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

top fintech stories

Steering the massive banking ship

There hasn’t been much talk of the paperless office lately. And the paperless bank? Forget about it. What’s frustrating is that the burden of filling things out in triplicate is shared by both customers and employees. Adding technology to eliminate paper can potentially reduce operating processing costs by 25 percent. Records management associated costs can be reduced by 60 percent to 70 percent.

Comparing internet time to banking time, though, isn’t a good comparison. Banks find it hard to modernize their IT. It’s kind of a Catch-22: even though everyone knows that systems need to be replaced, what kind of CEO would want to undergo a transformation project when his or her average tenure is just a few years in the front office? Estimates are as high as 25 percent of core banking system transformations fail without any results. That’s how you get banks like ANZ with 40 year old systems and no one willing to tackle the larger problem.

Working on the blockchain gang

Ask an industry consultant about blockchain technology and you’ll get hyperbolic description of a future financial utopia where everything works better, faster, and cheaper. Ask your average financial services person about it, on the other hand, and you’ll probably get a blank stare. That’s because the hype of blockchain has gotten quite a bit ahead of itself lately.

Our August Blockchain Hype Meter analyzes just how out-of-hand things have gotten. And that’s OK, right? You can still think that blockchain may end up transforming our current iteration of financial services and capital markets but it’ll still take time. At least that’s what VCs are betting on. Blockchain investment in the first half of 2015 accounted for half of all investment in fintech.

More fintech ETFs

PureFunds debuted its newest fund, the PureFunds Solactive Fintech ETF ($FINQ). The fund’s holdings include companies that “principally derive revenue from the sale of financial-related information, financial data analysis services, financial services software tools or platforms or web-based financial services. Each company in the fund and its corresponding index – 31 in total – has a minimum market cap of $200 million.”

For investors in fintech land, the fund joins the KBW Nasdaq Financial Technology Index ($KFTX) which launched mid-2016. There are now multiple ways for investors to invest in fintech.

Speaking of ETFs, Pershing is also muscling its way into the field with a new line of exchanged traded products aimed at advisors. They’re being piggybacked on the DoL Fiduciary Rule for advisors who want to shift their revenue models.

Telematics, yeah!

Like the paperless office, telematics is also something that sounds good but in practice, few are actually doing it. Usage based insurance, as it’s called, portends a world where insurance policies are more well-crafted to policy holders by more accurately assessing their risk. As IoT devices are now tracking our behavior, there are streams of data created in their wake that insurers can use to better hone their coverage.

So, UBI, which can look at our driving behavior and craft a policy based more on our personalized risk, should be good for everyone. The view is that risk becomes priced more accurately, which should benefit the good drivers, who have had to pay the price of their bad driving peers.

But, the thing is, they’re not really being used all that much. Less than 10 percent of people have ever held such a policy.

Designing investment strategies, launching ETFs, and building a digital advisor

Meb Faber is a self-described investing researcher, author, financial entrepreneur, and now, podcaster. Meb’s found a way to navigate his own path through investment management by building his own media platform. He’s written a handful of research papers that are some of the most downloaded papers in history and a handful of best-selling investment books.

He joined us this week on the Tradestreaming Podcast to talk about how he’s built out his investment firm through collaborative product development, the launch of his digital advisor, and how he’s promoted his work via his own in-house content.

 

 

The evolution of the social trader

Social psychologists have argued that before humans developed language, mimicry was one of the main forms of communication humans had with one another. It is in a large part thanks to mimicry, they contend, that human beings were able to create harmonious relationships in the first place.

If that hypothesis is correct, fintech startups are returning to Communication 101 with social trading platforms. These platforms enable users to follow the real-time trading activities of other investors and to mimic these trades in their own portfolio without leaving the platform.

For a while, it seemed like this throwback to roughly 100,000 years ago just wasn’t radiating that cool retro vibe. 2014 saw the closure of three social trading platforms, and it’s unclear whether some of the existing platforms have been able to raise growth capital. 

Nevertheless, if there was a ever a time for copycat financial apps to take wing, it’s now. Millennials, who make up 25% of the US population (that’s around 80 million people), are highly social beings: 90% of them are on social media, and 42% of millennials on Facebook and 35% of millennials on Twitter use these platforms to share content – in other words, to mimic their friends.

Another encouraging marker for social trading platforms is the impact of social media on millennial decision-making processes: a 2014 study by Market Studies International found that millennials are three times more likely than any other generation to reference social media networks before making purchasing decisions. For millennials, peer review and input is a major component of brand trust, and happily for social trading platforms, these features are structured into the service.

Transparency is the new black

In fact, these platforms can take brand trust a step further with their approach to transparency, another value that millennials cherish: “Many people obtain their ideas from newsletters, friends, social media, forums and chat rooms,” says Juan Mendoza, founder and CEO of Peeptrade, a newly launched financial information platform with a social twist. “But none of these sources actually show if the authors are putting their money where their mouth is.”

For Mendoza, social trading platforms, when done right, use transparency to grow investor trust. By allowing users to see what other people are doing with their own money in real-time, “people not only exchange ideas but also share their actual portfolios, performance and risk metrics with other users.” The fact that they can verify the statements of other users by looking at their portfolio and trading activity means that social trading platforms like Peeptrade are facilitating a community of investors who are linked by trust. 

Peeptrade is just one of a number of social trading platforms making social a core priority. Some of the biggest names include ZuluTrade, etoro, and Ayondo, which are, interestingly, all based outside the US. However, individuals looking to invest socially can choose from at least 29 different social trading platforms. In theory, these platforms level the playing field and empower individuals to invest safely, wisely, and simply. Heck, as etoro’s CEO Yoni Assia told Tradestreaming, they might even find it enjoyable.

Millennials aren’t investing, peeple

Wall Street needs all the help it can get in securing millennial investors – a March 2016 Harris poll commissioned by investing app Stash showed that nearly 80% US millennials aren’t invested in the stock market. Part of the problem is that investing is sometimes baffling – 75% of the women surveyed found investing confusing, though millennial men weren’t far behind, with a considerable 60% bamboozled by investing.

Social trading platforms are positioned to fill the investing information gap when it comes to millennials. The platforms are more than their autotrade (mimicking) capabilities. Peeptrade, for example, provides a significant amount of free financial information for its users, including trending financial news, market sentiment, analysts ratings, charts, quotes, and fundamentals. The company also provides filters to determine which expert investors (or “Gurus”) on the platform they should follow.

“Conversations and interactions are an important part of the platform,” says Mendoza. If millennials find themselves struggling to comprehend basic investing principles, they can turn to the social trading community these platforms foster for help. Because platforms like Peeptrade have invested in transparency, millennial users can easily decide which experts on the platform should be listened to (and which are not worthy of the coveted title “Guru”).

Robos are not the enemy – or are they?

One stumbling block on the way to social trading’s growth would seem to be roboadvisors, those automated investment advisors. However, Peeptrade’s CEO  envisions a world in which roboadvisors and social trading platforms live in perfect harmony, largely because each one serves a different target population. “Roboadvisors are a great tool,” says Mendoza, “but our users are people that invest on their own, and we want to help them make more informed investment decisions and help them learn from other experienced traders.”

Nevertheless, from a trend perspective, it seems likely that roboadvisors will lure away some of these platforms’ millennial clients. Wealthy millennials are already allocating 90% of their equity portfolios to ETFs, as part of a phenomena that Morningstar has ominously dubbed “flowmaggedon.”

Though the mimicry may be strong with millennials, it may not be enough to woo them to social trading platforms; if their peers have chosen robos, they might choose to copy that trend instead, especially if social trading platforms can’t match robos’ attractive low rates.

Meanwhile, for the self-directed investor among the 20% of US millennials who are investing, platforms like Peeptrade are making active investing more relatable and accessible. 

Photo credit: alant79 via VisualHunt.com / CC BY

Roboadvisors and ETFs: Product with built-in distribution channel?

ETFs and Robo-advisors

Respondents to EY’s latest yearly survey (pdf link) of the global exchange-traded funds (ETFs) and products sector think highly of the tie-in with automated investment advice platforms (roboadvisors).

On the distribution side, managers and promoters of ETFs recognize the need to invest in a dedicated salesforce to drive sales of the investment product. But there’s been a demonstrative surge in interest around digital distribution channels.

ETFs and digital distribution

According to the report’s authors:

Even so, there is a particularly strong sense that the digital dawn could be a “Eureka” moment for the retail take-up of ETFs. After all, the product and the technology share some common themes: low costs, transparency and breadth of choice. Of those surveyed, 90% view digital channels as an area of opportunity, and 89% expect robo-advisors to accelerate the growth of the industry.

Respondents see a powerful tie-in with traits jointly shared between roboadvisors and ETFs. It’s this overlap that’s concerning to some some experts in the industry who don’t see robos as a new manifestation at all. Rather, according to this viewpoint, it’s just an old financial product (ETFs) with a new distribution channel (roboadvisors).

According to Investment Advisor Magazine‘s Editor-at-Large, Bob Clark:

This suspicion was confirmed in a conversation I had the other day with Babara Roper, the Consumer Federation of America’s director of investor protection. In response to the criticisms of robos that I wrote about in the above mentioned blog (conflicting sources of revenues, self-dealing, and low standards of client care) she said: “Well, how’s that any different from the rest of the financial services industry?”

With the notable exception of independent RIAs, it isn’t any different. And that’s my point about robo “advisors.” They don’t represent a “new” entry into the financial services industry. They are merely a digital delivery system for the old financial services industry, rife with all of its conflicts and client abuses.

Owning the digital distribution channel is already top of mind at firms like BlackRock, the financial firm which owns the massive ETF provider, iShares. In August 2015, BlackRock announced it was purchasing FutureAdvisor, an aspiring roboadvisor that hadn’t quite reached the AUM of larger competitors, Wealthfront and Betterment.

While BlackRock has made it clear it has no plans to market to individual investors via its new roboadvisory offering, it certainly is planning to move its own iShares products through FutureAdvisor.

Instead the firm hopes to use FutureAdvisor to enable banks, brokerage firms, insurers and 401(k) plans to use the company’s digital platform to serve mass affluent investors and millennials, Frank Porcelli, head of BlackRock’s U.S. wealth advisory unit, said in an interview.

By pivoting FutureAdvisor into a B2B play to other financial institutions that market to the end investor, BlackRock will provide a built-in distribution channel to distribute iShares directly to clients of the wealth managers it services.

Schwab has had some very public early success with its Schwab Intelligent Portfolios (SIP) offering. Schwab just reported that its own competitive product to roboadvisors had grown AUM +37% quarter over quarter. SIP now boasts over $5B in AUM in just 2 quarters of operation. That means shortly Schwab’s AUM will approximate all the assets under management in the entire roboadvisor industry. Some of the criticism of Schwab’s Intelligent Portfolios has centered around the bias that the online broker has towards using its own ETFs.

Regardless of who emerges as the largest competitor in the digital advice space, ETFs are the ultimate winner.

 

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Beginner’s Guide to Motif Investing

The investing landscape has changed tremendously over the past few years — mostly in ways that directly benefit individual investors.

  • Transparency is increasing
  • Fees are decreasing
  • Brokers are being phased out in favor of Registered Investment Advisors
  • Assets are moving from expensive, actively managed mutual funds to low cost, passively managed exchange traded funds (ETFs)

It’s this last piece that is going to serve as the focal point for this post. In fact, assets invested in U.S. ETFs just exceeded $1 trillion.

ETFs growing like weeds, investors struggle to keep up

If ETFs have evolutionized (it’s not really a revolution) our investment choices, information and commentary on how to use ETFs haven’t quite kept pace. Investors struggle to understand exactly what an ETF’s strategy is and how it’s managed.

Heck, professionals are drowning in trying to make sense of all the new ETF offerings.

A new platform, called Motif Investing, may be changing all this…

Continue reading “Beginner’s Guide to Motif Investing”

12 most mindblowing acquisitions in recent history

ey on asian fintech, jan bellens

Interesting discussion going on at 12Most regarding the most mindblowing acquisitions in history.

Obviously, the fervor around Facebook’s intention to buy photo app, Instagram for $1B prompted this list but I thought it would be a good time to get your feedback into what you think were the most influential mergers in the financial space.

To get things started, I added the $15 billion BlackRock-Barclays Global (BGI) merger which essentially made BlackRock the largest asset manager on the planet but also gave them the crown jewel in the ETF space, which just keeps growing like a weed.

What do you think are notable mergers in our space?

Vote or add your picks below:

Tradestreaming Cascade: The News You Need To Know (Week Of October 23, 2011)

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Every week, I send out an email (free) to my subscribers summarizing the must-see events of the past week. It’s everything about the intersection of technology, social media and investing.

Sign up in the sidebar, at the end of this post, or by going here.

You’ll get your 1st issue on Sunday.:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Investment Products

Online banking keeps customers on hook for fees (NYT)
October 16, 2011

Big banks are struggling and their taking it out on their customers.  How long will the currently banked continue to put up with this?  BankSimple +1.


Social Media, Technology and Investing

The optimal software free trial strategy (SSRN)
Posted October 4, 2011

Lots of new investment startups and newsletters employ a free trial strategy to increase paid conversions.  Do you go full features for X days or limited features forever?  Here’s the optimal strategy.

The fear index based on social media sentiment looks bullish (MarketPsych)

Research firm MarketPsych has been profiled on Tradestreaming (go here).  Looking at a variety of investor sentiment from thousands of sources, MarketPsych thinks the current market looks bullish.

New app is awesome showcase of stock market data and visualizations (Xignite)
Posted October 14, 2011

StockTouch is a new iOS app that uses a market heat map-type display of breaking stock market movements.  New visualizations like StockTouch promise investors a new way to look at market data/info to aid decision making.


Investment Strategies and Research

Continue reading “Tradestreaming Cascade: The News You Need To Know (Week Of October 23, 2011)”

Tradestreaming Cascade: The News You Need To Know (Week Of October 8, 2011)

:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Every week, I send out an email (free) to my subscribers summarizing the must-see events of the past week. It’s everything about the intersection of technology, social media and investing.

Sign up in the sidebar, at the end of this post, or by going here.

You’ll get your 1st issue on Sunday.:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Investment Products

Evaluating Vanguard’s new LifeStrategy Funds (Oblivious Investor)
Posted October 5, 2011

Taking a slightly different tack with their pre-packaged retirement funds, Mike Piper seems to like the lower pricing and inclusion of international in the index firm’s fixed allocation funds.

Social Media, Technology and Investing

How to aggregate news like a pro (SmartBlog on Media)
Posted September 30, 2011

I wish I were Matt Drudge.  But I’m not.  This article provides concrete advice for those publisher looking to provide value by aggregating content — something Tradestreaming friend Meb Faber requested in his call for curated research offerings.

The Power of Facebook and the Launch of Personal Capital (AdvisorGo)
Posted Oct 5, 2011

Weekly AdvisorGo podcast (I’m a co-host) looks into how Facebook changes affect advisors using Facebook and the recent launch of a startup with big plans for online delivery of financial services.

Continue reading “Tradestreaming Cascade: The News You Need To Know (Week Of October 8, 2011)”

The Emerging Markets Blueprint for Investors

As the U.S. continues its internal struggles over the financial direction of the company, investors are focused overseas more and more.

Why?

That’s where the growth is.

Well, and it’s also getting easier to access emerging markets with new funds, strategies, research, etc.

I wrote a post over at Wealthfront about ways to access emerging markets beyond BRIC.

And it got me thinking — I could use a one page investment resource for emerging markets.  So here that is… Continue reading “The Emerging Markets Blueprint for Investors”

Building killer ETF portfolios (podcast)

tracking future stock prices with social media

On Tradestreaming Radio, we’re interviewing lots of innovative entrepreneurs, investors, and researchers all trying to make investors better at what they do.  Check out our archives.  Subscribe on iTunes.

In this episode of our podcast, we interview Craig Greene, CFA, founder of ETFreplay.  A banker/securities analyst-turned entrepreneur, Greene has built a cutting-edge tool to analyze exchange traded funds and create backtested profitable strategies for investors.

He’s part of a growing trend of seasoned financial professionals joining the entrepreneurial ranks and building really useful, valuable tools to assist the rest of us.

ETFreplay is part screener, part backtester, part strategy and portfolio builder. It takes the best from custom-made institutional-grade research products and expands upon them.

(I posted 3 Best Websites for ETFs a few weeks ago and left the new site out — to my chagrin.  I took a virtual lashing from many smart analysts, investors and financial bloggers.)

The credo behind ETFreplay is that investors still aren’t coming close to utilizing ETFs in their portfolios and that there is a lot of ground to be made up in terms of rules-based portfolio composition, data/information about ETFs, and tools to analyze them.

Listen to the full program

More resources