of their established reputation, and much like Goldman, many clients will likely feel more safe trading and storing with an incumbent over a startup. This is most certainly what Fidelity is banking on.

Will There be an Incumbent Snowball?

Beyond a handful of major players, there’s been a severe shortage of big, incumbent banks actually making the leap. According to Morgan Stanley’s research division, in a new report “Bitcoin Decrypted: A Brief Teach-In and Implications,” they’ve dubbed bitcoin a “new institutional investment class.” The amount of crypto assets under management has been increasing since January 2016, with $7.11 billion currently being stored by hedge funds, venture capital firms and private equity firms. This means if they aren’t already, the other big dogs are surely strategizing their own entry into the space.

According to Digital assets and regulation news outlet, five of the US’ biggest banks are interested in trading Bitcoin, if not already doing it. These include JP Morgan, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley. Morgan Stanley announced a soon-to-be Bitcoin swaps service tied to Bitcoin futures and it plans to have a dedicated trading desk for digital asset derivatives.

But what could be holding them all back from diving headfirst is investor demand.

Don’t Count Out the FinTechs

So, while the incumbents might have the clout, they are also waiting to pull the trigger. This opens the door for FinTechs, especially since the SEC just made it easier for Fintechs to launch ICOs. Their new division, called the Strategic Hub for Innovation and Financial Technology (FinHub) will act as a central point for the securities regulator to interact with entrepreneurs and developers in the fintech space with a particular focus on distributed ledger technology (DLT), automated investment advice, digital marketplace financing and artificial intelligence. It’s doubtful that FinHub will invite a deluge of startups to the crypto party, but it does lend more credence to the virtual currency. Combining the regulation with the incumbent interest, it appears that we are likely talking tip of the iceberg when it comes to the future of cryptocurrency.

RoboAdvisors: The New Destination For $

Shifting Dollars

As more and more younger investors are embracing robos and ETFs vs. actively managed portfolios, the dollars being invested are shifting. As we look ahead to where the assets are going, it’s impossible not to wonder what this means for the economics of the investment firms, asset managers and brokers. ETFs are growing and they’re also a lower cost investment vehicle. Schwab’s annual report is a great example of how assets are flowing into lower cost investment options (ETF growth is booming – up 19%) and the number of client accounts continues to grow (more on that later). But while it’s always good to see growth, and great to know people are investing (!), does this mean there’s a reset coming as it relates to the fees generated (or not) by investment products?  

For large incumbents there’s a cushion, because they’re more diversified as it relates to product offerings, and in turn, revenue streams. But with the shift to a lower cost product like ETFs, and the combination of Millennials pouring money in and Boomers pulling money out, there’s less investing in traditional mutual funds, creating a shift in how incumbents need to think about their revenue streams. And while these companies are seeing gains, with Schwab’s stock price up over a 10 year period, what does this mean for their long term offerings and strategy?

Vanguard is currently king of the robos with $101 billion in AUM, roughly half of all robo assets. In addition to their command of the market, they also see a bump since they serve as the low cost ETF provider to Betterment and Wealthfront. The fees from distribution through these channels translate to more additional revenue for Vanguard.

Schwab is sitting comfortably at number two, with $27 billion across its robo platforms. But the pure-play robo startups, while not in the same hemisphere, are currently holding their own. Betterment and Wealthfront have $13+ billion and $10 billion in AUM, respectively.

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According to a recent report by PricewaterhouseCoopers, experts estimate that robo-advisors could see their AUM increase by over $800 billion over the next five years as they continue to plow investors’ money into ETFs. And A.T. Kearney estimates that digital advice could grow to over $1 trillion by 2020, a 68% increase over current levels.


Who Is Driving Growth?

It’s no secret that Millennials are heavily investing in ETFs and mostly via robos. As we’ve talked about before, it’s a low barrier to entry vs. mutual funds or advisory solutions and investors at this age simply have less assets. But interestingly, new findings of emerging Canadian robo-advising companies describe a higher-than-anticipated demographic of baby boomers and Generation X clients with 44 being the average age of clients. Part of this rapid growth in AUM is due to older clients with larger retirement savings.

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However, according to, American Millennials are distrusting of robo-advisors, with many stating they still prefer traditional advisors. In addition, a large proportion of millennials who don’t use robo-advisors haven’t heard of them, showing that robo-advising has yet to penetrate the Millennial market.

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And while Gen X and Boomers might be investing in ETFs, the majority of them and their dollars are invested in mutual funds and/actively managed portfolios. These represent greater asset volumes and are also higher cost products.

Will there be a pendulum shift?  

It does appear that way. As older generations move into retirement and withdraw funds, the AUM in traditional mutual funds, actively managed portfolios and among advisory solutions will decline. But, because younger generations are continuing to earn and earn more, it’s likely they’ll continue to pump more into ETFs. The set-it-and-forget-it type investing is ripe for this new audience who wants to dip their toes in the water, including the introduction and usage of target funds as options in 401Ks and IRAs. In fact, according to Statistica as of 2018, passive investing is growing exponentially in the US:

  • AUM in the Robo-Advisors segment currently amounts to $283 Billion
  • AUM are expected to show an annual growth rate (CAGR 2018-2022) of 22.8% resulting in the total amount of $643 Billion by 2022
  • In the Robo-Advisors segment, the number of users is expected to amount to 12 Million by 2022
  • The average AUM per user in the Robo-Advisors segment amounts to $43,039  

Bringing it back to Schwab, their active brokerage accounts are up 6%, their total client assets are up 21% and their proprietary mutual funds are up 19%.

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However, total assets among their ETFs more than doubled from 2013 to 2017, an astounding $204 vs $436B. From 2016 to 2017 alone, that was a CAGR of 37% among ETFs vs. 20% for mutual funds during the same period. And only 7% when you look specifically at Schwab’s proprietary mutual funds.

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Some final thoughts:

  • As more investors jump on the ETF & Robo bandwagon and less use full service advisory services and higher cost Mutual Funds, what happens to the fee structure of these firms as more assets move to the lower cost products?
  • Will there be a need to create a new model and what will that model look like?
  • Could we see, as we’ve talked about before, an Amazon Prime model of investing?  

Share your thoughts below or tweet us.


Land of the Free (Trade)

What happens to competition when everything is free, when there’s no obvious financial differentiator? How do you get customers to choose you over the other guys?

With the recent bomb dropped by JPMorgan that they’d be offering free trades to everyone via their new You Invest Trade Service, brokerages are on high alert and looking  to understand how this will affect them and the market. Certainly JPMorgan is the first incumbent—but not the last—to make a serious move in this space, and while fintechs like RobinHood built their platforms on free trades, they have less overhead and less offering to contend with. In other words, the incumbent fall out is likely much more significant. But the potential is also astronomical for those who do it right.

How Will You Stand Out?

Since it appears that trading is becoming a commodity with a race to lower pricing until it’s ultimately free, the competition is going to have to create other factors in order to differentiate themselves going forward. As we’ve posted about in the past, these could include user experience and ease of use and delighting customers via good design. As well as attracting new customers. (More on that in a bit.) But there is so much more FIs can do. In fact, no financial company has leveraged the full platform like Expedia has in the travel category or Amazon in the consumer shopping space. This industry is stuck in the mid/late 90’s, whereas consumer spending platforms have evolved and changed with or even ahead of the time. Finance needs to up their game.

Here’s how we see things evolving:

Pricing is No Longer a 2-Year Study

Gone are the days where pricing used to be modelled out with firms conducting tons of research and testing before changing their fee structure. Today, FIs need to be more nimble and push out pricing changes to be immediately responsive to market changes and influences. Being able to pivot or better yet, being first out of the gate, could make or break a new pricing strategy. And leave everyone else scrambling.

Market Cap Erosion

With their announcement, JPMorgan shaved $9B off the market cap of everyone else. With the trading fee revenue stream eliminated, it impacts all companies as it relates to their valuation and market cap. So if brokerages remove trading fees, where will that “lost” revenue come from? Several incumbents have said they too could go to $0 trading, particularly in a rising interest rate environment, but why do it if you don’t have to?

RIP Legacy Systems

For most established banks and credit card companies, account conversion on legacy systems still takes place offline. This is not only slow but costly. JPMorgan has invested tens of millions to change this on-boarding process, therefore creating a solid ecosystem of digital products. JPMorgan’s ability to cross sell between Asset Management and Banking is key to their success. The Chase Mobile acts as a digital branch for customers, allowing users to make deposits, payments, keep tabs on their account, and will soon add You Invest to this digital suite. All this capability in one place sounds very familiar…

Will We See “Prime Trading”?

Stash and Acorns have proven out that customers are open to subscription based financial services, a model that Amazon Prime has pioneered in retail. And, by moving away from the fee-based model to a consumer-friendly ecosystem model, JPMorgan believes that creating a digital ecosystem will help the bank better align with clients’ interests.

“We’re very focused on delivering more service. All our analysis shows that those customers who do more than one thing with Chase will stay with us longer,” [emphasis added] says Jed Laskowitz, CEO of the bank’s You Invest service.

For example, You Invest will offer free portfolio-building tools and access to the bank’s stock research allowing customers to construct a portfolio composed of cheap ETFs and stocks. This sets up Morgan to create its own passive investment vehicles, essentially getting that fee back albeit in a way that serves the consumer and the bank. So, by offering free trades, JPMorgan could actually grow the business as customers use other services.

Remains of the Day

Time will tell what no fee means for incumbents, or if JPMorgan resorts back to a more traditional fee structure. In the meantime, one thing is for sure, and that’s that nothing is for sure. FIs are going to have to look to other industries to see how they can model a more robust and streamlined offering, tap into untapped customers and still find a way to grow their bottom line.

Incumbents vs. FinTechs: Product Offer Throwdown

Previously, we have done comparisons on mobile account opening and the design of these offerings as it relates to incumbents vs. FinTechs, so we thought it only fair to do a more detailed comparison based on product offerings and where the industry is headed. While you can call our design evaluation subjective, our side by side product and feature comparison demonstrates how the large incumbents serve a stronger set of offerings to a broader base of investors, but at the expense of simplicity. While the FinTechs have limited offering but a more honed feature set.


Pretty much everyone is working on some form of a robo, and many have already started their own. In fact, due to competition for passive investors from low fee, automated investing startups like Wealthfront and Betterment, incumbents (Schwab, Fidelity, E*TRADE, TD Ameritrade) were quick to roll out at least one automated investing account and many now offer more than one option.

While the incumbents are dominating AUM (Vanguard $112B and Schwab $33B vs. Betterment $14.5B and Wealthfront $11B), the independent robos are pushing the tech envelope. “For people who are looking for a quality, digital online experience, independent robos are a step ahead of the incumbent ones.”

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The start-ups are forcing banks and brokers to adopt technology faster than ever before, while the established players are pushing the robos to incorporate more traditional services in their products. In fact, many of the digital-only startups are layering in human advice to complement their automated offerings. This should give pause to any incumbent, or at the very least, make them rethink their features and user experience.

In a Galaxy Not Far Away: Pricing Wars

Whether it’s executing trades, managing portfolios or simply owning mutual funds and ETFs, costs have been collapsing on Wall Street. Feeling the pressure from low cost or no cost entrants like Robinhood and Tastyworks, Fidelity finally slashed trading commissions to $4.95 in February of 2017.  This quickly resulted in similar changes from the other incumbents (Schwab, E*TRADE, TD Ameritrade), and Fidelity and Vanguard have also aggressively cut fees on ETFs. Now, with J.P. Morgan offering fee-free trading and access to research and portfolio building tools to their 47M customers, it just may become the industry standard.

And while Robinhood gained attention for attracting more than 5 million users, and a $5.6 billion valuation, in just a few years, J.P. Morgan, the biggest U.S. bank, has a distinct advantage: it already has financial ties with half of American households. In other words, market share is up for grabs and while low fee or no fee might hook customers in, what will keep them needs to be more thought out than simply “free stuff.”

Tales of the Crypto

While none of the large retail brokers have added direct trading of cryptos, there have been a few interesting developments. TD Ameritrade and E*TRADE allow crypto futures to be traded on their futures trading platform and Fidelity and E*TRADE both have innovation labs exploring uses of blockchain and crypto. “It’s no secret that we are actively exploring cryptocurrencies, including Bitcoin and other digital assets in our Blockchain Incubator at Fidelity.”

For a large conservative financial firm, Fidelity was early to realize the potentially transformative impact of cryptocurrencies and blockchain technology, even allowing users to link Coinbase accounts via a web widget. But while they’ve been experimenting, other FIs have been diving in, from big traditional exchanges that offer bitcoin futures, to companies such as Square and Robinhood that allow users to trade digital coins.

Robinhood, which earlier this year added crypto trading, only offers this feature in select states. Square added crypto trading to their Cash app in late January, with Square Cash averaging 2M downloads per month, 3x the growth rate of Venmo. Coinbase surpassed Charles Schwab in the number of open accounts in late 2017 (11.7M vs. 10.6M), but the value of those accounts is still a fraction of the value of Schwab ($50B vs. $3.26T)

Not everyone is on the blockchain bandwagon. As E*TRADE’s Lance Braunstein says, “For me…it feels more like a solution waiting for tangible problems to emerge. We don’t have a dying need to use blockchain.” But as we’ve written about in previous posts, with blockchain’s ability to greatly speed up processes and reduce cost, why doesn’t everyone have a dying need to use it?

Amazon of Investing

While all of the challengers in the investing space have well-defined customer journeys and easy to use interfaces, there’s still a large difference in the breadth of the offering. Customers with specialized needs (securities lending, bonds, futures, trust capabilities, advanced options tools) will probably be better served by more established players. While customers seeking to simply capture market returns with excess cash will probably enjoy the better digital experience and onboarding provided by the newer players in retail brokerage.

What interests us is how both facets are pushing the others to be better. FinTech is pushing the incumbents to simplify, while the incumbents are pushing fintech to be more than just a pretty interface. But the question is, will anyone become the Amazon of investing? Will anyone ever have everything for everyone? And what will that look like? Time will certainly tell.


Time’s Running Out to Adopt an API Strategy

As the connective tissue linking ecosystems of technologies and organizations, APIs allow businesses to monetize data, forge profitable partnerships, and open new pathways for innovation and growth.

So why isn’t everyone using them?

Adoption of APIs

More and more APIs are being adopted across all industries—travel (Google Maps), food/entertainment (OpenTable, Spotify), communication (What’sApp, Messenger, WeChat). Companies like Button are partnering with brands to help distribute their offerings to a large developer community and that are eager to strengthen their mobile experience via the use of APIs. APIs, to these organizations, equal opportunity, and access.

In fact, companies that have moved aggressively to embrace APIs have profited handsomely. Salesforce generates nearly 50% of its annual $3 billion in revenue through APIs and for Expedia, that figure is closer to 90% of $2 billion.  And, as Professor Rahul Basole has demonstrated through infographics and a simulation, first mover advantages matter for API strategies. Just look at this graphic contrasting Amazon and Walmart.


Finance is Far Behind

However, when looking at the Finance industry, banks and brokerages are lagging behind in API adoption. Screen-scraping—which we’ve written about numerous times—doesn’t allow for reliable data connections to banks and is a huge security risk. However, screenscrapers are widely used and via the halo effect, end users are tricked into submitting their information that results in loss of control over their own data. All of that can be alleviated with the adoption of APIs which use information in a more effective and efficient way. APIs still allow data sharing but in a way that creates a safe, seamless experience for both users and creators.  

A Change, She’s A Coming

Luckily things are changing. In Europe with PSD2, APIs are becoming the new standard. The U.S. is likely a few years behind, but Asia, always an early-adopter, has already recognized the need for APIs in order to have a competitive edge. Frankly, the entire finance industry should be looking to find ways of unlocking the potential which will impact and, ultimately, provide benefits for all involved.With the objective of stimulating competition in banking, monetary authorities across Asia are looking at this themselves and starting to put in place a number of Open API directives and specifications designed to dramatically reduce barriers to entry, create opportunities for nimble and innovative players in the market, and encourage competitiveness within Asia’s banking sectors.

Open for Business

Singapore got on board early with Open Banking and their open market strategy saw DBS, a financial services group, launch the world’s largest API developer platform last November. “A platform-based approach, underpinned by an extensive ecosystem of participants that all adhere to common standards, is crucial in enabling banks to quickly access, integrate and deploy new APIs from Fintechs and developers.” In other words, it’s time for everybody to get into the sandbox and play nice.

Follow the Money

McKinsey estimates that as much as $1 trillion in total economic profit globally could be up for grabs through the redistribution of revenues across sectors within ecosystems. Even more, reason to adopt APIs which are integral in bringing together organizations and technologies in these ecosystems, creating a significant competitive advantage. One bank created a library of standardized APIs that developers could use as needed for a wide variety of data-access tasks rather than having to figure out the process each time. Doing so reduced traditional product-development IT costs by 41% and led to a 12-fold increase in new releases.

And yet, there are still just a small number of firms with fully developed API programs, making it now or never time to capitalize on this window of opportunity.  “Today, a firm without APIs that allow software programs to interact with each other is like the internet without the World Wide Web.” For FIs, even with systems that might be more antiquated than others, APIs can help

bring your processes into the 21st century, better connect you to your customers, create money-saving efficiencies and drive brand loyalty.

So the question we have to ask is, what are you waiting for?



1 Venkat Atluri, Miklos Dietz and Nicolaus Henke, “Competing in a world of sectors without borders,” McKinsey, July 2017

Can AI Drive Alpha for ETFs?

In our previous post we touched on the potential of an ETF bubble. The exponential growth of ETFs, especially from younger investors who want to set-it-and-forget-it, means there’s an opportunity for providers to increasingly use Artificial Intelligence in smart alpha and active products. But what can AI do for your business and investment strategy?

Like Humans, Only Better, Faster, Smarter

AI tools can intake data, learn from it, and act on it to meet specific objectives. But they can do it more quickly and efficiently. In fact, machines running AI algorithms can process large amounts of data in the blink of an eye. Market data is dynamic. Machines can react instantly to fluctuations to best identify ideal investment strategies. They can also read through thousands of pages of market reports in seconds, while simultaneously connecting new market signals with recent ones detected in other markets. It would take a fund manager hours to do the same thing a machine can do in split seconds.  

AI Has No Ego or Emotion

Investors tend to make poor decisions because it’s their money they could lose. Money is emotional. But machines don’t get stressed, tired, or angry. There’s no winning or losing. They operate in a purely logical manner and make decisions based only on evidence and indicators. When you remove emotion from the equation, you make better decisions. There’s no holding onto a position because you think it might change. There’s only analyzing the facts and deciding based on what is happening, not what might happen.

Disrupting the ETF Industry

ETF positions are decided on by an AI system that processes market signals, news articles, and social media posts. Daily trade recommendations in an AI capacity are not only easy, but cost-effective. Smaller fintechs and individual developers have unprecedented access to this technology. Perhaps you read about AIIQ from EquBot, the first exchange-traded fund to use AI technology to pick stocks from developed markets outside of the U.S. It leverages IBM’s Watson capabilities to build predictive models that identify 30-70 U.S. stocks every day that have the best appreciation potential.

IBM’s open APIs and developer-friendly portals charge per API call once a product is live. This sort of scalability makes AI accessible to anyone, regardless of size or motivation. And, as you can see from the below chart, ETF providers who aren’t taking advantage of AI are losing out on revenue.


All About the Alpha

Experienced traders are turning to AI in order to maximize profits in up markets and minimize risk in down markets. Because AI leverages Natural Language Processing, Sentiment Analysis, and Numerical Data Processing to analyze social sentiment with lightning speed and precision, it can maximize alpha. It takes a human three seconds to analyze a tweet, but it takes AI less than one millisecond to analyze a tweet as bullish or bearish.

Since AI doesn’t need to sleep, it can be working 24/7, even when the markets are closed, trying strategies that might be difficult to execute for traders. And because of the amount of data available, risk is mitigated because AI will know when to get out before it’s too late. An AI system can make daily stock recommendations that the ETF manager can then use to shift positions, increasing alpha.

Compete or Go Home

An important aspect of any AI strategy is partnering with external developers. Because, in order to compete with the top financial firms in your sector, you need to leverage machine learning or risk being left behind. In fact, you might already be.

Are you leveraging AI in your business? We’d love to hear about it.


Is an ETF Bubble Looming?

ETF Folklore

“From the industry perspective, what’s brilliant about ETFs are they have the ability to work well under pressure. Any time we’ve seen dips or a bear market, we’ve seen ETFs be a good haven because all you’re doing is going to a different side of a trade.” – Global Asset Manager with >$1T AUM

The appeal of ETFs to investors is diversification. The ETF surge represents a shifting investment ecosystem away from active, toward passive. According to a Charles Schwab 2017 ETF Investor Survey, the percentage of ETF investors by demographic is as follows: 56% of Millennials, 44% of Gen X and 30% of Boomers. In fact, an astounding 96% of millennials see ETFs as a necessary part of their investment strategy, perhaps because they have less money available to invest.

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ETFs are appealing because:

  • They have lower expense ratios
  • You can purchase fractional shares
  • They are more attractive for people with little knowledge
  • Typically there’s no minimum to invest

Crunch Time

However, many ETF investors are unaware of the risks of investing in ETFs. Some [watchdogs] see an ETF bubble that is set to burst, even though what is being invested in is more of an investment wrapper than an asset class in its own right.

Our current financial system is geared towards a much lower average life expectancy. Yet, as people live longer, their portfolios need more durability. So what is the liquidity of ETFs and the ability for ETF companies to unwind when, for example, a boomer needs to start drawing down? Or, what happens during a crunch?

Facing Liquidity

“I’m not worried about ETF liquidity. There’s always fear of that but I don’t think there’s suddenly going to be a liquidity drought in asset classes. It’s really at the very back of our heads.” – Large Pension Fund

High-frequency traders, traditional active fund managers, and other value investors believe that one of the challenges for ETF companies will be unwinding their positions. For some financial institutions that own ETF providers, exiting subscale market positions may prove to be attractive. The rapid growth of the ETF market means that we’ve seen comparatively few exits. In a consolidating market, ready buyers could be plentiful. But the challenging economics of ETFs could mean that sellers find exit valuations disappointing.

Mistaken Valuation

Cash inflows to an ETF that has large holdings of a specific company could misprice a company blindly. “In the largest products, where most of the money sits, about 90% of trading that occurs is in the secondary market, according to Vanguard’s research. That means ETF investors are passing investments between themselves, and not having to transact with fund managers.”

Another reason for concern, a July report from Cirrus Research cites that, “companies with higher ETF exposure have steadily underperformed their counterparts since last June.” While the rise of robo advisors reflects this changing paradigm, a lack of understanding drives ETF demand and introduces risks. And it shows no signs of slowing down with 61% of millennials planning to increase their ETF positions. So while wealth managers used to be too expensive for the masses, automation is changing that and ETFs are democratizing the investment world.

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ETFs played a role in the sell-off in 2015:

  • According to SEC, exchange-traded products experienced higher volume and volatility than standard stocks
  • Swings in price seemed arbitrary among otherwise similar ETFs
  • Many of the shares owned by investors were dealt by short sellers (unbeknownst to the investors)
  • As investors realize they own ‘synthetic’ ETF shares, the situation could explode

Before the Burst

Banks and trading firms happily sell and trade ETFs when the market is calm. When they can buy at a discount and sell at a premium, these firms will continue to offer ETFs in large quantity. But when that is no longer a probability or possibility, the suppliers of ETFs will most likely disappear, essentially undoing the entire system. But there are ways to fix the bubble.

‘Physical’ ETFs have much lower risk because they are actually hard backed by the underlying security. Diversifying with equities that aren’t usually tracked by ETFs can help avoid market cap bias.

How Close is the Burst?

Millennials are pouring their investment dollars into ETFs. They’re also the target of many of the robo advisors and FinTech’s helping investors begin to grow their wealth. Many of these robos and “set-it-and-forget-it” FinTechs are leveraging ETFs in their portfolios due to the lower price point, dollar-based investing, etc.

That said, could the potential burst or liquidity crunch be stalled due to the influx of Millennials investing in ETFs? Or is that a temporary distraction? Will the robos and FInTechs potentially suffer the same fate?

Case in point: look what happened to some of the robos that got squeezed during Brexit as people demanded access to their funds. Will this instance be a case of only time will tell, or are these brakes on their potential roller coaster?   

What do you think?




1, 2 Citibank “New Approaches to Active Management & The Need for Manufacturing        Flexibility in an Era of Asset Class & Factor Investing” 2016
3 Financial Times
4 Bloomberg

Design Smackdown – Incumbents vs FinTechs

“To design is much more than simply to assemble, to order, or even to edit: it is to add value and meaning, to illuminate, to simplify, to clarify, to modify, to dignify, to dramatize, to persuade, and perhaps even to amuse. To design is to transform prose into poetry.” –Paul Rand

We know what you might be thinking. Why is a FinTech company talking about design? Think about it. We all have products or services to offer. Shouldn’t the way we present those offerings be the cleanest, most intuitive and simplest to use? After all, the barrier to entry can take many forms and design or user-experience is certainly a big one.

It’s more than this interface is ugly and this one is clean. It’s about creating the easiest experience for the user. One that allows them to sign up in a few steps and of course then is a no-brainer for continued use. In today’s day and age, the mobile experience is paramount.

We took a look at the customer experience of several Financial incumbents and some FinTechs to see how they compared. This includes things like interface density: color, fonts, spacing, as well as more quantifiable data—steps to sign-up and log-in, overall app navigation and ease of usage.

Author’s note: In our review of incumbents and fintechs, we have attempted to assess the user interaction and experience with quantifiable data points to try to eliminate subjective opinion. If you believe that beauty is truly in the eye of the beholder, we’ve tried to focus on objective learnings vs subjective opinion.

Clutter vs. Clarity

The incumbents seem to have taken their web experience and tried to leverage those existing workflows into mobile. The screens are dense with information with a less intuitive path to entry, a plane can only land on one runway. In fact, on the sign-in screen, users are given quotes, research, accounts, trades and more. There are in some cases, 60, yes, 60(!), fields or upwards of 10 steps to complete in order to sign up. Some even suggest a 10 minutes process and then tell you it takes 2 days, yes days, to hear back. Who is going to do all that on mobile?

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Meanwhile, many FinTechs were mobile first, starting from the ground up, which allows them to simplify and convey the one thing they want the user to do: sign up, log in and start immediately using the tool. There is nothing distracting them from that goal and it’s literally the only thing they can do on that screen. No distractions. No extra steps. Just sign up or log in. All of these offer 12 screens (some which are inaction screens) to sign up. That’s under 5 minutes. No waiting period. Mission accomplished.

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Incumbents Still Winning…for Now:

While incumbent apps are rated well and—as of now—preferred by experienced traders or those who have broader active investing needs, this rating likely has more to do with the rich legacy features that older generations of investors rely on. In other words, rich features and lack of head-on competition from Fintech apps that aren’t competing to the same level of investors and for the same features are the reason they are being more utilized. An example of this would be a plethora of research and charting tools as found on Etrade but not on RobinHood, something an experienced, active trader leverages to make decisions.

Let’s compare:

Here how Robinhood and Etrade both show AAPL as a quote page. There are two distinct approaches being utilized and it’s clear the apps cater to two types of investors. Etrade is info-rich, providing more information for trading decisions. For a newer investor, this might be more content than is needed. But for an experienced trader, this is what they’re used to seeing.

Robinhood, on the other hand, offers a slicker and cleaner interface. Robinhood presents users with one aspect of the stock and directs them to exactly what they want them to see. For a newer investor, this is likely all they need and doesn’t overwhelm with excess complexity. 

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Understand the Trends

Fintech apps have mainly been focusing on a large pool of inexperienced or young investors, or those that want to take generally a passive role in the investment markets. As we mentioned, Robinhood—the only FinTech broker competing for active trading—is still lacking in basic Incumbent features such research reports and stock screeners for idea generation. However, each segment has something different to offer:


  • Audience: Experienced investors/traders
  • Sign up process: Lengthy and information-rich  
  • Ease of use: High learning curve
  • UI and UX patterns: Complex
  • Capabilities: Feature-rich


  • Audience: Young investors/traders
  • Sign up process: Straightforward and short  
  • Ease of use: Shallow learning curve
  • UI and UX patterns: Simple and modern
  • Capabilities: Limited focus

What the Future Holds

For now, FinTech apps aren’t a threat to Incumbents for serious traders. However, that doesn’t mean Incumbents should rest on their laurels and accept their outdated and clunky app experience. Given a bit more time, FinTech players could, and likely will, gain ground on new waves of investors. Since Incumbents have been really slow to adopt in focusing on the end-user through better UX, FinTechs are picking up Millennials that have grown up using Facebook, Google, Uber and other services that established high standards for their experiences. These are apps that offer low learning curves, simple entry, and minimalistic user interfaces. And they are what the people want. So, it’s only a matter of time before user experience trumps experienced.