The United States of Blockchain

As the 2016 election results clearly showed, Americans are a deeply divided nation when it comes to core issues like life, liberty, and the pursuit of happiness.

However, if there’s one issue that could unite Americans from across the political spectrum, it’s the future of voting. The American people, it turns out, vote in the strangest places, including Chinese restaurants, laundromats, and lifeguard stations. And while stills of people waiting in line to vote at a garage are always good for a laugh, the truth is that the way that today’s voting booth system is set up has some heavy social implications. Mandatory voter IDs that are expensive to acquire, getting time off of work to vote in the middle of the week, and the long lines and fewer polling places all conspire to keep disadvantaged voters from casting their vote.

There are, however, new technology initiatives to shake up exclusive voting systems, and, unsurprisingly, its being brought to the public courtesy of that decentralized ledger system, the blockchain. The language used to describe these initiatives are still couched in the hyped-up terms so often paired with blockchain. The European Parliamentary Research Service, for example, published a paper on the topic entitled, “What if blockchain technology revolutionized voting?”

What if, indeed — blockchain is nowhere close to upending traditional voting. But the potential for what it can do to voting systems should pique the attention of social activists. The EPRS projects that Blockchain Enabled e-Voting would cut back on voter fraud and could make voting more readily accessible for all voters.

The ‘What if?’ of blockchain voting is being driven further towards actualization by companies like Belgian startup SettleMint, who built a BEV voting app specifically for the 2016 presidential election. While the app has not been actually approved or used by the U.S. government, it’s a tangible glimpse into the possible future of BEV.

SettleMint received an undisclosed seed investment from Overstock in November 2016, but they aren’t the only ones exploring BEV possibilities. For instance, in September 2016, Broadridge Financial Services acquired technology to develop blockchain applications for Broadridge’s proxy voting business.

As with anything, but especially with blockchain, what goes up must come down, and any blockchain hype is almost immediately followed by crushing reality. The EPRS’ ‘What if?’ paper delineates some of the problems BEV could entail: e-voting raises the risk of the voting coercion, could confuse voters with too many voting options, and, without government oversight, the decentralized blockchain could provide ample opportunities for voters’s identities – and how they voted – to be exposed.

Nevertheless, as a tool that has the potential to empower underrepresented, disadvantaged, or just lazy voters, BEV is something to look forward to. Whenever it happens.

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

5 trends we're tracking in finance

 1. Wall Street turns on the fintech heat

If 2015 was the year of fintech Star Wars, of the upstart firm taking on the big boys, 2016 could be the Empire Strikes Back.

The largest financial institutions are indeed rising to the occasion, developing new products, striking strategic partnerships, and advancing the ball.

Of global major banks, Spain’s BBVA is one of the most active investors and acquirers in the fintech space. Scarlett Sieber,who is part of the business development team for the bank’s digital business, joins us on the Tradestreaming podcast to discuss how (and why) she is building a financial technology ecosystem.

What happens when the largest credit card issuer partners with the largest gas retailer? JPMorgan’s Chase Pay landed a deal with Shell, giving the upstart digital payments platform access to 20 million daily customers.

Barclays revealed plans that showed serious intentions about banking Africa, bringing potentially 1 billion unbanked folks into the financial fold.

2. Fintech is competitive and, sometimes, destroys value
Wall Street has a lot of work to do – for example, today’s brightest are less likely to want to work at hedge funds. (That’s not deterring Goldman Sachs, though, from rolling out a new video format for on-campus recruiting).

Also, it can’t be easy heading up the largest player in the actively-managed funds space, either. BlackRock’s Larry Fink has a ringside seat, witnessing the outflows of actively managed capital, flowing into passive strategies. Active managers are feeling the pain of watching more productive revenue streams evaporate.

Right now, it seems servicing clients and protecting long term franchises is a good start.

3. Why video banking is the fintech trend to watch

More so than bitcoin or other sexy fintech technologies, video banking is already here and changing the way customers, and banks themselves, interact with financial services. We’re quick to (falsely) compare video banking to a Skype-powered teller, but it’s really so much more.

Video banking is about creating real experiences, putting a human face on digital banking. It’s good for customers and that shows — video banking still has some of the highest conversion metrics of all channels. So, in addition to creating operational efficiencies, video banking also has important security implications. Lastly, video banking technology is also helping some of the underbanked — like people with hearing disabilities — get serviced like other bank customers.

4. With new bank partnerships, TransferWise tries for transparency

As customers clamor for more from their financial service providers, small players of the big financial game are responding with their own versions of transparency. Transferwise is the horse to beat in the online money changing business with over 600 routes in 35 different currencies. The startup claims it has over a million customers conducting $750 million worth of transfers per month.

But that’s peanuts compared to the $5.3 trillion in forex transacted daily. Transferwise has big aspirations and to get there, the firm launched a new partnership strategy that would bring the company’s currency exchange tools to other online banking platforms. So far, it looks like that strategy is working.

5. The new virtual reality of shareholder communications

Berkshire Hathaway is known for its lively annual shareholder meetings, featuring everything from a ping-pong match between chairman and CEO Warren Buffett and Microsoft cofounder Bill Gates to discount jewelry shopping. A sign of the times, the firm live streamed its event this year. Communicating with investors has come a long way.

When it first launched its virtual shareholder meeting services in 2009, four companies held such meetings. This year, Broadridge Financial Solutions is expecting to facilitate meetings for 200 public companies, 80% of them virtual-only and 20% hybrid, or a mix of in-person activities and an online broadcast, like Berkshire Hathaway did.

 

The new virtual reality of shareholder communications

fintech comes to shareholder communications

Berkshire Hathaway is known for its lively annual shareholder meetings, featuring everything from a ping-pong match between chairman and CEO Warren Buffett and Microsoft cofounder Bill Gates to discount jewelry shopping.

This spring another aspect was added for the first time in the company’s history: an online live stream of the meeting in Omaha, Nebraska. Shareholders — and non-shareholders — were able to watch storied investor Buffett’s unscripted speech. This, along with Buffett’s investment in Apple in May, is perhaps another sign that America’s third-richest person is shrugging off his aversion to technology. But larger than that, it is also the latest high-profile example of how technology is changing companies’ communications with their shareholders. Shareholder communications remain a market ripe for growth and disruption.

The market for virtual meetings

Several players are making a push for expanding virtual meetings and better and more-secure online voting systems for shareholders. The main player in the space remains Broadridge Financial Solutions, which processes electronic voting for 90% of public companies, according to research by SWIFT. Broadridge has seen much growth in recent years, especially in services for virtual or hybrid meetings.

When it first launched its virtual shareholder meeting services in 2009, four companies held such meetings. This year, Broadridge is expecting to facilitate meetings for 200 public companies, 80% of them virtual-only and 20% hybrid, or a mix of in-person activities and an online broadcast, like Berkshire Hathaway did.

“We are getting more and more inquiries about it as companies see their peers using the technology,” Cathy Conlon, Broadridge vice president for strategy and business development, said in a phone interview. Those that have embraced virtual meetings include companies ranging from tech giant Intel to apparel-maker Lululemon Athletica.

“It’s not just tech companies, it’s really across all sorts of industries,” Conlon said. She attributed the increase to the general growth in popularity of online streaming and the advent of smartphones that give even more flexibility to those who want to participate in virtual meetings.

“It’s such a convenience for shareholders,” she said.

Currently, online-only meetings are allowed in 24 U.S. states, and Conlon said companies need to decide how to best accommodate their shareholders.

Not everyone approves

The online-only meetings have not been without controversy. The Council of Institutional Investors, a non-profit group advocating for effective corporate governance and protecting shareholders’ rights, has come out against online-only meetings, even though they may save money and enable more people to tune in.

“It also enables a company to manage troublesome shareholders and avoid uncomfortable questions,” said Amy Borrus, deputy director at the Council of Institutional Investors in Washington, D.C. “That is not a good thing.”

Borrus and others compare virtual-only meetings to the practice of holding shareholder meetings in far-flung places or at odd times. Research by New York University in 2014 showed that companies who held meetings in remote locations often experienced sub-par performance in the following year, indicating that they wanted their meetings to remain low-profile when they were harboring negative developments that hadn’t yet reached the public.

But David Yermack, one of the NYU professors who carried out the research, said it is still too early to tell what impact virtual-only shareholder meetings may have. Although the number of such meetings has grown, it is still a small minority of companies that hold them, he said.

“I think that, in fairness, we need to wait a few more years until enough data is generated to evaluate the pros and cons of online meetings,” Yermack said. He did say that companies’ motivations may be to keep a low profile, but he also pointed to the advent of virtual quarterly-earnings announcements, and said that replacing in-person conferences with phone and video conferences has actually boosted participation.

Alternatives to e-voting

Betting that the trend will keep moving forward, Broadridge recently invested in blockchain technology, which it says could be implemented to make voting at virtual meetings more secure.

At the same time, alternatives to Broadridge are in the works, although they haven’t yet emerged fully into the space.

Several local regulatory institutions around the world have developed their own local systems for shareholder e-voting and virtual meetings, including the Israel Securities Authority and Russia’s National Settlement Depository.

In another low-profile, but potentially significant development, Nasdaq is currently testing an e-voting system based on blockchain technology on its affiliate Tallinn Stock Exchange in Estonia.

While it remains skeptical of virtual-only meetings, the Council of Institutional Investors said it welcomes more secure and user-friendly voting systems, as well as adding virtual elements to in-person meetings, as Berkshire Hathaway did.  The council also stressed a need to refine regulations for how technology is used to facilitate shareholder communications.

“There are no real best practices for these uses of technology,” Borrus said. “There’s no real rules of the road yet.”

 

Photo credit: SarahPAC-USA via VisualHunt.com / CC BY-ND