Honestly, I struggle with blockchain (I’m not too proud to admit it). On the one hand, I honestly believe that it’s the most transformative thing to come to finance since Netscape launched its first browser in 1994. On the other hand, something this massive will take years before its true impact is felt. Of course, competitive dynamics and regulatory regimes will play a big role in how and how fast blockchain is adopted. So, let’s just say I’m cautiously optimistic on blockchain’s future.
Today’s guest is Alex Tapscott who runs Northwest Passage Ventures which works to build blockchain companies with capital and other resources.
Alex joins us this week on the podcast to discuss blockchain and its potential impact on the firm, the financial services industry and capital markets in general.
Below are lightly edited and condensed highlights from the conversation.
Why do you think blockchain is going to be so transformational?
After a few years of research, we’re convinced that blockchain technology represents nothing short of the next generation of the Internet. And as a result, it’s going to have a profound impact on financial services, as well as on business and society. When you use the internet today to move, send, or share information, you’re not sending an original — you’re sending a copy while retaining the original. That’s one of the advantages of the internet: we have a printing press of information. But the problem is, when it comes to things of value, like money, stocks, bonds, sending a copy is a really bad idea. It’s OK to have a printing press of information, but it’s not good when it comes to assets of value. The blockchain is the internet of value.
Do you think blockchain is a threat to incumbent players in the financial services industry?
It’s not a threat — it’s a technology that’s going to change the industry. It really depends on how financial services firms respond to that change. Those who do it right will succeed. Those who don’t will not. Financial services professionals shouldn’t only think how this technology could optimize their businesses, but how blockchain can help them do something previously thought unattainable.
What about the role of the stock exchange in the blockchain world?
It’s my opinion that most financial assets will be issued on this new native digital format. The role of the brokerage goes down because it’s easier to connect buyers and sellers peer to peer. But maybe the role of the issuer actually becomes more important. Someone is going to have to reissue hundreds of trillions of dollars of notional value of securities on the blockchain. It’s almost like the origination function of financial services becomes more important over time.
When Barbara Apple Sullivan founded branding and communications agency Sullivan twenty-five years ago, agencies typically flew with their financial industry clients at an altitude of 30,000 feet. They focused on building and communicating their clients’ brands, but when it came time to supporting products themselves, that role was left to in-house professionals. The result was that financial services and products were somehow disconnected from the mothership and rarely infused with strong brand and values.
“When I was head of marketing at Chemical Bank, there were literally 6 different brochures for the 6 different types of checking accounts we offered,” explains Sullivan. “Each one looked like it was produced by a different company. No customer or prospect is going to read through 6 different brochures.”
Indeed, when New York-based Sullivan, the firm, began working with clients like Amex, JP Morgan, and TD Ameritrade, it focused on bringing its cruising altitude down to the product level to help make its clients’ cash registers ring. Doing that required breaking down walls. Financial institutions, like Merrill Lynch, for example, have multiple constituencies they have to market to, including internal sales staff (like brokers), outside customers (like brokerage clients) and institutional partners (like clearing).
Sullivan believes financial services is moving away from dealing with the members of the ecosystem as separate properties to manage. Distinctions and barriers between the business lines are melting away as firms work instead on their core messages that resonate throughout their businesses.
“We never though of ourselves as B2B or B2C,” says Sullivan. “We think about the brands for each audience. This distinction between channels is something we believe the financial industry would be better off leaving behind.”
The resulting model is that today’s agencies that work in financial services take a much more customer centric approach. It forces firms to dig deeper to really understand who their end clients are and how best to serve them. For its part, as an agency, Sullivan has honed its chops through its work around customer experience. It uses workshops with clients like Pershing to really understand buyer personas and map user journeys.
It’s precisely here — where individual clients and large financial institutions meet — where new tools can enable increased engagement and sales. But Sullivan cautions that new tools, including financial technology as well as marketing technology, aren’t always a panacea. Instead of using tech to solve all challenges, success comes through understanding when technology is appropriate and when it isn’t by mapping the user journey. Through this process, financial services companies can build seamless experiences across the growing number of communication channels modern organizations must manage.
“We publish a study of investor trust every year and it turns out that people really want a human touch,” says Sullivan. “Even as we get more immersed in new technology, people still want to have relationships.”
As technology has proliferated since Sullivan opened shop 25 years ago, it’s shifted decision-making responsibility more on to the shoulders of individual clients and prospects. Customers have to do a lot of homework before they even reach out to a financial institution. A longer sales funnel means the deliverables of an agency are changing, too. Whereas agencies used to create marketing materials further down the sales funnel, financial services firms now require educational and editorial content. In 2013, Sullivan created Imprint, the firm’s own content studio, to service the evolving needs of its clients.
Over time, the agency is increasingly working with fintechs alongside the firm’s incumbent clients. But founder Sullivan doesn’t really see the startups displacing large financial institutions. For her, it’s all about options: providing the tools and experiences people want when they’re ready to have them. Digital joins other channels as another option for customers.
“I don’t think the incumbents are thinking about ‘either-or’ — they’re thinking about ‘and’,” explains Sullivan. “They’re saying digital is part of our offering but we’re not undertaking a sea change to make technology all we offer. Financial institutions want to provide options. They don’t assume tech will always be a better solution.”
This episode is another in an ongoing series on this show where we talk to some of the leading investors in the financial technology space.
This week’s guest provides an interesting perspective we haven’t really heard from yet — Kevin Bhatt is a partner at Long Ridge Equity Partners. He and his firm are growth stage investors — typically coming in a bit later in a company’s growth cycle than some of our other guests on the Tradestreaming Podcast: guys like Phin Upham of Thiel Capital, Caribou Honig of QED, Charles Moldow of Foundation Capita and Canaan’s Dan Ciporin .
Those guys are frequently the first institutional capital into a young company while Kevin’s firm comes in after a company has a product with traction in the market and is generating millions of dollars of revenue.
Below are lightly edited and condensed highlights from the conversation.
The fintech investment thesis
“The financial services sector is uniquely positioned to take advantage of technology. The incumbent players perpetually need to adopt new technologies to remain competitive and relevant to their customers. We’ve seen innovative high-growth companies with technology-enabled solutions command really attractive valuations either from public markets or trade-buyers on the back end.”
Why B2B fintech is more attractive than B2C
“One consideration with investing in financial services is its cyclicality. We’ve been heavily focused on B2B enterprise companies over the past several years and think that’s a very attractive place to be. Based on where we are within the economic cycle, you can tailor a portfolio and invest accordingly. We have a strong belief that as companies service and sell to others in the sector, that’s a sustainable business model that retains value through economic cycles.”
Insurance is ripe with investment opportunities
“Insurance is ripe for continued innovation and investment. As a sector, insurance has been a little slower to adopt some of the game changing technologies and business models that have shifted the discussion in other segments.
“There are a whole bunch of things we’re looking at that are focused on how the interaction between carriers and brokers works, how do you think about more efficient information transfer between carriers and some of the service providers that are a critical part of the ecosystem. We think it’s a space that over the next few years will see a lot of innovation.”
How good investors help fintech firms
“We do take board seats in all our companies. We’re not operators and aren’t involved in day-to-day decisions. But we are involved in strategic decisions and, more importantly, in the process of professionalization that almost all of growth-stage fintech companies go through.
“Very often, when entrepreneurs decide to partner with Long Ridge, they’re looking for a perspective on how to take a company and professionalize it: to take a company that’s doing, say, $10 million in revenue, and grow it to $50 million and to make it the type of business that has the internal infrastructure to be acquired by a leading player in the space or IPO.”
Even if an incumbent financial institution decides to build versus buy on a new project, they’re not always developing their in-house technologies in-house. Banks, asset managers, and brokerages typically use a unique mix of their own engineering talent with both on-shore and off-shore consultants.
If there isn’t a turnkey option available, DataArt is one of those consulting businesses both large and small financial firms turn to to help develop bespoke technology solutions. The firm employs over 2000 full time engineers and typically works on around 100 projects at any given time. Its financial service business is its largest practice out of the 5 industries DataArt serves. Within finserv, the consulting firm is most active in capital markets, trading, wealth management, payments, underbanked banking solutions, and private equity.
Alexei Miller heads up the firm’s financial services practice and shares what he feels are the three most exciting trends his clients are facing in the market today:
pure-play disruption: Silicon Valley has its sights set on disrupting financial services and is funding a variety of stand-alone companies to compete with traditional financial firms. While none of these startups are really big enough to threaten the incumbents, DataArt’s clients are definitely feeling the pressure to innovate from some of the pure-plays. But for the most part, according to Miller, this isn’t the compelling part of the disruption underway in financial services. “It’s great that there’s new interest and additional resources in the market,” Miller offered. “But there’s way too much hype.”
optimization: It’s here that Miller gets incrementally more excited. There’s lots of activity centered around applying existing or incremental versions of technologies to optimize current processes within financial services. Miller cites blockchain and big data as two prime examples of newer technologies deployed to optimize relatively mundane processes. Despite all the hype surrounding fintech, the DataArt executive thinks this is a very promising source of innovation.
incumbent innovation: Miller lights up when he talks about the technology activities taking place at large financial institutions. He’s impressed by the quality and pace of new technologies being developed and deployed by these firms. Some of these firms are pooling resources together to spinoff new tools.
One such example Miller is impressed by is Clarient Global, a joint venture between the DTCC and Barclays, BNY Mellon, Credit Suisse, Goldman Sachs, JPMorgan Chase and State Street. Clarient has developed a data solution that should help financial institutions get their hands around and standardize the various types of documents required for compliance during the client onboarding process. It’s kind of like a repository of KYC information that can be collected, verified, and stored by a person’s financial service provider. “Clarient talks about creating a data management utility for financial services — that’s really powerful. Who else knows what the industry needs more than its own players?” Miller remarked.
DataArt is currently working on a project in the trading space which involves social media to negotiate transactions between banks and brokers. Miller is the first to admit: the intention isn’t necessarily to disrupt trading and processing flows but rather to develop a really innovative UI for the transaction process. Another current project at his firm includes a technology solution for AML that’s being developed outside of banks using high performing data analysis from Twitter streams to discover pattern recognition. If it proves successful in identifying nefarious activity, the plans are to integrate into the client’s systems.
The firm recently hired financial industry veteran, Cliff Moyce, as the global head of its financial practice. Moyce has deep experience with digital transformation from his previous roles at IFFE (London International Financial Futures and Options Exchange), Markit, Lloyds of London, Orix Investment & Development Capital, and Credit Market Analysis (CMA). He was also a DataArt client and advisor before taking on his current mandate. On Moyce’s hiring, Miller explained, “Hiring [him] demonstrates that to tackle complex projects, you need to build the strongest team possible. You can’t solve everything with technology.”
DataArt’s domestic competitors include GFT and Sapient and while offshore, the company tends to bump up against firms like TCS and Infosys. When asked about how DataArt differentiates versus some of its competitors, Alexei Miller responded, “Competition is an exercise in picking battles. Marketing is a tough game, with a lot of empty promises. We won a large transformation deal last year and we asked our client over drinks why we won out against a major consulting firm. The executive said the decision was simple: ‘Your competitor’s final presentation was all about big data and the cool, sexy technology they’d build us to solve our problem. You [DataArt] talked about your understanding of the problem.’ Now, you can’t do that for every client but experience and expertise goes a long way.”
Millennials in focus: Biggest generation, how to speak ‘Millennial’
What Facebook knows about banking and millennials (The Financial Brand)
In a recent study, the social network worked with FIs to uncover more about what millennials want/need from their financial services providers.
Line is The Wall Street Journal’s fastest-growing platform (Digiday)
Carla Zanoni, executive emerging media editor at The Wall Street Journal, claims messaging app, Line, has been the Journal’s fastest-growing social channel, reaching over 2 million followers since it launched on the Japanese app 15 months ago. “I’m not seeing that kind of growth anywhere else, period,” she told Digiday.
How credit unions can win the millennial market (The Financial Brand)
No, this isn’t just another study about millennials. This is about a report – produced jointly by the Center for Financial Services Innovation (CFSI) and Cornerstone Advisors – entitled Competing on Financial Health: How Credit Unions Can Win the Gen Y Market.
The world of fintech startups for millennials (Wealth Management)
According to Goldman Sachs, while Millennials are the largest generation (almost 100m strong), they are have less income and higher debt levels. Here’s an overview of how financial services firms are lining up to service this generation.
Bill Sullivan is the Global Head of Market Intelligence at Capgemini
What role does market intelligence play in Capgemini’s business?
I see Market Intelligence addressing two primary roles in Capgemini. The first is more externally focused on Brand Enhancement. The second is more internally focused on Growth Enablement.
For Brand Enhancement, my team is focused on developing thought leadership to help our clients maneuver through this incredibly challenging environment. I believe we are uniquely positioned as a truly global organization covering the full gamut of business consulting, technology, and business services. Our major FS thought leadership (e.g., World Wealth Report, World Retail Banking Report, World Payments, Report, and World Insurance Report) is all developed by my team (with strong collaboration with our global network).
The real differentiated value comes from the power of that global expert network, input from our clients, and the primary research which feeds into it. For each report, our global network of domain experts (typically across 15 to 20 countries) run up to 200 CxO interviews (per Report) to discuss burning platforms facing our clients (and prospects) and to dive into that year’s specific topic. We also run some of the most extensive, broad reaching Voice of the Customer surveys in the industry, annually covering over 35,000 financial services customers in 30 countries to directly capture their experiences and expectations of financial institutions. Lastly, we are able to tap into our nearly 25k professionals who work with our FS clients by holding regular workshops with our global domain experts (both during the scoping/hypothesis generation stage and key findings development). We typically have a dozen countries represented by their top domain experts providing personal expertise, as well as leading practices they are seeing with our clients.
Also relatively unique to Capgemini is that our Global Sales and Global Marketing teams sit under the same leader to enable our ~2 billion Euro FS business. This allows us to ensure all of our marketing and thought leadership activities are closely aligned with our core business objectives and client agendas. While we never push our offerings or solutions in our thought leadership, the CxO interviews we conduct and the report findings briefings we share with our clients are all invaluable to building our client relationships and to opening new doors. This helps position Capgemini’s brand as a firm that fully understands the industry (both the business and technology side), that we are at the cutting edge of where it is going, and we know how to help our clients through their transformation journey.
Lastly, the role that social media and new channels provide is also exciting (and complicated). We no longer just release a report and send out a press release. All of our content has to be customized for each channel – tier 1/trade media, social media (Twitter, LinkedIn, Facebook Slideshare, Youtube), video, infographics, microsites, an app for our thought leadership, by-line articles, and the list goes on.
As for Growth Enablement, my team is also responsible for developing all of our external intelligence to support our financial services business growth with actionable insights to guide strategic vision, thinking, and planning. This covers the full spectrum of tracking key trends in the industry, what’s happening with our competition, and key insights into our top (and prospect) accounts, and tracking the growth of the professional services market.
You’ve been recognized by various sources as an influencer within the financial services sphere. Why do you think that is and how did you build your personal brand?
I have to admit, it has been a humbling experience and an incredible honor to be recognized by numerous lists as a key influencer in the financial services space.
To be completely candid, I believe much of the credit goes to a combination of
Capgemini and our incredible team of domain experts which I learn from on a daily basis
a phenomenal network of fintech influencers who graciously share their insights on the industry via social media
some real commitment and dedication to taking a proactive effort to take social approach in monitoring the space and to curating and sharing content and insights (both our own great Capgemini insights, but even more so the great content from my own influencer list).
On the first point, Capgemini is leading the industry with our Group-sponsored Expert Connect program which recognizes the importance of social and encourages its leaders to get involved and actively engaged in social networks. This is how I was first encouraged to set up my Twitter account three years ago.
As for my own personal influencers, I published a post last month acknowledging my “go-to” list of 30 fintech influencers. This list (and my expanded go-to list of about 250 Twitter accounts) provide more insights (and real-time) around what is happening in the fintech space than the 10 best news sources combined. Lastly, it really has taken a lot of commitment and consistency to curate and share content. The majority of the content shared is 3rd party, curated content which I come across in my research or from my Influencer list. That being said, it has also given me a great mechanism and channel to promote the great insights from our own thought leadership. The success and the acknowledgement received is from a combination of the great content curation, daily discussions, as well as my own personal (and Capgemini’s) insights. I had a great discussion with Jay Palter (check it out here) last year walking through my approach.
You recently released your US Wealth Report. What were some of the major trends/takeaways for businesses servicing this demographic?
While I value all of the thought leadership my team develops, our wealth reports really are closest to my heart. This past year was our 19th annual edition of the World Wealth Report (13th I’ve been part of). Our U.S. Wealth Report is relatively new and only in its second year. This past year’s USWR found the U.S. HNWI (over $1m in investable financial assets) population and wealth grew robustly to break existing record levels with growth concentrated in Texas and the West Coast. While Asia-Pacific passed North America to host the largest number of HNWIs, the U.S. is still the largest country of HNWIs with over $1 trillion in HNWI wealth added in 2014. In fact, the five largest HNWI population U.S. cities (New York, Los Angeles, Chicago, Washington DC, and San Francisco) are each larger than India (the 11th largest HNWI country population worldwide). You can also check out my summary of this year’s findings here.
We also found younger HNWIs are disrupting the U.S. wealth industry by expressing non-traditional preferences and behaviors especially for digital services, including a very strong interest in automated advisory services. Globally, we found nearly 50% of HNWIs would consider leveraging a roboadvisor. However, when you look at the under 30s, that rose to almost 90%. While still relatively new, automated advisory services (or roboadvisors) are growing at a rapid pace with significant market potential. While we don’t expect robos to replace wealth managers, we do believe firms will need to complement their existing advisory base with these services to prepare for the next wave of digital innovation. We actually just held an incredible webinar with LinkedIn discussing this theme with some industry leaders at Betterment, Motif Investing, OpenFolio, and Wells Fargo. You can check out my recap and listen here.
How has the finserv market changed over the past 7 years in your role? Where do you think it’s headed?
That’s a great question! If you look back at 2009, we were still in the wake of the 2007/2008 financial crisis. Firms were still in cost cutting mode, were completely inundated with regulatory burden, and desperately looking to earn back the trust and confidence of their customers. What little “discretionary spend” they had was largely focused on putting some bandaids on their front office to address siloed digital channels. Bank executives acknowledged the need to fix their outdated legacy systems and to find ways to be more agile. However, investments always seemed to focus on short-term fires than long-term planning. We would often hear “we know we have to address this or that, but there is still plenty of time” or “it is too complicated” or “it would cost too much”.
If we look at banks today, I don’t think any executive will tell you they are not burdened by regulations. However, it does seem to be dropping from the top priority. We are finding that despite significant investments in improving the client experience, overall experience levels are on the decline (especially for Gen Y). Banking customers, old and young, are having their expectations set by the Googles, Amazons, and Apples of the world. I think Chris Skinner summed it up perfectly on a panel I was moderating last year when he equated historical banking efforts to “putting lipstick on a pig”. It doesn’t matter how many bells and whistles you put on your channels, if the back-office isn’t agile enough to keep up, those investments are not going to deliver the full value.
We have started to see non-traditional players start to enter the space and play very well in specific pieces of the value chain. They have the ability to be more agile, simpler, and more transparent. Whether it is new fintechs, or technology firms like Google, banks are quickly realizing their legacy systems are not capable of keeping up. This is going to be the biggest challenge moving forward. What strategy are banks going to take in terms of building internally, partnering with fintech, or acquiring fintech. I think there is general acknowledgment that there is very little time left to wait and see how it plays out. It’s an exciting time to be in Financial Services and I think we have only seen the tip of the iceberg of how the industry is going to evolve.
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LendingClub models misfire as loan write-offs top forecasts (Bloomberg): A chart on one of the slides shows that write-off rates for a portion of five-year LendingClub loans were roughly 7 percent to 8 percent, compared with a forecast range of around 4 percent to 6 percent
Zenefits CEO ousted, compliance saga takes a turn: what’s next for the company? (Insurance Thought Leadership): The CEO is out at Zenefits (one of the hottest fintech/insurtech/any tech startups) after it was found that 83% of the insurance policies the company sold were done by unlicensed employees. Oops.
BBVA shuts in-house venture arm, pours $250m into new fintech VC Propel Venture Partners (TechCrunch): The bank is shutting down its in-house venture arm, BBVA Ventures; and it is taking BBVA Ventures’ portfolio, the $100 million fund it had allocated to the group, and another $150 million, and putting all of it into a new VC called Propel Venture Partners.
How financial media firms are monetizing as readership changes (Tradestreaming)
Being an old-school financial media company is tough in this market but a handful of firms have transitioned into a winning model. Here’s how…
How credit unions can win the millennial market (The Financial Brand): No, this isn’t just another study about millennials. This is about a report – produced jointly by the Center for Financial Services Innovation (CFSI) and Cornerstone Advisors – entitled Competing on Financial Health: How Credit Unions Can Win the Gen Y Market.
We have entered a period of what Google’s chief economist, Hal Varian, likes to call “combinatorial innovation”; a term for when many factors combine to drive the creation of new inventions. Today, the key factors sparking innovation are transparency of information, speed and connectivity, open source software and APIs which enable the development of layered ecosystems of applications. One such innovation that was created by the coming together of these factors is the blockchain.
What is blockchain and how can it benefit why should finance professionals care?
The blockchain serves as an append-only data store of transactions that has two components: a replicated ledger and a distributed database. The database is stored and synchronized by all parties (referred to as nodes) to a shared ledger within the blockchain network. Bitcoin, a digital currency that uses blockchain technology, is used to track money transactions but it can also track the exchange of other assets including financial securities or data related to an individual’s identity such as IDs or proofs of address, for example.
Blockchain is far from being a passing fad and finance professionals need to become familiar with the concept because, in time, it is likely to fundamentally overhaul the way financial transactions are made. Indeed, once it begins to be adopted more widely, it will revolutionize the structure of the financial services industry as the technology eliminates the need for trusted intermediaries such as clearing houses. Financial institutions that are not exploring the opportunities that blockchain creates will lag behind in terms of knowledge and strategic options, particularly in relation to efficiency and cost saving opportunities. Further, front office systems automation, as well as the simplification and standardization of back office systems, are areas that are likely to take place as a result of blockchain technology implementation. Financial institutions, therefore, have duty to look to innovative technology solutions the adoption of which may be more imminent than is currently understood.
Where do you see blockchain making an impact within finance? When?
GreySpark is currently exploring seven capital markets’ use cases for the blockchain:
Payments and remittance
know-your-client or anti-money laundering
digitized financial instruments
clearing and settlement
smart contracts applications for servicing of financial instruments
The most pertinent use cases, in GreySpark’s opinion, are in clearing and settlement, reconciliation and the use of smart contracts.
Smart contracts are event-driven computer programs that allow the automatic verification of the transactional governance (terms and conditions) between two counterparties, eliminating the need for a central arbitrator. Smart contracts can be added to blockchain-based transactions to deal with the legal aspects of a commercial agreement.
The use of blockchain technology will mean that the execution, clearing and settlement of a trade can occur quasi-instantly, lowering post-trade latency and reducing counterparty exposures. Blockchain transactions are quicker, less expensive and involve fewer intermediaries such as brokers and central securities depositary that the traditional approach.
Blockchain technology can also be used to simplify the reconciliation of trades as this approach does not require the comparison and rectification of ledgers held by different institutions. In the case of a private blockchain, where participants gain permissioned access to the database, institutions are able to meet their reconciliatory obligations without actually having to reconcile with other institutions, thanks to the replicated and synchronized nature of the blockchain ledger.
It will, however, take some time for the scale of blockchain applications to reach a critical size. As it is at an early stage of development, the excitement it is generating in the industry is a normal thing, but the first step into this new world, such as investing in blockchain start-ups for example, must be taken with great care: lucidity and a comprehension of the implications will be a key success factor in this area.
Can you give an example of a block chain initiative that you’re currently working on that demonstrates where this market is headed?
While the applications for Distributed Ledger Technologies for each use case are equally valid, some of the use cases have already proven to be stronger than others. These offerings are capable of either disrupting or replacing existing trade-lifecycle technology systems and processes in banks and financial markets infrastructure providers such as clearinghouses and exchanges.
GreySpark believes a starting point for the industry should be to focus on developing ways of employing blockchain technology to improve the process of transferring securities by enabling market participants to connect on a peer-to-peer (P2P) basis without the intermediation of brokers. This would remove friction and allow the execution, clearing and settlement to occur at a trade-entry level, quasi-instantaneously.
When trying to turn the transfer of securities into a real P2P blockchain-based system, the challenge lies in taking the whole trade lifecycle into consideration to ensure the process is seamless. For instance, from the technology perspective, this includes being able to digitize securities and map share registers on the blockchain. Another challenge is to ensure the blockchain technology is scalable enough to deal with tomorrow’s transaction volumes. To address this, companies such as SETL are developing solutions to extend bandwidths and increase block capacities.
What does 2016 have in store for blockchain?
In 2016, people will begin to focus on, not only defining proof of concepts, but on the development of operational and productive applications. A carefully investigated proof of concept will enable firms to identify vendors that are right contenders for executing their blockchain program.
Also, increasing numbers of financial institutions will reach out to consultancies like GreySpark to help them to adapt to innovative technologies, assess emergent players and understand the risks associated with the new technology. Clients will be equipped with strategic plans to help them both understand and gain competitive advantage of the evolving technology environment. To address emerging trends and face innovation challenges in the Capital Markets industry, major financial institutions need help in deciding whether they should build in-house systems, collaborate with existing key players or invest in or directly acquire them. Ignoring the new concepts and innovations is an option financial institutions can no longer afford.
William Benattar is a member of GreySpark’s fintech advisory team. By maintaining a comprehensive view of the fintech arena, William assists GreySpark in helping start-up firms enter the marketplace; advises private equity houses on financial technology due diligence; and advises buyside and sellside clients on the development of strategic and innovative projects . Prior to joining GreySpark, William worked for Kantox in the business and product development team, focusing on strategy developments of FX systems. While being student ambassador for Google, William has spearheaded initiatives aimed at helping SMEs develop and implement their digital strategies. William is an existing mentor at the London-based accelerator program — Startupbootcamp Fintech — advising start-ups on product development, roadmapping and fundraising avenues.
GreySpark is a business and technology consultancy that specialises in mission-critical areas of the Financial Markets industry with offices in London, New York, Hong Kong, Sydney and Edinburgh. GreySpark has expertise in Electronic Trading, Risk and Trade Management, Operations and Data Management and provides Business and Financial Technology Consulting services to buyside and sellside businesses as well as exchanges, market data providers, Independent Software Vendors and technology makers.
If you listen to NPR, you’ll sometimes hear a recording artist, someone like Lyle Lovett, referred to as “an artist’s artist”. Meaning, an artist that other people of the same craft can appreciate and love.
Our guest on this episode of the Tradestreaming Podcast is an analyst’s analyst. For the past 25 years, Ron Shevlin’s worked with the leading financial services, consumer products, retail, and manufacturing firms in the world. Ron’s the Director of Research at Cornerstone Advisors, a consulting firm to the banking and credit union industries, where he specializes in retail banking issues including sales and marketing technologies, customer and marketing analytics, social media, customer experience and consumer behavior. He was previously at Aite and Forrester covering the financial services space.
Most importantly for us, he’s the author of weekly articles he calls Snarketing published on the Financial Brand website that combine his keen eye for trends and opportunities for growth in the financial services space with his great sense of humor. It’s a must read for me and I hope it will become part of your reading list, too.
Listen to the FULL episode
In this episode, we:
explore whether financial services is truly becoming uberized
dive deeper into Ron’s vision for the future of financial services which he describes as the industry’s migration from product providers to a platform or ecosystem of financial services much like Amazon’s platform for ecommerce
[dropcap size=big]W[/dropcap]hile the stock market opened 2016 with a loud plop, the hottest companies continue to be technology startups. Atop this pile sits Uber. Uber has become synonymous in tech circles for how easy buying things really can be and how enjoyable the experience can be, as well. If the taxi industry can be Uber-ized, the thinking goes, so can many large industries that have similarly been slow to change.
This conversation hit finance circles when the WSJ ran a story about how slow the finance industry has traditionally been in adopting best practices that have influenced the buying cycle in other industries. According to the article’s author, Zachary Karabell, head of global strategy at Envestnet, finance is indeed now undergoing its own Uber process. Not overnight or over weeks and months, but over the next few years, major parts of finance will undergo technology-driven disruption. And this change is being driven by fintech startups, like Wealthfront, EquityZen, Loyal3, and ZestFinance.
Whatever the risks, however, the Uberization of finance is no fad or stunt. Many of today’s startups may implode, as most do, but the spread and democratization of capital—and the proliferation and analysis of data—are irresistible trends. They will offer new opportunities to millions of people, entrepreneurs and investors alike. They also will unlock a vast amount of money, energy and talent, and to that we simply should say, bring it on.
Not everyone buys this line of thinking. Cornerstone Advisors’ Ron Shevlin explains that there isn’t really a parallel to the financial industry because this whole discussion is based on a misunderstanding of what Uber has really done. Uber pursued a consolidation strategy in a highly fragmented industry. The WSJ cites marketplace lending and crowdfunding as examples of uberization but rather than consolidate, these new forms of finance add to the fragmentation of the finance industry.
An Uber exec weighs in
Upstart, an online lender targeting millennial borrowers, is typically used as an example of the disruptive change that’s happening in finance. In order to lend to young adults, Upstart had to turn traditional lending models on their heads, as many of these FICO-like credit scores rely on historical data. As young people find their places in the gig economy, it’s not easy for them to get loans. Upstart’s forward-looking models are trying to change that. Young borrowers don’t have very much credit history, so Upstart uses other inputs to determine creditworthiness for its customers.
Osborn has a quick 3 point questionnaire when testing for Uberization:
Is this an industry ripe for disruption?
Who’s the disruptor?
How will it be disrupted?
Finance fits this model, and to Osborn, much of the change is going to happen from the bottom up — with changes in consumer usage patterns brought about by top UI/UX in new finance apps and platforms. “When you think of what drives user experiences, in Upstart’s case, it’s about having better holistic models, better rates, different options — all with the view that we’re helping our users out of a jam,” Osborn explained.
In this vein, next generation finance tools should resonate with users and generate the same reactions as other apps residing on their smart phones. Why shouldn’t users have the same visceral responses to their banking apps that they do to their transportation apps?
“When your target audience are millennials, they live and breathe online and they do it in a community-driven way. Financial service providers need to find ways to get their users financially fit and package it into a shareable experience and celebrated event — the same way getting physically fit is. When someone loses a lot of weight and gets in shape, they take a before-and-after picture and post it socially. I can imagine the same thing happening before and after a difficult credit card situation.”
Growth hacking new accounts online and offline
Perhaps ironically, many of today’s online financial services startups rely on offline methods to acquire new customers. It’s especially acute when it comes to landing new borrowers, as two of the largest online consumer lenders, Lending Club and Prosper, each send tens of millions of offers via snail mail every month. Upstart’s Osborn embraces both online and offline acquisition marketing.
“When we think about where we’re going to find our next customers, we’re definitely looking at the offline opportunity. We’ve been positively surprised in volume and profitability with offline channels. When you get an email offer to refinance your debt, it’s pretty easy to ignore it. But when you get your credit card statement in the mail and a couple of days later, receive an offer to help pay it off, the offer has relevance and timeliness when it comes via direct mail.”
Same goes for social media marketing. Osborn claims that a Facebook response is either immediate or it disappears into the ether. That’s not to say Facebook isn’t fertile ground to message new prospects — it just needs to work quickly. Same goes for Google and search engine marketing. “The economics on Google work but we’ve been most positively surprised with direct mail,” Osborn reasoned.
If finance is being Uberized, where’s the pressure coming from?
It’s debatable whether the disruptive change everyone’s talking about is supply-side or demand-side driven. Osborn thinks it’s actually a confluence of factors that’s enabling the next generation of financial services, technologies, and apps racing to get a foothold with today’s customers.
Consumer-led: The changes happening in the industry right now are implicitly lead by the consumer. People are demanding change. When every experience looks like an Uber experience, you get what you want and begin to expect more. You don’t want to have to go through all the hoops and paperwork associated with traditional financial services.
Technology-driven: A lot of the change that’s happening in online lending is coming from changes in capabilities. Now, at Upstart, the firm has the power to make credit decisions using so many different signals — like what grades a prospective borrower got in college. These borrowers were previously shut out of the market if they were judged solely on historical credit models.
Osborn believes it takes a new type of company and leadership to be able to compete today — both require an understanding of big data and large systems. “When I first met with Dave and the rest of the leadership team, founded by Googlers, I saw they understood the power of taking in all that data and making wise and powerful decisions, like extending credit, with it. There’s a reason we have such good ratings on CreditKarma and high NPS scores with our customers.”
Whether financial services are actually being Uber-ized misses what’s really going on. Led by technology advances and driven by customer demand, startups and incumbent institutions are changing the way users interact with money.