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. Technology is filling the void left behind by Wall Street layoffs (Tradestreaming): As Wall Street sheds some jobs, the robots are replacing them. It was just a few months ago that employment on Wall Street hit a post-crisis high. But now, the biggest banks are shedding jobs and in their place…software.

See also: Citi: Technology could cost 2m bank employees their jobs (WSJ)

2. Debt market opens to P2P loans (Tradestreaming): There’s the beginning of a serious debt market forming around p2p loans. Early securitizations are taking hold, slowly. It will be a long slog but the marketplace lending industry is maturing as an investable market.

3. DTCC, Digital Asset Holdings build blockchain for repurchase market (American Banker): The Depository Trust & Clearing Corp. and Digital Asset Holdings are targeting the repurchase agreement market as the latest use case for a blockchain solution. DTCC, a post-trade financial services company, plans to test a distributed ledger for managing repo transactions using software developed by Digital Asset.

See also: Bitcoin technology’s next big test: Trillion-dollar repo market (WSJ)

4. Banking regulator moves to create new framework to govern upstarts (CNBC): Now, in the face of rapidly evolving technology within an already heavily regulated business, the Treasury Department said it’s “considering various reforms” to existing policies, which could include establishing “a centralized office on innovation … to vet ideas before a bank or nonbank makes a formal request or launches an innovative product or service.”

5. Canaan Partners’ Dan Ciporin on investing in marketplace lending (Tradestreaming): Famed fintech investor, Dan Ciporin joins us on the Tradestreaming Podcast to talk about his investment thesis in marketplace lending and fintech and why the public markets don’t quite understand Lending Club. Worth a listen.

 

With Honest Dollar acquisition, Goldman Sachs moves into online retirement investing

Goldman Sachs buys Honest Dollar, retirement investing

Goldman Sachs sees gold in them hills…retirement hills, that is. The investment bank announced earlier this week that it was acquiring Honest Dollar, a startup that offers 401(k) retirement plans for entrepreneurs and small businesses. There are approximately 45 million Americans who do not have access to employer-sponsored retirement plans and Honest Dollar set out to address this market by providing an easy-to-register platform that is sensitive to costs carried by small businesses or individual proprietors.

A company-sponsored pension enables employers to offer workers a long-term savings and investment account that defers taxes on gains until an employee taps into it. Beyond the incentive of tax-advantaged growth, companies who offer 401(k) accounts frequently provide matching deposits in their employees’ accounts after employees make their own contributions. As more people transition to the gig economy and companies leverage an on-demand workforce, relatively few companies offer 401(k)s. Only about 14% of companies in the US provide retirement benefits to their employees, according to the U.S. Government Accountability Office. Without these benefits, many Americans are left without any vehicle of long-term retirement savings.

Honest Dollar offers small businesses and freelancers simple and affordable retirement plans. Fees are low (starting at $8 per employee per month) and investment portfolios kept simple (just 4 Vanguard exchange-traded funds). The Austin, Texas-based startup launched in earnest last summer, when founder, William Hurley examined the behavior of early users of his company’s website. He noticed a sizeable percentage of users were leaving the site without completing registrations. “It was when we were asking for the EIN (employer identification number) that they were dropping out,” he explained to Xconomy. “The majority of them were 1099 contractors.”

Founder Hurley, who has the appearance of a young Abraham Lincoln techie, has experience building creative, technology-enabled businesses. In 2010, Hurley founded Chaotic Moon Studies, a digital studio that creates cutting edge software for brands, and sold the business to Accenture in 2014. Most recently, the studio made waves with its biotech tattoos — wearable electronic components that both look cool and also monitor your vital statistics like body temperature and heart rate. It’s this level of clever, creative thinking that Hurley infused into HonestDollar to tackle a serious financial problem: how to simplify a product and process that’s made the financial companies behind them lots of money but suffers from lack of transparency and burdensome cost structure for small businesses.

“Honest Dollar has created a simple solution to a complex retirement savings problem,” Timothy J. O’Neill and Eric S. Lane, co-heads of investment management at Goldman, said in a statement. “Together, we have the potential to help millions of people achieve their investing goals.”

For its part, Goldman has been making its own moves in the online finance space. The investment bank is investing heavily in building out its core online financial services capabilities to cater to individuals. Late last year, GS bought GE Capital Bank’s online deposit platform, bringing in $16 billion of deposits, of which $8 billion was in online deposits. It’s also been poaching top management at marketplace lenders and credit card firms to develop its own online lender. Its acquisition of Honest Dollar appears to round out a portfolio of investments and in-house development to further service Main Street, not just Wall Street.

The sponsored-retirement space is seeing its fair share of development, as well. Roboadvisor Betterment recently introduced its own 401(k) plan business aimed at the same market that Honest Dollar is targeting. Blooom, which raised $4 million in October of 2015 lead by fintech-focused venture capital firm, QED Investors, has a slightly different value proposition in the 401(k) market. Instead of going through employers who offer 401(k)s, this Kansas City-based firm works with investors. People who hold a 401(k) account can leave it at its current institution and use blooom to optimize their investing strategy without a lot of jargon and charts.

5 trends we’re watching this week

weekly trends in fintech

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 weekly newsletter (published every Sunday).

1. What’s Goldman Sachs doing in online consumer lending? (Tradestreaming)
Tradestreaming Tearsheet: Watching fintech startups gain traction in lending and investing products, incumbent financial services giants like Goldman Sachs and Blackstone have decided to compete with the startups. Goldman Sachs has quietly been putting together a rather formidable offering in consumer lending. What’s the firm up to?

2. Financial Engines’ acquisition of The Mutual Fund Store a turning point in robo debate (InvestmentNews)
Tradestreaming Tearsheet: There’s ongoing discussion on whether online advisors can weather the client storm long term without real humans helping their clients. This deal is proof positive that online advice platforms may need human advisers to offer a full menu of financial planning services.

3. Bank of America working on own robo-advisor (Fortune)
Tradestreaming Tearsheet: Bank of America is joining the ever-increasing club of robo-advisors by building its own automated investment platform. Why partner with a robo-advisor like Betterment when you can just build one yourself and bring in billions a la Schwab?

4. Citi Creates Division Dedicated to Fintech (paymentweek)
Tradestreaming Tearsheet: Traditional banks are feeling pressured by all the new activity in lending/investing online (even if the startups are tiny relatively). New York banking giant Citi announced late last month that it would create a new division solely dedicated to financial technology.

5. The New Source of Innovation in Advisory Firms (ThinkAdvisor)
Tradestreaming Tearsheet: It’s getting harder and harder to grow an advisory firm. Here’s a hint: to succeed, it can’t just be the firm owner’s job.. Here are 7 steps to encourage employee engagement to get everyone in on the growth game. Growing an advisory business is definitely a team sport.

What’s Goldman Sachs doing in online consumer lending?

Goldman consumer banking

Goldman has ambitious plans to offer loans of a few thousand dollars to ordinary Americans and compete with Main Street banks and other lenders. Goldman Sachs has built its brand on handling the portfolios of the rich and powerful. For 146 years, the venerable bank has provided all kinds of financial services, including banking and investment management to thousands of clients– individuals and businesses — globally.

In June, Goldman Sachs communicated that it was further investing in its consumer lending business. Lending a few thousands dollars to a family to remodel a kitchen is a far way from underwriting top tech IPOs, but GS looks serious about investing in its consumer lending offering. Goldman can do this given the fact that it converted to being a consumer bank from an investment bank during the financial crisis — enabling it to take on deposits.

While its activities seem to be in the early planning stage, Goldman’s interest appears to center around providing small loans of a few thousand dollars to Main Street, pitting it competitively alongside consumer banks and marketplace lenders like Lending Club and Prosper. It doesn’t appear that the company intends to establish a marketplace around its lending product (like Lending Club), opting instead to lend off its own balance sheet. Further signaling its intentions to the market, GS hired Harit Talwar, Discover Financial’s former CMO, to head its consumer unit.

Then, in August, Goldman Sachs acquired GE Capital Bank’s online deposit platform. As part of the purchase, GS will take on $16 billion in deposits, made up of $8 billion in online-deposit accounts and $8 billion in brokered CDs. Dozens of employees were targeted with expertise in areas including marketing, credit and engineering, according to one of the people. Without the onus of maintaining local branches, the global bank is quickly putting the pieces together to be a serious competitor in online consumer banking.

Now, Goldman Sachs is trying to poach top management from its newly-found competitors in a market that’s quite competitive for talent. Lending Club’s recent IPO may still have senior leaders there locked up on selling shares and the recent performance of top firms like Prosper make for a competitive recruiting environment. “We have recruited talent from a wide array of industries to build a team with diverse experiences,”Andrew Williams, spokesman for Goldman Sachs said in a statement. According to Bloomberg Businessweek, GS is contacting senior level players at firms in New York and San Francisco and it appears to be having some success: according to employees’ LinkedIn profiles,individuals have joined Goldman Sach’s online lending group from  Citigroup Inc., Barclays Plc, American Express Co. and Discover Financial Services.

Goldman Sachs is a technology firm

For years, GS has been trying to convince the public that at its heart, it’s a technology company. Numerous managers have emphasized that Goldman Sachs has more engineers than Facebook — from CEO, Lloyd Blankfein all the way down the ranks. From internally developed products and services to investing in rising fintech stars, GS is active. It’s one of the banking firms behind Symphony, a communications app that just raised $100M and is taking on secure messaging in financial markets and beyond — taking aim at Bloomberg’s sweet spot.

 

When the anti-Wall Street rant morphs into just another sales pitch

I know there’s a movement spearheaded by indexers, Bogleheads, Efficient Market Hypothesists, Random Walkers and just plain haters of vampire squid to hate everything Wall Street.  This is not a post defending the barbarians at the gate or even the monkeys in charge of the business.  Rather, I’m riffing on a more recent phenomenon I’m experiencing — that of the mainstream contrarian.

Just another sales pitch

Listen, with so much money at stake, Wall Street has brought opprobrium on itself with outsized returns, lavish lifestyles and bigger than life personalities.  Cramming poor investment schemes and products down clients who should and shouldn’t know better has been a staple of the business for decades.

So, of course, it comes as no surprise that a lot of people have been looking for alternatives.  Better ways of investing, saving and planning for their financial futures.  And it comes as no surprise that a whole industry of products and services arose to supply these investors.  From slick investment newsletters, communities of pundits punters like Seeking Alpha, talking heads on CNBC and even the ETF industry — all have merely taken the old Wall Street model and merely updated it.

Enter the mainstream contrarian.

So, instead of crappy structured products being sold hard by brokers, investors are left with hundreds of arcane ETFs without any real idea what to do with them.  Buy and hold ’em?  Well, that doesn’t really work for investors on the cusp — or in — retirement who need to actively generate income.  Asset allocation?  Well, who really knows what the right mix of risk and return is for anyone?  401(k)s?  Well, those are being manipulated and forcibly rebalanced in a way that’s good for the mutual fund companies, bad for investors.

Evoluton, not revolution

We’ve taken the honorable pursuit of looking for better alternatives to Wall Street yet have merely replaced Wall Street with another manifestation of slick sales people taking advantage of unsuspecting investors.  Investors eat up the anti-Wall Street pitch.  That there is a better way.

And there is.  But it can’t be sold; It has to be bought.  It requires being intellectually honest and not just compliantly honest.  It requires creating technologies, services, and platforms that say:

hey, the old way typically didn’t work.  We have just one possible solution.  But to be honest — we’re dealing with uncertainty. Nobody really knows the right way to do this.  We believe ours is a good product/service but ultimately, we’re all in this together, trying to plan for a future which is ultimately unknowable.

I guess these aren’t really solutions as much as they are gamemplans.  This way, this evolution (not, revolution) in financial services truly departs the old way.  Otherwise, it’s just the Wall Street wolf dressed up in anti-wolf clothing.