Stablecoin News for the week ending Tuesday 7th July

Central Bankers fight to hold their monopoly. Here is our pick of the 3 most important Stablecoin news stories during the week. As the old joke goes “If monopolies are so bad, why is there only one Monoploy commission?” So too with Central Bankers, who are used to having a monopoly on the manufacture, distribution and […]

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This Week in Fintech ending 3rd July 2020

This weekly summary from our 8 experts, brings you insights based on their experience as investors, entrepreneurs & executives. To continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want […]

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The missing WHY of Robinhood

Once you finish reading this article, I suggest listening to the Supermode song Tell me why Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. I had not planned to write two posts on two high growth, two valuation Fintechs in an atmosphere that has turned sour because of the demise […]

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This Week in Fintech ending 26 June 2020

This weekly summary from our 8 experts, brings you insights based on their experience as investors, entrepreneurs & executives. To continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want […]

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Grown-up Fintechs have done very little in transforming banking culture

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. We live in a world that has increased its expectations from the corporate sector in terms of their social responsibility now and going forward. We monitor closer and expect much […]

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Fintech Funding Flat In APAC

Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia Venture funding in fintech unsurprisingly went quiet in the Asia-Pacific region during the first quarter of 2020. According to a report released by S&P Global Market Intelligence, funding […]

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The revised pessimistic projection for Digital wealth AUM does not make sense

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

Consulting practices call for 5yr predictions on all sorts of topics. The so-called Robo Advisor subsector in investing has not escaped these studies.

Back in 2016, was when Vanguard was making its first leapfrogging attempts in a space that Betterment and Wealthfront had brought to market. Personal Capital was also shaping up the hybrid version of `digital investing`. Deloitte, CB insights, Aite Group and others were predicting assets under management by 2020 (which at the time, seemed far away for all of us).

Predictions ranged between $ 2.2 trillion and $ 3.7 trillion in assets to be managed by Robo-Advisory services by 2020 and $16 trillion by 2025.

Permit me to take the mean of the range predicted for 2020 (trillions of USD are being transferred from the government to the `people` anyway as we speak) and round it up to $3 trillion for 2020.

2020 – Well we are in the second quarter of 2020 and we are just reaching $1 trillion. Urs Bolt, highlighted the latest report by BuyShares that says we are heading to $987billion. So, we are at 1/3 the 2016 prediction even though the S&P500 is up 30+% and the Dow is up 28+%, since Jan 2017.

 

What is more remarkable is that the current 5yr outlook compiled by BuyShares and based on Statistica data, predicts that in less than 5yrs the AUM will grow x2.4 times, reaching $2.4trillion (Statistica).

Screen Shot 2020-06-15 at 11.13.33Screen Shot 2020-06-15 at 11.13.47

At first site, it may seem to you an optimist outlook. However, it is actually a heavily discounted view from that set out back in 2016 when the sector started attracting more VC investments and incumbents. The first predictions were from 0-$3trillion in less than 5yrs and then from $3trillion-$16 trillion in the second 5yr phase (x5+ times).

And now this study is saying,

let’s cut the 5+ times growth rate in AUM to more than half. And let’s cut the AUM managed over the next 5yrs by 85% (we had said $16trillion and now we say $2.4trillion).

Let’s step back and look into the mirror as if it is 2025. Of course, digital onboarding and automated asset allocation offered currently via ETFs will be 100% an option everywhere and probably free.

The more interesting and meaningful question is about the evolution of the ETF market itself which has been the bread and butter of all the digital investing offerings (lumped under the `robo-advisor` umbrella be it with or without human advisory services); and whether artificial intelligence will actually transform digital investing.

1⃣ Will `robo-advisors` continue to build their businesses mainly using ETFs? Their low-cost core value-add has been interchangeable seen as a win for passive investing and mainly via indices.

2⃣ Will the 12% of the $4.7trillion ETF market (based on 2018 year-end data, see here) grow and to what extent?

3⃣ Will active ETFs grow given the current macro environment? ANTs are just emerging and are a step back from the transparency trend and the zero-commission trend. ANTs are active non-transparent and on average their expense ratio is 70bps. Their position reporting is much better than mutual funds (quarterly). Their cost-adjusted and risk-adjusted-performance will have to be seen going forward. They are currently only 2% of the ETF space (see here).

4⃣  Will artificial intelligence finally take over the asset allocation and the decision of switching between direct indexing or stock picking or momentum.

A few facts to consider:

  1. The ETF space grew sustainably in 2019. Statistica reports $6.18trillion by year end of 2019. That is a 30% increase. Of course, by the end of Q1 2020, the ETF global industry experienced a c. 16% drop ($5.4trillion) which was 100% due to the drop-in asset values. ETFs actually experienced in Q1 net inflows of c. $120billion. These were inflows during the major March selloff. Source
  2. An update on my calculations of the assets under management by digital wealth services points to a c.30% increase (by 2019 year-end), which matches the ETF increase. Source
  3. The actual role of artificial intelligence in all the Digital wealth offerings, is still minimal. Even the large incumbents with sizable digital wealth AUM, like Merill Edge or Vanguard, are still in the initial phase of digital transformation in wealth management. Vanguard actually has done very little on the needed digital integration front. Merill Lynch is probably ahead with its new CEW – Client Engagement Workstation – that integrates market data, client information, account servicing tools and some narrow artificial intelligence tools (chatbots).

For 2025, we should be making predictions of the extent that Artificial intelligence will be making better decisions for my asset allocation than I do, or my private banker, or my financial advisor, or my digital wealth service provider.

What has gone wrong in Fintech that pushed the original projections of $16trillion AUM in 2025, to $2.4trillion?

Where are the trillions of currencies that are being transferred, going to end up?

Isn’t the digital transformation of the mutual fund industry what will happen over the next 5yrs? Whether it is through DLT as an infrastructure of the mutual fund administration or by the tokenization of fund structures or the disintermediation of the European banks who dominate mutual fund distribution or all of the above? And wont all this lead to an exponential growth of the `Digital wealth` AUM?

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This Week in Fintech ending 12 June 2020

This Week in Fintech ending 5 June 2020

This weekly summary from our 8 experts, brings you insights based on their experience as investors, entrepreneurs & executives.

To continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want to receive This Week in Fintech for free, you will need to fill in this form

Your Editor is Bernard Lunn. He is also the CEO of Daily Fintech and author of The Blockchain Economy and occasional opinion columnist.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech) @iliashatzis wrote Tokenizing Everything, even People. Are you ready?

We are a the dawn of a new age, with tokens. From art to buildings, to the way we invest in assets, tokenization is changing everything. The new “token economy” promises to change how we create and distribute value. Asset tokenization is disrupting finance and several other industries, breaking up ownership into fractional stakes that can be owned by multiple parties. This new ecosystem is already taking us in directions we can’t even imagine. Over the past few months, an area that’s been emerging, is the “personal token’. A personal token is a way to tokenize yourself, by creating a token on a blockchain that assigns a value to your personal reputation. A personal token is a digital currency that is issued by an individual to effectively borrow against his/her own future. While still a fairly niche sector within crypto, platforms are emerging that allow individuals to create their own tokens and leverage smart contracts to provide token holders with an array of value propositions.

Editor note:If your first reaction to Personal Tokens is that it feels like indentured servitude,  look at how consumer debt works. At least somebody buying Personal Tokens is taking a risk.

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Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote Ten highlights from Mainnet2020 by Messari

I had the pleasure to attend some sessions from the Mainnet 2020 event last week. Ryan Selkis`s guitar playing as an alternative signal to wrap up the talk or the panel, was one of my favorites.

Messari, looks like a data, news, research business in the cryptocurrency, blockchain space. But what is not evident (yet) to everyone is their vision and how they are executing on it. They are very much focused on Transparency and an open-source approach. Ryan said Messari wants to become the Edgar in the new economy.

Editor note: These 10 points are bullish for crypto but also highlight the tough competitive nature of this market

Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for week ending Tuesday 9th June 2020

This weekly snapshot is the news that matters in the Stablecoin market. Alan’s provocative statement is There is No Interest in Fiat Currencies! The money quote is “For years Interest rates were like the “Killer App” for Banks and Fiat money.”

Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur and thought leader specializing in Small Business and the Gig Economy & CEO/Co-Founder of Zuper, a new superannuation startup in Australia wrote Gig Workers Are On The Rise Post COVID. Fintech Pirkx Stands To Benefit

All around the world, companies and their employees are adjusting to very different working conditions compared to those that existed pre COVID.

For institutions, adapting and surviving over the past 4 months and into the future has meant significant transformation at lightning speed. For some that has meant making productive ‘work from home’ actually work, be it swiftly getting on top of technical issues or implementing technology that helps line managers deal with the complexities of managing people from afar. For others, it has meant pivoting their business, laying off staff and completely rethinking revenue forecasts.

Editor note: The gig economy, a megatrend pre pandemic, is now “on steroids” and any venture enabling that will do well.

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Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote NPV be damned- here’s a delightful IPO you can love

One can seldom say that reviewing an SEC Form S-1, IPO registration statement, is interesting.  Sure, you can learn much about a company that is planning an initial public stock offering, but that level of excitement is reserved for financial banks and investors.  But that expectation has been shattered by the form recently filed by digital insurer, Lemonade, Inc.  Not only is its filed Prospectus Summary a full eighteen pages long, it contains the words ‘delight’, or ‘delightful’ ten times.  As was the case five years ago, Lemonade has taken what was stodgy and made it, well, different. 

Editor note: The Lemonade IPO shows that the IPO window is open and will put Insurtech onto the front page.

Thursday Christian Dreyer @x3er, our Swiss based CFA who focusses on how XBRL changes our world wrote XBRL: Nowcasting, restaurants in lockdown and ESG reporting in melt-up

Editor note: This weekly snapshot is the news that matters in the XBRL market.

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Friday Bernard Lunn @LunnBernard, CEO of Daily Fintech and author of The Blockchain Economy wrote: Interview with Howard Tolman about the future of Alt Lending

Alt Lending is all the lending that does NOT primarily go through the bank channel. 

Banks have been pretty good at lending to consumers who have traditional full time jobs, to big corporations and to sovereigns/governments. That leaves everybody else to all the Fin, Tech, FinTech and TechFin companies who do Alt Lending. That is a big wide open market. 

Lending is the beating heart of financial service. Alt Lending is a big wave of change.  So I was delighted when Howard Tolman agreed to speak to me about how Alt Lending will change our world.

To understand Alt Lending you need to have a rare combination of experience. You need to be a banker who understands credit risk. You also need to be a technologist  who understands how to use technology in new markets. You also need to be an entrepreneur with a mindset of creating value in broken markets. 

Howard Tolman is that rare combination.

Editor note: There is a huge investor hunger for yield in a ZIRP/NIRP world. There is also a huge hunger for borrowing to ease the financial shock of the pandemic. The banks are asleep at the switch and governments have maxed out their credit cards. Enter Alt Lending through this window big enough to drive a truck through.

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Interview with Howard Tolman about the future of Alt Lending

 

Howard 300 dpi 1

Alt Lending is all the lending that does NOT primarily go through the bank channel. 

Banks have been pretty good at lending to consumers who have traditional full time jobs, to big corporations and to sovereigns/governments. That leaves everybody else to all the Fin, Tech, FinTech and TechFin companies who do Alt Lending. That is a big wide open market. 

Lending is the beating heart of financial services. Alt Lending is a big wave of change.  So I was delighted when Howard Tolman agreed to speak to me about how Alt Lending will change our world.

To understand Alt Lending you need to have a rare combination of experience. You need to be a banker who understands credit risk. You also need to be a technologist  who understands how to use technology in new markets. You also need to be an entrepreneur with a mindset of creating value in broken markets. 

Howard Tolman is that rare combination. You can read all about Howard on his LinkedIn profile.

I started off by asking Howard to tell us a bit about his background and how he got involved with Alt Lending

In the late 1980’s I had my own consultancy working with borrowers that needed expertise in getting the best deal out of a bank. For instance I helped raise £ 300 million for Equity and Law to help develop and fund its mortgage portfolio. I lost interest after the crash of 1991. Recently I have been working with Infrastructure projects with my old friend Mark Worrall. In the intervening years I moved into banking Technology.

Q2: What do you think is the biggest impact of Alt Lending to date?

Since 2008 mainstream banking has gradually withdrawn from the mainstream lending business. This is a result of ill thought through regulation, ultra low interest rates and QE. The gap has only partly been filled by new lenders, crowd funders, Junk bonds etc. Banks as they are presently configured do not have a future except as a tool for recycling money to bankrupt governments and large zombie companies which cannot afford to ever repay their debt. 

Q3: What do you think has been holding back the wider adoption of Alt Lending?

This is a big subject. Lending is not a particularly difficult concept to get your head around but it does require you to do it well and understand the risks.  Lending expertise has turned into a box ticking exercise when the underlying Risks are not understood. Banks have disintermediated themselves. It is OK for very large borrowers and Governments but projects which were easily financeable only twenty years ago are not doable now. There needs to be a wider mechanism for ordinary investors to lend to projects where the risk can be explained dynamically by experts in risk management. Exchanges are one conduit, tokens are another. Creating liquidity in these new markets is crucial.   

Q4: What has been the single most critical innovation in the history of Alt Lending to date?

Probably the advent of crowd funding and peer to peer lending. Of course a lot of what could have been debt has now been replaced by equity but at a much higher cost. Lack of alternatives is harming business and innovation all over the place.

Q5: What is the one innovation currently lacking in  Alt Lending that you would like to see?

The development and leveraging of small project infrastructure credits. There is consensus that incremental changes give the most bang for buck but most of these improvements are in the hands of local authorities who do not have the expertise to structure and raise finance without government support. In fact most of these institutions don’t even know how to manage assets properly. Blue sky thinking has gone out of the window. Assets such as a bypass or a bridge or a social housing estate have commercial value which should be exploited. There is simply not enough government support to go round.

Q6: In which sectors of the economy do you see Alt Lending having the biggest impact?

All sectors are relevant. Banks used to do this but they can’t do it at zero interest rates and restricted leverage. Since QE began money has been concentrated in fewer and fewer hands. In order to get a decent return investors and lenders need to learn to price risk properly. This means that understanding the risk is critical. That is why expertise must be bought to the party to articulate those risks to investors in words of one syllable. In addition their advice must be independent, reliable and dynamic. Liquidity is also necessary so that investors can change their minds. Technology has a huge role to play in this. People would be much more inclined to invest if they could trade assets on their mobile telephone. 

You get three free articles on Daily Fintech; after that you will need to become a member for just US $143 per year ($0.39 per day) and get all our fresh content and archives and participate in our forum.

 

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XBRL: Nowcasting, restaurants in lockdown and ESG reporting in melt-up

XBRL.001

Note; this post was written by Christian Dreyer. It is being posted by the Daily Fintech editor due to a tech snafu – normal programming will resume next week.

Here is our pick of the 3 most important XBRL news stories this week.

1 Three quant lessons from COVID-19

Traditionally, quant strategies have focused on forecasting prices, based on price time-series dynamics (e.g., stat arb), or based on cross-sectional data (e.g., factor investing). Forecasting made a lot of sense years ago, when datasets were limited, mostly covering price series, and disclosures were infrequent, typically quarterly accounting statements. Today, we have access to a wide range of real-time data sources that allow us to “nowcast” the value of relevant financialvariables.

It’s mostly lesson 1 from this paper that caught our eye, namely more nowcasting, less forecasting, because nowcasting relies on unstructured observations, whereas forecasting depends critically on structured data. Fascinating, and food for thought!

2 Calcbench’s restaurant week

Restaurants have suffered enormously since coronavirus began spreading around the world three months ago — and as always, Calcbench wanted a better sense of how much damage restaurant firms have been disclosing. So we scoured the filings of 110 firms that belong to SIC Group 5812, otherwise known as the retail food sector. Our goal: finding the nuggets of disclosure that tell the true story of Covid-19’s harm to the restaurant business.

In a series of 3 blog post, Calcbench is showing a quick and dirty analysis of the near real time impact that COVID-19 has had on the US restaurant sector as represented in the Q1 reports.

3 Recent developments in sustainability reporting

A summary of recent developments at IMF, CDSB, GRI, the ESAs, SSE, BCBS, IIRC, BMJV, ISAR, and JPX.

Too many equally important things to pick just one have been going on in the alphabet soup that represents stakeholders of sustainability / ESG (see?) reporting, so here’s the Deloitte blog post linking to all of them!

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives.

New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

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