Not a great year for incumbent share prices
2016 hasn’t been kind to big bank share prices, which have plummeted by nearly half a trillion dollars since January. A number of issues are at play here - the Chinese economy, U.S. interest rates, oil prices, and yes, Brexit (more on that below). The concern is that these losses could trigger a cycle of bank executive inaction and bank employees selling their stock.
Yes, we still need to talk about Brexit
Britain’s decision to leave the EU is still reverberating through the finance industry. The long-term impact of the Leave vote on UK finance/fintech is largely uncertain, though this has not stopped finance experts and reporters from adopting the dystopian lexicon of a young adult novel to describe Britain’s impending financial doom.
Whatever the gloomy short-term effects of the referendum, long-term the future doesn’t look so bleak: the $30b mega-merger between the London Stock Exchange and Deutsche Börse is still going ahead, and the two companies still expect to deliver cost savings and revenue synergies worth a combined $780m a year after five years.
New and improved
Thanks to the explosion of fintech, incumbents are no longer the only financial service providers in the economic pond. As a result, banks are being forced to deal with a new reality in which owning the entire value chain isn’t really such a good thing.
Some incumbents are rolling with the changes, not only by rebranding but by transforming the products they offer and the way in which they communicate with their clients. Travelex, a 40 year old foreign exchange company that realized that whatever the future of payments is, it ain’t cash, went through a massive redesign to make digital its core. Its first product, Supercard, frees its users from foreign transaction fess and unfavorable forex rates.
Stateside, national bank TCF Bank rolled out ZEO, a suite of services that partners with Western Union to provide quick and efficient access to and transfer of funds. For the unbanked, ZEO is a godsend - you don’t have to bank with TCF to use ZEO, but you still get the security of the bank and can get expert advice from a banker.
Professional investors are tooling up
Professional investors are using new technology to make themselves relevant (and cool) once again. Point72 Asset Managements’s marketing weapon of choice is social media, and it’s using LinkedIn, Facebook, Google+, Glassdoor and soon Twitter to aggressively pursue traders.
Meanwhile, legendary hedge fund Renaissance Technology is taking on high speed traders through the patented the use of atomic clocks, which will sync orders to within a few billionths of a second. Talk about radioactive.
Alternative SMB financing solutions are becoming mainstream
The SMB online lending marketplace is heating up, with old and new players aiming for a piece of the SMB loan provision pie. On July 7th, online payment lead PayPal announced that it had provided $2 billion of funding to 90,000 SMBs globally through PayPal Working Capital – its small business finance program.
Though $2b and 90,000 SMBs might seem paltry compared to Wells Fargo’s $40b (of a 5-year $500b lending goal), these numbers show that PayPal is serious about entering the SMB loan market. What differentiates PayPal’s SMB loan model is that repayments are applied automatically as a fixed percentage of daily sales that the business owner selects in advance; thanks to this proportionate system, business owners don’t have to live in dread of their loans.
PayPal isn’t the only innovator trying to make itself heard in a space that’s becoming increasingly crowded. Credit mogul American Express will be rolling out a new online loan platform later this year, and from the release it sounds like they’re aiming to win the marketing battle with supply chain financing.
Orchard’s eagle-eye take on the online SMB/consumer loan market is that it’s an attractive and stable yield opportunity - no doubt we’ll see more incumbents jumping on this loan wagon in the near future.