Zooming out on Capital Markets and Wealth management

insights

A New Year doesn’t always necessarily mean a new mindset but it does allow us to reflect and zoom out.

Capital markets and wealth management, are being disrupted but we are still early in the journey.

In financial products, Price wars continue and zero-fee products keep growing.

In business models, ‘Go Big’ through volume and marketplace offerings continues to dominate; but beware.

The dream of decentralized Community building through blockchain Tech, has failed miserably for now.

The dream of unlocking value through accounting on DLT and automating liquidity through P2P networks, is gaining traction at the country level too.

Robo-advisors and neobanks, have been pushing prices down. Whether it is ETFs themselves, single stock trading, constructing or rebalancing portfolios, buying insurance, Currency exchange, remittances. Customer is king not only getting better UX but also pushing the Fidelities and the Blackrocks of the world to increase their zero-fee offerings. From zero-fee index funds, to zero-fee trading of single stocks. Robinhood and Vanguard have a huge effect on keeping the pricing war very much alive.

The oxymoron is that the dominant business model remains platforms and marketplaces that cross-sell and aim to keep the customer hoping to sell more and more. But as long as the focus is on the product, as the margins will keep diminishing, it will be a Catch22 game. Margins are not uniform but the tech-enabled price war will eventually squeeze them all down to zero.

Think of Robinhood who started off from freemium stock trading. Their growth has been hugely ‘subsidised’ by VCs – $539million over 5yrs – and now they went out offering checking and savings accounts (albeit screwing up on the pricing)[1].  Sofi who started in student loan refinancing, and went into mortgages, thereafter moved into wealth Management. Goldman Sachs, an incumbent investment bank, who went in and out of banking, then targeted retail customers through Marcus, a consumer loan fixed fee service; and is now moving Marcus to their investment unit.

Will a new business model emerge in 2019 that circumvents this investable Catch22 of going after ‘Growth’ only to sell financial products whose margins are going to zero, one after another? This is what will be on my radar screen for this year.

The other oxymoron that is evident both from 2017 and 2018, is that the current designs and implementations of blockchain technology (predominantly, cryptocurrencies) have failed in building communities natively. During the bull phase, this was masked as “the crypto community” had a growing number of cross-over[2] members. But the common thread was only FOMO and herding. During the bear phase, the “carrots” put out to design communities were IMHO “a disgrace”. Incentives like retail bounties, airdrops of all sorts, are no innovation. Using Telegram and 24/7 digital community managers, has been ineffective in building trust with the potential retail investors and being transparent post ICO with governance and financial reporting.

The good news is that DLT experimentation grew substantially during the crypto winter and even countries are stepping in. The motives are either to boost the local economy by creating a tech ecosystem – in a decentralized design there can be several players included instead of “a winner takes all” operation – or to transform the government in several areas like land registries, self-sovereign IDs, voting, health, education, capital markets ect.

Happy New Year for those that were still on vacation last week. Lots of exciting insights to share this year too.

[1] I’ll ignore their failure in executing. What fintech can learn from Robinhood’s ‘epic fail’ of launching checking accounts

[2] Cross-Over Buyers is a Wall Street term that refers to investors that buy into an asset class only to capture high returns in the short term; whereas typically they invest in another asset class in the long term.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

Wealth & Brokerage Fintechs stars from the Fintech100 report

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KPMG by now has a classic Fintech ranking publication – The Fintech100 Report which is in its 5th year. This year it is in collaboration with H2 Ventures Australia’s early stage VC (full report here). The reason I looked closer into their Wealth & Brokerage section (14 companies) is not because I agree with their ranking criteria or their categorization criteria. I am more interested with those in the emerging categories and those that have managed to be included for the second at least time. I am interested in outliers and underdogs.

 

Robinhood has made it in the Ten top list along with several giants in the “Multi” category like Ant Financial, JDcom, Du Xiaoman Financial, and Sofi (categorized in “Lending” which IHMO should have been “multi”).

Half of the wealth & brokerage FinTechs are in the Top 50 and the rest are in the Emerging 50. Asia (China/Japan/Korea) have 5 out of the 14 and Europe 4 out of the 14. The UK has given birth to 3 out of these 4 Fintechs. Only Robinhood is from the US and Wealthsimple in Canada.

From the 14 companies categorized as “Wealth” only two had made the KPMG 100Fintech report last year: Robinhood and OurCrowd from Isreal. Only one company amongst these is blockchain powered, Quoine from Japan, 29th in the list.

Noteworthy facts about the 14 Wealth Fintechs

  • In May, Robinhood (ranked 8th) surpassed its rival E-Trade with 5 million brokerage accounts and $150 billion in transaction volume.
  • 51 Credit Card (ranked 12th) from China as of the end of 2017, had 81 million users across all apps and managed approximately 106.3 million credit cards, helping users complete a total of $15.6 billion in repayment transactions.
  • Wealthsimple (ranked 25th in 2018 and 29th in 2017) out of Canada has over $1Billion In AUM and has recently expanded in the US and the UK.
  • QUOINE (ranked 29th) out of Japan is the first global cryptocurrency exchange to be officially licensed by the Japan Financial Service Authority. It currently processes annual transactions worth over $50 billion. Qryptos and Quoinex, are among the most advanced in the world.
  • OurCrowd (ranked 32nd in 2018 and 25th in 2017) out of Israel is currently backing 150 startups across the globe and have helped 20 startups successfully exit. The company now has offices in 7 countries and earlier this year hit a major milestone surpassing US$1 billion in AUM and an accredited pool of 10,000 investors.
  • Neyber (ranked 35th) from the UK has provided over US$90 million salary-deducted loans in partnership with employers since 2015. Last month Neyber partnered with robo-advisor Smarterly to launch investment portal SmarterCare for business loans which will offer an investment ISA to employees allowing them to invest directly from their salary at no cost to their employer.
  • Folio (ranked 44th) out of Japan – not to be confused with FolioInstituional, the Fintech for advisors from the US – is an online security brokerage service in Japan, specializing in thematic investing. The platform is a DIY for managing assets through a robo-advisor, but also for designing thematic portfolios (70 themes currently.

Emerging Wealth Fintechs

  • Meet Cleo out of the UK, the AI assistant for financial management targeting millennials, with over 600,000 active users across the UK, US & Canada.
  • DAYLI Financial Group is a B2B Korean Fintech that has become a Fintech venture studio involved also in blockchain. DAYLI owns, CoinOne a large Korean crypto exchange, launched the ICON ecosystem out of Zug. They also design proprietary technologic with AI capabilities for financial management.
  • Dreams is a Swedish neo-bank with $100mil AUM that uses behavioral science for their saving, spending and lending services, in addition to their community management UX.
  • Liwwa is out of Jordan and focused on a niche P2P lending sector serving the MENA region. It is a marketplace for fixed-income investors and SMEs. The company uses a lease-to-own model and offers a Sharia-compliant investment opportunity.
  • Tide is a UK mobile first bank for SMEs only. Not sure why it is not in the neobank category. Since launching in 2017, Tide has acquired nearly 40,000 small business customers and surpassed 1B pounds of transactions in March of this year.
  • Tiger Brokers is a Chinese online brokerage that allows Chinese investors at home and abroad, to trade stocks in the U.S, Hong Kong and mainland China market via the stock connect scheme between Hong Kong and mainland stock exchanges. After 3yrs it’s mobile app accumulated trading volume reached $150 billion. Earlier this year the company became an official strategic partner of NASDAQ data to distribute its US stock market data to the Chinese online world.
  • Wallet.ng is a Nigerian Fintech with over 5,000 users. Their mobile app allows users to make payments, transfer funds, pay bills and withdraw from ATMs – all using their phone number. Last month alone they processed N234 million across just 17,000 transactions and have seen an average of 78% month-on-month growth in transaction volume and value since January 2018.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

SEC – Philippine Securities and Exchange Commission

PAA Capital Group Asia  is proud to announce its establishment in the Philippines.

SEC Certificate of Registration of Pacific Asian Atlantic Capital, Inc. granted. Below are the details provided by the Unified Registration Record (URR) for easier reference:

 

SEC Registration No.: CS201615085

Tax Identification No.: 009-346-740

HDMF No.: 206410700004

PHIC No.: 001000048850

SSS No.: 0395363054

True or False? — It Takes Money to Make Money

The short answer is YES; of course it takes money to make money. To make money in the stock market, you must have money to make the initial stock purchases. Starting a business requires money to buy inventory, marketing materials, office space and equipment. Even lottery winners had to have the seed money required to buy the ticket. The only exceptions that come to mind are inheriting, stealing or finding money.

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