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High Five! The top 5 fintech stories we’re following today

5 trends we're tracking in finance

Top 10 things JPM’s Jamie Dimon said about fintech

Start your workweek off right with a roundup of Jamie Dimon fintech gems. While he’s sometimes disparaging of the shady behavior of the startups, it turns out JPMorgan’s chief is very much focused on fintech. For someone who claims that fintech isn’t actually anything different, he certainly has a lot to say about the space: from Silicon Valley to payments to marketplace lending to consumer data, Jamie Dimon will tell you how fintech is changing finance.

Serious contender for the best Jamie Dimon quote ever: When asked about how financial technology is replacing real jobs, JD replies,

“There are downsides to flying — people die every now and then. Do you want to stop all air flights?”

Read more: Dimon can’t stop talking fintech and just dropped a remark that JPM plans to offer free roboadvice to its best clients.

Paypal isn’t a bank, but it may be the new face of banking

In the race to shift services to the web or mobile phones, the stakes are in the billions of dollars for traditional banks and upstarts alike. Paypal has said that it has no intention to upend banks, and that its next target market are the 2 billion plus people who are currently unbanked. Nevertheless, with its popular Venmo unit enabling consumers to take small money transfers into their own hands, Paypal seems very happy to serve banked consumers as well.

As with any new technology that encroaches on traditional banks’ turf (think bitcoin), banks have been quick to point out that due to a lack of government regulation, your money isn’t as secure with Paypal as it would be with a traditional bank. Will that stop the gravitation towards mobile wallet services offered by Paypal and others like Stripe, Square, SoFi, and TransferWise? The Wall Street Journal thinks not.

The road to nowhere: legal cannabis business can’t be solved by fintech

A clash in state and federal rulings has prevented banks from accepting money from cannabis sales. This legal limbo prevents banks from doing business, but more importantly is life-threatening to marijuana retailers; with nowhere to bank, “ganjaprenuers” deal entirely in cash, making them a prime target for thieves.

Fintech has come up with some creative solutions to this state versus federal imbroglio. However, at the end of the day, the problem is a legal one. Until Congress is replaced by robots, tech won’t be the savior for legal marijuana banking.

The march of the bots for customer service: should bank CIOs slam shut or swing open the door?

The emphasis here is on humanizing robots rather than “robotizing” humans, letting those humans who care most about outcomes make sure the end-to-end customer experience is continuously improved.

This means that long-suffering (human) customer service representatives will finally get (robotic) personal assistants to help them proactively find the information they need to use on their computers. In this way, customer service professionals will spend less time searching for things and more time actually serving customers. However, outdated legacy banking systems may prove to be a major stumbling block on the way to this robotic/CRM utopia.

For more on cyborg fintech, read “How quant hedge funds balance computer and brain power”.

AIG enters the crowdfunding market [drops mic]

Insurance exists to reassure and protect policy holders. Whatever may come, insurance says comfortingly – whether car accident, disease, fire, loss, theft, or even death – we’ve got you covered.

Which is why crowdfunding insurance is somewhat of an anomaly. Though AIG just entered the market with Crowdfunding Fidelity, a new crowdfunding insurance policy that will be made available to select crowdfunding platforms, the coverage period and cap mean that the insurance offered is very, very limited.

Bottom line: investors probably shouldn’t breathe a sigh of relief just yet.

Photo credit: Loozrboy via Visual hunt / CC BY-SA

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AIG enters the crowdfunding market [drops mic]

crowdfunding insurance is finally here

A brand new crowdfunding insurance product has the industry talking, but questions remain how effective the product will be.

Earlier this week, AIG released Crowdfunding Fidelity, an insurance policy for crowdfunding platforms. Although a new concept, the motive behind the product is very simple. Crowdfunding investment is risky to start, but headline-grabbing frauds are making people even less likely to invest.

Crowdfunding Fidelity isn’t available directly to investors — crowdfunding platforms that meet AIG’s due diligence standards can apply for coverage. So far, only Eureeca, a crowdfunding site active in Europe and Asia, offers Crowdfunding Fidelity to the participants on its platform.

What is crowdfunding insurance?

Investors don’t need to opt in to the insurance plan when they invest via Eureeca — the insurance comes packaged with every investment. Companies raising capital end up footing the bill and the cost is bundled in the fee they pay Eureeca to fundraise.

Once covered, investors are protected from fraud for only the first year after the shares are issued, with an additional year of “discovery” to allow for investigation of fraud. The current coverage cap is limited to $2 million, well above the amount most small businesses raise through crowdfunding, but not high enough for large crowdfunding ventures. In the event of fraud, the investor is returned his original investment.

The most interesting part of the coverage is when the policy kicks in. Currently, the policy covers catastrophic theft that leads to bankruptcy. It appears minor fraud, like petty theft, wouldn’t be covered.  Obviously, fraud is a risk that any investor takes when making investments, and this further shifts the responsibility crowdfunding platforms have to properly educate their investors.

First mover advantage

Industry experts have long suggested a form of crowdfunding insurance and Eureeca should be commended for its collaboration with AIG. “AIG chose our global operating model as a guide in the development of the product to boost its potential for scale,” said Eureeca’s co-CEO Chris Thomas in an email to Tradestreaming.  By opening up the hood to its systems and providing data to product developers at AIG, Eureeca plays a big role in getting crowdfunding insurance off the ground.

Fraud insurance for crowdfunding platforms seems like a great idea, but it will be interesting to see how insurance policies change over time. Will the 2-year period be enough time to uncover fraud? Will limiting coverage on fraud that leads to bankruptcy really satisfy investors’ concerns?

Perhaps the changes will not come so quickly, as crowdfunding platforms take a “wait and see” approach to insurance. But what if changes start sooner rather than later? Will platforms find themselves in need of an insurance broker? Will marketplaces raise due diligence minimums? Will startups be forced to disclose more to crowdfunding platforms?

Only time will tell if the assurance-of-insurance eases investor worries and increases the long-term success of crowdfunding.

Photo credit: Robert Bejil Productions via Visualhunt.com / CC BY

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5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletters .[/alert]

  1. BDCs: An untapped tool for local investing? (Locavesting): In fact, business development corporations (BDCs) may be the only solution for a growing problem that is starting to hit communities across the country—the increasing number of baby boomer small business owners who are ready to retire. They’re flooding the market with businesses for sale, resulting in many just being shut down for lack of a buyer. But through a BDC, the community can essentially become the buyer and keep those businesses up and running, retaining the jobs they generate.
  2. The Economist plans to double circulation profits in 5 years (Digiday)
    The British magazine has an ambitious goal: to double circulation profits in the next five years. Here’s how the magazine plans to do it…
  3. Victory Park Capital taps Goldman exec for CIO role (FINalternatives)
    Behind many of the $100m+ investment rounds sits Victory Park Capital (VPC), a provider of lending facilities for many of today’s top online lending startups. Former Goldman Sachs managing director Upacala Mapatuna has joined Victory Park as chief investment officer.
  4. Citibank: Google should buy AIG and turn it into a fintech lab (BusinessInsider): So why exactly does Citi think Google should pair up with one of the largest insurers? Could be really interesting, actually.
  5. How Murano helps hedge funds identify better, close more investors (Tradestreaming)
    The world of third party marketing has enabled the hedge fund industry to massively ramp its AUM over the past 15 years. With >10k funds and 30k allocators, it’s time that someone emerge to be a better matchmaker. Check out what one company is doing to improve the outcomes in institutional fundraising.