Fintech

Stash the robo-advisor with over $300million in total funding

Stash the robo-advisor with over $300million in total funding 800 533 Efi Pylarinou

Stash the robo-advisor with over $300million in total funding

The closing of the Motif and the timing of the $112million funding of Stash, have sparked interesting conversations.

Craig Iskowitz weaved a rich coverage of Motif`s story on May 1st with lots of data and back flashes on how Motif was perceived along its journey. 13 Roboadvisors That Might Become Victims of the COVID19 Crisis is a great read for anyone in wealth management. In the last part he shares a robo-advisor ranking in an effort to start thinking about who will not survive in these markets. The Ezra Group divided 38 providers into to three groups: Market Leaders, Up & Coming and Watch List.

I`ll just pick on the first group `The Market Leaders` only because it contains Stash who definitely has us all looking at why it was able to raise this large amount of funding (Series F) in these market conditions.

Craig includes in `The Market Leaders` the big old names of Vanguard and Schwab that are pure investing giants, along with micro-investing apps like Acorns and Stash and MoneyLion (which is more focused on banking and lending).

He makes a point about the large number of paying clients that these three apps are serving. 15+ million customers compared to 30 million Vanguard clients. These are numbers as of January 30, 2020. We have unofficial evidence already of a spike in account openings across all digital offerings. In the #ItzOnWealthTech Ep. 46: The Mad Rush into Digital Advice with Bill Capuzzi, Bill Capuzzi CEO of Apex Clearing mentioned that they saw a 200% increase in new account opening in March.

For Stash to stay on Craig`s list and to not disappoint their investors, they need to execute well on their re-bundling. They cannot afford to stay only in investing like Schwab and Vanguard. They already started their re-bundling in 2019 and effectively their roadmap to become a fuller stack. They used their Series E funding to partner with Green Dot`s Banking-as-a-Service and introduce a debit card. After one year they have acquired 750,000 banking customers and continue to pay up to acquire more.

Tearsheet reports that Stash reached $1 billion in AUM in February 2020, with 4 million customers on the platform (not clear how many are paying any subscription which ranges between $1-$9 per month with $0 minimum). On the Stash website, they report 4.3+ million customers. However, only 750,000+ are banking customers.

Meanwhile, most of the large standalone robo-advisors are also creating fuller stacks with personal finance offerings — saving accounts, debit cards. Betterment, Sofi, Acorns, and soon Wealthfront, are in the same game.

One of the Stash key recent investors is Lending Tree (unclear if they actually put in money or have a strategic partnership), so they must be planning to add credit to their services. With the dazzling choices of Baas and Saas offerings, there is no secret sauce for almost anything. The trick is the go-to-market strategy that can create network effects. And this is where maybe Stash has one first-mover advantage. Is the optional `Stock-Back` reward program that they also introduced last year something that has actually worked for them?

On May 1, Pulse 2.0 reported that `nearly $10 million Stock-Back rewards have been earned by Stash customers since the launch of the debit rewards program almost a year ago.`

Stash customers earn

`0.125% Stock-Back rewards on all of your everyday purchases and up to 5% Stock-Back rewards at certain merchants with Stock-Back bonuses`

If all $10million stock-back rewards were earned at 0.125%, then that translates to Stash having processed $8 billion in payments through their debit card. That is an average $10,000 per banking customer per annum. If all purchases were at the merchants with the special deals with Stash that gave clients an average of 2.5% stock-back, then it translates into $400million in payments and around $500 of purchases per customer.

Is all this worth the Stock-Back patent?

Stash keeps investing in their Stock-Back program. They introduced 200 more stocks for 2020. Their digital design allows them to change easily the amount of the reward and offer special deals for certain periods and target to different plans of subscription. For example in May, they increased their rewards for CVS, Netflix, Hulu, Spotify, Disney to stock-back rewards of 2% from the usual 0.125%. (Details here) Their picks obviously are the best way to build customer loyalty, as all these are top choices for most people during the lockdown. They also offered 3% for two Food delivery stocks, Seemless and Grubhub only for plus subscription customers.

This kind of customizable service is definitely Fintech innovation.

It would be good to know what percentage of Stash customers actually opt-in their Stock-back reward program. And then, what is the actual distribution of rewards that were paid out amongst the individual stocks like Amazon, Starbucks, Walmart, and the diversified fund which is paid out as a reward when you make purchases at merchants that are not publicly traded and on the Stash list.

Are business analytics of Stash customer behavior confirming that once a customer receives a reward in a stock, they actually become more familiar with the company and allocate more funds to invest in the company? This is the narrative that Stash is floating around as they report that they are seeing an increase in customer deposits. Stash is hinting that there are network effects from the Stock-Back Rewards into their investment business.

It is worth monitoring Stash to see

  • Number of Banking customers growth
  • Average account size growth
  • The Stock-Back reward program growth
  • What value there is in the Stock-Back patent they refer to
  • Any new smart credit offering

Nerdwallet April 2020 comparison shows that the customer acquisition cost for Stash is very high. They are still paying a lot to lure new customers.

Stash Robo-Advisor

The US standalone robo-advisory space is on a journey of rebundling. Stash is the youngest of those that have made a name already and has just become the most well-funded robo-advisor with over $300million total funding.

To keep things in perspective, I have ranked 6 US robo-advisors with their total funding (and one originally Canadian) by age.

Stash Robo-Advisor

An earlier version of this article appeared on Daily Fintech.

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A Digital coin designed to act as store of Value — Ndau

A Digital coin designed to act as store of Value — Ndau

A Digital coin designed to act as store of Value — Ndau 800 533 Efi Pylarinou

A Digital coin designed to act as store of Value — Ndau
 
https://ndau.io/ (XND)

Ndau is not a stablecoin. It is a stateless Buoyant digital currency with a built-in design to act as a store of value. It is less known, as it not conducive to pomp and dump.

Programmable money, like Bitcoin, are available in the market even though the verdict is still out there as to which of the existing cryptocurrencies (if any) qualifies for a digital means of payment, or a digital store of value, or a digital unit of account. Bitcoin is clearly a living proof of an autonomous organization, with no CEO, no CFO, and no board. It went live with a fixed supply and a fixed predetermined monetary policy. The developer and user community has had several disagreements about the direction that the network should take which has resulted in forking the Bitcoin source code.

The fact remains (with its pros and cons) that the fixed supply of 21million Bitcoins cannot be tampered with. The programmed monetary policy allows for new bitcoins to be created only through mining at a fixed rate. This rate is fixed but it decreases as new bitcoins come into circulation and we approach the 21 million supply ceiling. There are proponents and critics to this kind of rigid monetary policy as it has not been tested in economic downturns, in which a flexible monetary policy can have benefits. It definitely sits on the other end of the spectrum from the Quantitative Easing (QE) that Central banks in the Western world have been engaging in after the 2008 Global financial crisis and the 2020 COVID19 induced economic crisis. Devaluation of currencies is a big thorn that is yet another reason that we have been soul searching technological solutions for better stores of value. Data from the Official Data organization and several other sources show that the purchasing power of the almighty US dollar has been dropping precipitously.

Soul searching for programmable money that is enabled by blockchain technology that can mitigate this frightful drop in purchasing power of even the №1 reserve currency is only natural. Can we create a rather autonomous store of value with a tamper-proof and effective monetary policy? The market has not yet decided whether Bitcoin which is stateless and not backed by any real asset, is our Digital Gold alternative. During the recent downturn, Bitcoin and Physical Gold, similar to several traditional financial assets, have not behaved as expected.

One example of a better potential Digital Gold alternative, is the blockchain enabled solution of a stateless Buoyant digital currency, the Ndau. The Ndau (XND) was launched in September of 2018. Its design is to act as a long term store of value and therefore rewards token holders the longer they hold it. Ndau token holders earn Economic Alignment Incentives (EAI) ranging from 4% to 15% based on the number of months of their holdings.

NDU Graphic

The total supply of Ndau tokens is fixed to 30million and there is a programmed market intervention to maintain price stability every time the price moves more than 5%. The supply of Ndau is increased only when demand increases based on a predetermined price curve.

Ndau is the intellectual child of the Ndau Collective. An anonymous group of early Bitcoin enthusiasts more than 20 leading experts from world-class institutions including MIT, Columbia University, Carnegie Mellon, New York University, University of Chicago, and Goldman Sachs and who specialize in disciplines ranging from economics and monetary policy to cryptography and computer science.

Buoyant : Dictionary definition = able to keep afloat or rise to the top of a liquid or gas.

In virtual currency terms, it means a currency whose value rises and whose downside volatility is mitigated.

Ndau: The name comes from en-dow (endowment). The proceeds from the sale of Ndau tokens are kept in an endowment and invested in other asset classes. The purpose of the endowment is to serve as a source of liquidity to support ndau’s price. The investment decisions are taken by the Blockchain Policy Council (BPC), a group of nine digital delegates continuously elected by ndau holders. The tokens are native the Ndau blockchain which uses a proof of stake consensus mechanism.

The corporate entities behind Ndau are Oneiro, which is backed by COSIMO Ventures. Oneiro received a seed round of $3mil initially and in October 2019, another $5million. At launch, Oneiro sold $15million worth of Ndau Tokens (which means a bit less than 1million tokens).

The recent economic downturn seems to have found Ndau at a fragile point on its journey of adoption and therefore was not able to live up to its design.

At issuance Oneiro placed Ndau tokens at a price of $17.26 during a private sale. The price remained stable for a long time (about one year) and then started rising. By early 2020, it had actually risen close to $22 (27% increase). By mid-February 2020, it seems that the price stabilizing mechanism of the endowment couldn’t cope with the tsunami of liquidation that hit all assets indiscriminately.

NDU Graphic 2

This indicates that the endowment was too small to cope with the severe changes in demand. According to their website, the total tokens in circulation had grown to 4.3million. During the worst selloff, the Ndau price dropped just below $6 and by mid-April recovered back to over $11.

Ndau is more actively traded on BitMart launched 2 yrs ago out of the Cayman Islands and with a presence in New York, China, Hong Kong, and Seoul. According to Cointelligence, they are included in the top 20 exchanges by volume.

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Govtech to Trace, FUD, and the Stockholm Syndrome

Govtech to Trace, FUD, and the Stockholm Syndrome 800 563 Efi Pylarinou

Govtech to Trace, FUD, and the Stockholm Syndrome

Two realities and a dream

I first look at a government and citizens that had developed technology when COVID-19 started spreading.

Singapore`s  have developed a narrative focused on `Helping Citizens`

One idea at a time

One-Line code at a time

One pixel at a time

The Singapore government digitalization started in 2016 with an announcement to launch the Government Tech Agency

.

A long-term plan to digitize the functions of governance and public life.

Singapore has already two kinds of digital IDs

, a digital identity to do business efficiently and safely online with the government.

 simplifies banking transactions by eliminating the need to re-produce documents for verification.

I picked the Singaporean example of  (there are other well publicized ones, like Estonia) because in these `never seen before` circumstances they were able swiftly to launch three new services

A community-driven contact tracing app to help during the COVID19 spread. Own your data and use Bluetooth P2P communications to share your close contacts. Give permission to the Ministry of Health to quickly reach out to your close contacts if you are a COVID-19 patient.

TraceTogether aims to protect families and communities, and stop the spread of COVID-19.

An app to use your zip code and get info on mask distribution points

An app to facilitate the following: If diagnosed with any respiratory illness (even just a cold) you get full subsidy for medical treatment

I then look at a country that has no technology to help its citizens as COVID-19 starts to spread. America has no digital ways to disperse the various stimulus packages for individuals or businesses.

Venmo, Zelle, and Square`s CashApp are offering their help in getting the government stimulus of one-time payments fast to the people. Lending Fintechs are offering their technologies to the US Small Business Association (SBA) who will handle the $350 billion guarantees for loans to small businesses (out of the $2 trillion).

Transparency of money flows (audibility) would have been a blessing in this situation. It would save the government and the citizens from all the moral hazards that were experienced during the GFC. One of the most eye-popping examples were banks that were eligible for favorable loans with subsidies which they subsequently used for share buybacks.

Digitalization of municipalities, states and governments is not only about operational savings but also about Transparency that can allocate capital and manage risks in a fair way.

Let`s hope that one of the positive outcomes from this crisis, will be large scale government digitalization initiatives so that we can deal with the next crisis in a better way. We live in an extremely complex world that is increasingly crisis-prone.

I now wish & hope that through the experience of this crisis, enough leaders will recognize the risks of centralized technology to help citizens. The biggest risk is citizens (we all) falling prey to the me.

As hostages of the Coronavirus, we develop sympathy to all surveillance tools that allow us to eventually get rid of this captivity. Once the Coronavirus crisis is over, we stay captive to the surveillance tools because of FUD (Fear Uncertainty Doubt) and the Stockholm Syndrome. We actually `willingly` change our values and morals. We actually feel a kind of gratitude towards those that developed and offered us the surveillance tools, because they were lifesaving at the time.
We need to focus here and now on the development of decentralized surveillance technology for all. Technologies that allow ownership of data and use of it for various AI-enabled tasks again in a decentralized way.

Let`s shift our focus towards blockchain and AI use cases that serve citizens rather and can safely help us manage widespread risks, like the Coronavirus situation.

Inspired by the  a non-profit alliance with already 65 companies involved from the Blockchain and Artificial Intelligence space. Their first imitative is the  launched on April 1st and bringing cross-industry people to who are in alignment with the decentralization of AI, to work towards a variety of solutions to the problems from COVID19.

Designing the future is imperative. Being aware of the risk of the Stockholm Syndrome is paramount.

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ANTs – Active Non-Transparent ETFs

ANTs – Active Non-Transparent ETFs

ANTs – Active Non-Transparent ETFs 800 400 Efi Pylarinou

Figure, the Lending new unicorn powered by Blockchain

Earlier this year the SEC approved a new ETF wrapper and several companies will be able to launch active ETFs or license the wrapper to asset managers.

Undoubtedly, the growth of low cost, indexing, passive ETFs has been supported by digital innovations in wealth management. However, it is the incumbents that own the lion`s share of the low cost, passive ETF market. Similarly, it is predominantly incumbents that will be launching Active Non-Transparent ETFs.

ANTs are actively managed ETFs that offer all the advantages of the ETF wrapper – digital access, intraday liquidity, tax efficiencies, etc. – for actively managed portfolios. The reason that they have been called `Non – Transparent` is that the managers are not disclosing their holdings on a daily basis but on a quarterly basis. The ETF manager will only disclose real-time his-her positions to the Authorized Participant that is the entity who provides the in-kind redemption process.

Eaton Vance has been the only company that already has such an approved wrapper, the NextShares, which is an actively managed open-end fund trading on exchanges without regularly disclosing its holdings.

ETMFs were launched in 2016 but the growth has been negligible.

Eaton Vance Stock NextShares (EVSTC) – $6mill AUM

Eaton Vance TABS 5-to-15 Year Laddered Municipal Bond NextShares (EVLMC) – $7mil AUM

Precidian received approval in Spring 2019, for their own proprietary NonTransparent ETF structure, the `ActiveShares` which can also be licensed.

In a recent approval, Blue Tractor a 5 year old company also received approval to license its proprietary model, Shielded Alpha, to asset managers who are interested to launch NonTransparent ETFs.

The other players are T. Rowe Price, Fidelity Investments, and Natixis through a with the New York Stock Exchange.

Will the new ANTs planned to launch this month (March), come to market in these tough times? Will they eventually help the actively managed space?

Actively managed ETFs

Actively managed ETFs already exist but they are no more than 2% of the entire ETF sector. They have predominantly been focused on fixed income which is an asset class that the portfolio holdings are not easily replicable. Most asset managers have had difficulties beating their benchmarks and at the same time offering low-cost investment vehicles (even in funds) which has resulted in very low interest in equity actively managed ETFs.

As most opportunities in equities have been in smaller caps rather than larger caps and in international markets rather than US domestic markets, actively managed ETFs in larger-cap domestic caps seem challenging.

ANTs that have been approved maybe (just maybe) will establish themselves especially as investment ingredients that financial advisors embrace. The question is whether financial advisors will stomach the opaqueness of these ETFs. I guess they would if the alpha produced is sufficient but that of course, is a chicken and egg problem.

The only example of fully Transparent Actively managed equity ETFs is the family of ETFs launched by ARKInvest, which I have covered from their early days.

The investment thesis of ARKInvest is Innovation. It offers five actively managed thematic ETFs whose holdings are fully transparent (with a small intraday reporting delay). ARKK is the largest ETF with $1.86billion AUM (Total assets under management for all five ETFs are just over $3billion)

ANTs – Active Non-Transparent ETFs

ARK was awarded by Fund Intelligence in 2019, the ETF Suite of the Year. Cathy Wood, the CEO, has also been disruptive in the way research is conducted at ARKInvest. They have developed an Open Research process that allows them to go beyond the traditional financial analysis by including Theme Developers and experts and holding open debates around their investment themes. More here.

Two picks of noteworthy innovations of ARKInvest ETFs.

  • In the Fall of 2015 ARKW ETF, was the first ETF that invested in Bitcoin through Grayscale’s Bitcoin Investment Trust . I personally remember reading Chris Burniske`s (research lead at the time at ARKInvest) ARKInvest research at the time which was shared openly and led to their investment decision. The ARK Web x.0 ETF (ARKW) listed on NYSE Arca invests in innovative internet technologies including cloud computing, big data, digital media, e-commerce, bitcoin and blockchain technologies, and IoT.
  • Currently, ARKInvest shares openly on its website and on the Github their valuation model of Tesla which is a core holding in three of their five ETFs.
Tesla’s Potential Trajectory During the Next Five Years is their latest thinking around Tesla`s potential and the actual model with its inputs is on the Github here.
ETF Market

The ETF market championed during the February historic market drop

The ETF market championed during the February historic market drop 800 600 Efi Pylarinou

Figure, the Lending new unicorn powered by Blockchain

During the last week of February, market indices dropped precipitously, wiping out trillions of dollars in a historic drop.

I kept worrying about the liquidity issues that robo-advisors could be facing, as I kept fresh in my mind the Betterment/Brexit incident in July 2016! When the unexpected British election results hit the market, ETFs became illiquid and mispriced and Betterment suspended trading for retail on that Friday of the Brexit results for almost 3 hours.

ETFs have been the bread and butter of all robo-advisors. As of the end of 2019, based on my calculations, incumbent and standalone robos accounted for 12% of the entire ETF market (see here). Both standalone fintechs and incumbents use these efficient wrappers to create their portfolios.

Eric Balchunas, reported that history was made on Feb 28th, with the $SPY ETF becoming the first security to ever trade in one single day, over $100billion!

SPY trading volume

ETF Market Graph 1

Several large ETFs made all-time volume records on that same day. For example, $QQQ the NASDAQ tracker reached $28billion and $HYG, the most widely used high-yield bond ETF, reached $7.8billion daily volume.

Overall, the ETF market fared very well in this market blood bath.

The record volumes are a healthy sign. ETFs are used by professionals to get in and out of the market fast and efficiently. I say that the record volumes are a healthy sign, because they were combined with tight spreads and reasonable premium-discount levels; unlike the situation that occurred in the summer of 2016.

Authorized participants (APs) that manage the liquidity and play a significant role in the bid-ask spreads in ETFs, worked wonders in this recent market turmoil. In my 2016 post, I discuss in detail the liquidity risks inherent in ETFs. The bottom line is that the business of APs for ETF, is an operationally intensive business. The Aps create and redeem ETF shares and on average each ETF has 5 active APs. These are typically large US banks but also European banks are involved in the large US ETF market as APs.

We need to celebrate the way in which these entities handled the total record volume of ETFs this past week. $1.2 trillion traded in ETFs! Bank of America, Goldman Sachs, JP Morgan, and ABN AMRO, are some of the major AP players that make it possible for robo-advisors to brag about serving smoothly end customers.

ETFs proved themselves in the February downturn that goes down in history as one of the most severe drops in a short time. It has been compared to the 2008 crisis, as it wiped out close to $5 trillion in value in public stock markets.

ETFs overall experienced $24billion of net outflows! This is peanuts compared to the overall drop in equity values. This shows that that retail ETF holders, HODLed; the high ETF volumes indicate that professionals used ETFs to manage their exposures.

Stay tuned for a March update, by month end.

Appendix

ETF liquidity risks are more complex than at first sight.

There are ETFs that target illiquid markets (e.g. equity exposure to the Egyptian stock market; or specific bond market).

There are ETFs that simply don’t accumulate enough volume and therefore the bid/ask spread is wide. This is because the market maker is dealing with a narrow market. There are tons of ETFs that are low volume (close to 30% are reported to trade less than 5,000 shares per day!). Exchanges are giving out incentives to the trading firms involved in market making, to keep these structures alive.

There is also the Premium/Discount spread that reflects whether the ETF itself is trading above or below the NAV of the underlying portfolio. This can happen because of behavioral trends (i.e. the crowd pilling into an investment theme or an investment theme gapping down because of an event that turned it out of favor). This is the type of risk that Betterment tried to protect its clients from when it halted trading during the aftermath of the Brexit.

The last and least understood liquidity and counterparty related risk is one related to the Creation/Redemption process of ETFs. This is actually the secret sauce of these structures, which gives them the intraday liquidity which is lacking from mutual funds and the tax efficiencies. The Creation/Redemption process of ETFs refers to how the shares are created or redeemed. The process is complex and if one wants to understand it, it is explained on ETF.com here. The hidden risk that needs light shed onto it, is related to Authorized Participants (APs) who are the entities that create and redeem ETF shares and are sometimes the same as market makers; but not always. They are the usual suspects (large broker dealers) and have signed AP agreements with the ETF issuers (see a SEC-registered AP agreement here). In summary, for each ETF, one has to think of the Issuer (e.g. Vanguard, Blackrock), the Authorized Participant AP (e.g. Bank of America) and the Market Maker and the Custodian (e.g. JP Morgan, State Street).

So, one can say that at least Four kinds of liquidity risks are inherent in ETFs. The AP related risk or the risk inherent in the “magic” Creation/Redemption process of ETFs. It is a risk that cannot escape from a Lehman moment in the financial sector. Even if one invests in an ETF that has no direct exposure to the financial sector, through the double liquidity dependence on Authorized Participants and Market Makers of ETFs, the risk is there and real. In August 2015 when the market gapped, ETF prices were not available and active investors, those needing to hedge through ETFs; were facing a void. Passive investors focused on mirroring Indices, were disappointed too. Panic and behavioral biases can turn a seemingly well-functioning market into one that is illiquid, volatile and distorted. All these factors are concentrated in the financial sector. There is no difference from the time of the mortgage structured products crisis and the out of proportion domino effect.

Passive investing

Passive investing has led to excessive Corporate Control by the Big Three

Passive investing has led to excessive Corporate Control by the Big Three 800 533 Efi Pylarinou

Passive investing has led to excessive Corporate Control by the Big Three

The growth of passive investing is not limited to the ETF wrapper. Other indexing investment products have also been growing, with mutual funds dominating. Vanguard has pushed the industry towards such investment products with low expense ratios.

Vanguard boasts an average expense ratio of 19bps compared to an industry average of 108bps. Robinhood has pushed the industry to commission-free trading. Most large asset managers have currently, significant platforms with commission-free trading investment products (from Fidelity, Vanguard, Charles Schwab).

Customers — Investors should be extremely happy with all these developments. However, there is one major concern whose ugly head may not be noticeable. An elephant is in the room, here too. Its name is `The Big Three`. The concentration power of three US-based companies, Blackrock, Vanguard, and State Street, and its ramifications has gone largely unnoticed.

Blackrock passed the $7 trillion AUM by the end of 2019. A y-on-y increase of $1.5trillion.

Vanguard passed the $6 trillion AUM and State Street the $3trillion AUM.

These three corporates manage $16 trillion AUM. This is a 45% increase from 2017 ($11 trillion AUM)!

Through a visualization produced by Corpnet Research what becomes clear is that `The Big Three` are the largest shareholders in 40% of all publicly traded stocks in the US [1]

Passive investing Graph

The growth of low-cost investing, the disruption of the brokerage business model and the digitalization of the investment process, has created this excessive concentration in the Big Three asset managers.

Blackrock, Vanguard, and State Street have corporate control over 40% of the US stock market! These giant index fund businesses have too much shareholder voting power. That is one of the reasons that it matters a lot what the Fink says about climate change and ESG. In this case, we like his commitment but let’s be aware of this Corporate Governance entity in the room

The Harvard Law school forum on Corporate Governance is also researching this theme. In their paper The Specter of the Giant Three they look closely into this issue and estimate that the Big Three could well cast as much as 40% of the votes in S&P 500 companies within two decades.

Even though, the Big Three own less shares than 40%, their impact is amplified because they exercise their voting power 100%, whereas smaller asset managers do not.

The Big Three currently collectively hold an average stake of more than 20% of S&P 500 companies and each one of them (BlackRock and Vanguard) now hold positions of 5% or more of the shares of almost all of the companies in the S&P 500.

Even more interesting is that this corporate governance problem was identified initially as the

“Problem of Twelve” — the likelihood that in the near future roughly twelve individuals will have practical power over the majority of U.S. public companies.

In just these last two years, the problem has become more acute.

If we continue to focus on democratization (access, low cost) of financial products and services with no innovation in corporate governance, we will end up pretty much in the same corner as we have with the Big Tech companies.

We need more fintechs innovating in the shareholder voting process. We need to increase the shareholder voting participation and make it 100% transparent for shareholder that are already required to publicly disclose their holdings.

The Big Three references

BlackRock, Vanguard and State Street Own Corporate America

Original article appeared on Daily Fintech

[1] Hidden power of the Big Three? Passive index funds, re-concentration of corporate ownership, and new financial risk

Celebrating the WEF 50th anniversary with 50 bytes from Davos 2020

Celebrating the WEF 50th anniversary with 50 bytes from Davos 2020

Celebrating the WEF 50th anniversary with 50 bytes from Davos 2020 800 450 Efi Pylarinou

Celebrating the WEF 50th anniversary with 50 bytes from Davos 2020

I am transparently stealing Ben Pring`s format, with my own 50 diverse takeaways. Some are my own big picture opinions from spending two intense full days in Davos and participating in two side events. Others are takeaways from the diverse speakers that I had the privilege to listen to. And some are my Tech innovation picks again from the events I participated in.

1. Great Greta Thunberg joined the status quo and is now confronted with all the difficulties that grown-up celebrities face. I am not supportive of this at all. I suggest `Leave the kid alone`, she has done enough already.

2. The “Davos Manifesto” is clear and in alignment with Great Greta`s message. Businesses will continue to be the way we create wealth (of all kinds) but now all adults can role up their sleeves and look at ways to maximize Stakeholder value.

3. Let’s pass on the torch that Great held, to adult activists. I am taking a stance on these issues that touches upon the psychological well-being of kid activists.

Greta Thunberg — Celebrating the WEF 50th anniversary with 50 bytes from Davos 2020

4. The WEF was originally known as the European Management Forum and only 16 years later when it expanded its scope, was it renamed to WEF. Watch the WEF roadmap here.

5. Even Davos was supportive of Greta. There was less snow and it was too warm. However, that did not reduce the number of men & women wearing light color fur coats and (women) bright color heavy makeup and hanging out on the sidewalks of the Promenade.

6. Pop-up stores, as “corporate showrooms” on the Promenade are growing.

7. Last year there were two Tesla`s showcased outside the Morozani hotel. Honestly, I expected to hop on a driverless car this year, but I was disappointed.

8. Female dominated panels were all the rage. We were even got offered a special `Women in Fintech`trophy at TechParkDavos (amazing event).

9. Background and geographic diversity in panels were also rising.

10. For the first time, the balance of the agendas of the ever-growing Davos side events was greatly tilted towards Sustainability rather than Blockchain.

11. During the two days in Davos, I did not hear 4IR once. The dominating themes were around the ethical regulation of the technologies.

12. WEF Davos is becoming more about social issues rather than businesses, which gives us hope for explicit and intentional innovation on the Societal front.

13. Surprise on the Promenade: A “cannabis-tech” expo for the first time. No comment.

14. Ben Pring says that `Wellness” advisors from Beverly Hills have started showing up in Davos. I did not see them. However, the Blockbase Davos space was really well attended. Linking spirituality, arts and technology. Worth visiting.

15. WEF Davos was echoing with links between Ecology, Economy and Consciousness.

16. Goldman Sachs`s announcement to no longer take any company public unless there is at least one diverse board member was very in vogue with the Davos narrative. Maybe they will be the ones taking Ripple to IPO (an unexpected hint during Davos) as their board is really diverse.

Artificial Intelligence

17. AI will have huge applications in the real economy. We humans will be training lots of micro-robots to perform tasks (micro-robot training).

18. AI will have huge applications in optimizing transportation.

19. Only 20% of large corporations have made a difference by using AI.

20. 54 million people are wasting their time with jobs that AI data management can do better.

21. “AI is going to become more and more accessible to everyone. It is not going to be only for the privileged neither controlled by the big companies.” says Jürgen Schmidhuber

22. `X+AI will be the norm` says Ben Pring

23. `Self-improving AI will change everything`says Jurgen Schmidhuber, founder of Nnaisense.

24. “#AI is like babies – they need lots of #Data, lots of #Information. They need their parents teaching them. AI needs us, humans” says Jurgen Schmidhuber

25. Did we ask for this?: AI & IOT can help moms monitor whether their kids brush correctly their teeth

26. Did we ask for this?: AI & IOT can help men & women apply moisturizer exactly on the areas that need it.

DATA

27. The old adage `Location, location, location` is now transformed into `Availability, availability, availability` which means the power is in the accessibility and data.

28. $4 trillion USD is spent by corporates every year to prepare data to be used by AI algos.

29. Global Data Excellence is a global leader in Data excellence management that maximizes business value with a clear focus on the social value mission.

30. Trigyan offers an innovative data platform that is domain neutral to link data at scale and real-time – Glide (Graphically Linked Integrated)

Platforms are the only Sustainable business model (a pick of the ones I met in Davos during the WEF)

31. Capital Markets: LoanBoox is a Swiss debt capital market platform digitizing capital markets for the municipality sector and eyeing much more.

32. Banking: Mt. Pelerin is a blockchain powered core banking operating system. No fractional reserve banking, rather a marketplace approach to digital assets.

33. Digital ecosystem: The 1 billion retired people are a virtual continent that needs to be serviced accordingly. Dmitry Kaminskiy is the coauthor of the upcoming book Longevity Industry and covered tech in this the longevity space.

34. Digital ecosystem: YesWeTrust is a Swiss based unique ecosystem growing a community around health, sustainable investing, and a marketplace for sustainable consumption.

35. Digital ecosystem: Beyond Animal is another Swiss based unique ecosystem focused on the sustainable economy. A networking platform, a crowdfunding platform for sustainability business, and a AI powered supply chain assistant.

36. Digital ecosystem: Graypes is another Swiss AI powered ecosystem that evaluates business ideas. Funds them and offers a network to grow them.

37. Sovereignty: Liberland is a micronation powered by blockchain and other technologies that setup a rep office in Zug after the WEF.

38. Ria Persad spoke at TechParkDavos: She is the founder of Statweather, a 10yr old award-winning company providing state of the art weather prediction systems and risk mgt.  She bootstrapped the company with stay home moms working part-time!

39. NASA and Diversity: The NASA Artemis program, will send the first woman and next man on the Moon by 2024, using innovative technologies to explore more of the lunar surface than ever before. Cindy Chen spoke at Diversity in Blockchain about Artemis and the new female spacesuits.

40. Data scientists: NASA Datanauts is a community for data newcomers, introducing and advancing data science skills, and creating a vibrant data problem-solving community.

41. Edge technologies: Marco Tempest showed us a VR live application that combines science and illusion. A kind of camera that as you speak on stage, autonomously projects you in a VR enhanced way (a real-time transformation to a magical virtual world).

42. The transformation via AI is leading the world from Automation to Autonomous; said Nicolai Waldstrom, CEO & Founder, VC BootstrapLabs

43. Evan Luthra, is a truly native entrepreneur and angel investor, who has founded the iyoko.io ecosystem supporting people and innovative ventures.

Davos Events I attended or were on my list but never made it:

44. Follow SwissCognitive – The Global AI Hub, the host of the TechParkDavos, and Yusuf Berkan Altun, the organiser of TechPark Conference Davos 2020.

45. Follow https://www.diversityinblockchain.ch/, and their sponsor BloomBloc who is focused on a sustainable supply chain for agriculture.

46. Follow the World Innovation Economics events; a platform for sharing ideas, discussing and exploring ways to resolve real-world challenges using Innovations.

47. The Digital Economist hosted the book launch of Bridgital Nation: Solving Technology’s People Problem co-authored by Natarajan Chandrasekaran and Roopa Purushothaman (Tata). A dream application of AI in India.

48. The Digital Economist roundtable with MIT Professor Alex ‘Sandy’ Pentland focused on co-creating solutions to driving technological convergence into the new digital economy. Using the SDG framework to improve the state of the world through social entrepreneurship.

49. The Prosperity Collaborative presented insights around building an efficient and fair taxation system by harnessing innovative technologies, hosted by GBBC. Alex `Sandy’ Pentland and John Werner and Tomicah Tillemann were involved.

50. The Planetary Supernodes annual gathering (an invitation only event) took place at Blockbase Davos. The mission is to energize and activate thriving projects of planetary impact that engender a sustainable future.

— This article originally appeared on Daily Fintech.

Forbes Logo.

This article was quoted in Forbes:

Davos 2020 Hacked: Tech And Innovation Dominate:

https://www.forbes.com/sites/lawrencewintermeyer/2020/01/30/davos-2020-hacked-tech-and-innovation-dominate/#70950c205165

AntForest, an award winning Techfin gamification app – Global Climate Action

AntForest, an award winning Techfin gamification app – Global Climate Action 800 600 Efi Pylarinou

AntForest, an award winning Techfin gamification app – Global Climate Action

In early December, the Two lake forum held an event in Zurich around Fintech & Wealth management. The three Z: Zurich, Zheioang, and HangZhou; discussed about the strengths and weaknesses of the two CHs – China and Confederation Helvetica (CH) – and how to collaborate.

Obviously, `scale` is what China has with its pros and cons. Desertification is one of the scary large scale issues that China has been facing for a while.

The Swiss country head of Alipay, Karl Wehner, spoke at the forum and highlighted the tech accomplishment of MyBank (e.g. 3-1-0 lending, 1% Non-performing loans), Alipay`s fraud detection quality control, and briefly the viral success of AntForest.

AntForest is a 3yr old Corporate Social Responsibility – CSR – initiative of Alipay that took a life of its own. It won the 2019 UN Global Climate Action Award.

A great example of gamification and network effects on an ecosystem like Alibaba. At launch it was one of the many charity projects that were planning to collaborate with Chinese NGOs to plant trees and contribute towards creating the Great Green Wall to block the advancement of the Gobi desert. 

China has been facing a huge problem from the northeast, as the desert has been growing and as China has very little land that is arable [1] (only 12%). Sandstorms in Beijing have become more frequent. 

In 2016 Ant Financial launched a charity app, AntForest, for Alipay users. People could choose from a list of low-carbon activities like, using public transportation and bikes, recycling, reducing plastic usage, and more; and earn `green energy points`. These points could be used to buy virtual seeds to plant trees, and once these virtual seeds had grown a bit, through virtual caring (watering etc), then an actual tree would be planted in some desert.

AntForest users, could watch their actual trees grow through satellite images. 

One salix mongolica in Kubuqi desert, a sea-buckthorn in Tongliao,  two alxa in Inner Mongolia etc. have been planted by Jessie-Chee. She watches them and is very proud of them. She competes with other friends who have more trees than she has. 

AntForest gaming features and visuals, have created a virtual social network that Alipay did not have before (unlike WEchat). In September, it was reported that AntForest and the Chinese NGOs that support the actual planting of the trees, have planted 122 million trees and the social network has grown to 500million users! The trees cover an area of 112,000 hectares, making the AntForest initiative  the largest private-sector tree-planting initiative.

AntForest users living close to the borders with the desert have also been involved in planting the trees, changing lifestyles dramatically to earn energy points and feeling part of a virtual communities with strong purposeful ties. 

Alibaba is now using its ecosystem to extend the appeal of AntForest. 

Its new retail concept store, Hema Fresh, offers customers 21 green energy points when they shop without any plastic bags. Hema fresh, [2] not only has high quality food and online ordering and delivery but also a next level integreated smartphone experience. This includes complete product information by scanning QR codes of product labels, automated check out via RFID and payment via Alipay. 

Alibaba`s second hand second-hand trading platform, Idle Fish, rewards users recycling their old items with green energy points.

Alibaba`s Dingtalk, a chat and collaboration app for video conferencing also awards green energy points, for users that avoid commuting for in-person meetings.

AntForest has inspired and provided knowledge to GCash in the Phillipines to launch GCash Forest this past summer with the goal to 365 thousand trees in 365 days. 

Gcash [3] is the top mobile banking app in the Phillipines with 5million downloads and 20million users. 

The Crosslend & Solaris Bank partnership is key to the European debt Securitization market

The Crosslend & Solaris Bank partnership is key to the European debt Securitization market

The Crosslend & Solaris Bank partnership is key to the European debt Securitization market 800 534 Efi Pylarinou

The Crosslend & Solaris Bank partnership is key to the European debt Securitization market

Santander Innoventures has not been shy in investing in Fintechs in the lending space. Kabbage is one of their earlier and well known portfolio companies and strategic investments. Several others that offer banking services in Emerging markets, offer loans.

In October, they led a €35 million Series B round for Crosslend, a Berlin based startup offering a digital debt marketplace to securitize all forms of debt from banks and alternative lenders.

Securitization is still a tainted term even after a decade from the financial crisis.

Sadly, the European securitization market has not recovered since 2007, whereas the US market seems to be approaching pre-crisis levels. The mix has changed in the US with a clear reduction in the non-agency market and an increase in the issuance of consumer asset-backed securities and collateralized loan obligations. Issuance in Europe approached in 2018 just one third of the 2008 peak issuance.

EU 2018 issuance = € 269 billion

EU 2008 issuance = € 819 billion

Both regions created new regulations after the crisis. The EU continues to develop new standards that the market awaits to adjust to. The STS — Simple Transparent Standardized — framework is the latest one under development. [1] Can we blame the regulators in the EU for the anemic growth in the EU securitization market?

This past June, Younited Credit, a French fintech marketplace for consumer loans, placed €156million in a public securitization listed on Euronext (Youni 2019–1). They are the first to get the highest rating on its “senior” tranche, rated AAA/Aaa by Standard & Poor’s and by Moody’s.

Funding Circle has also engaged this year in securitizing loans but through private debt placement deals. By July, Funding Circle had reached the total amount of loans securitised to £755m. Its latest transaction was rated AA / Aa3 ratings by S&P and Moody’s, respectively. [2]

So, where are the Fintechs to disrupt the complicated securitization process? Since the 1970s that securitization was designed and proved its product market fit, the pros for loan issuers are clear and pretty much unchanged.

Securitization for issuers, means off-balance-sheet treatment. It is a way to unlock capital as loans move off the originator`s balance sheet.

This can reduce capital at risk requirements for banks and replenish capital (potential to borrow at lower rates through higher credit ratings).

The reality is that the process is complicated and expensive. As a rule of thumb it starts making economic sense when pooling hundreds of million of assets. This is in itself is tough because there needs to be some homogeneity in the underlying pool (common sense but also regulatory standards). In addition, a new company needs to be setup, the SPV that will hold the pool, and legal and tax issues need to be addressed.

Crosslend a German fintech is taking a stab at this tough but highly scalable problem. A new of them from their early days, through one of their early investors, Lakestar. They aimed to be a Cross-border online lending platform for institutional investors and borrowers.

They have actually pivoted since and developed a solution to automate the securitization process of loans in siuch a way that it becomes worthwhile to securitize smaller pools of loans — between 20 and 100 million euros.

Their automation includes a with a high-quality data warehouse which maximizes transparency of the newly issued securities and keeps transaction costs low.

Their total funding is now €49million and includes strategic investors like Santander InnoVentures and ABN AMRO ventures.

The combination of Crosslend and Solaris Bank, the successful German Baas provider, can become one of the growth stacks that propel the CMU (Capital Markets Union) to the next level.

The CEOs of Crosslend and Solaris Bank (already in partnership since last year) are aiming to fully automate loan securitization with no cross-border frictions and create securitized pools for as little as 20million loans.

Using the Solaris Bank balance sheet to originate loans and the transparent automated technology of Cross lend, they aim to create a new model, `Digital Securitization as a Service`.

The partnership allows Solaris Bank to establish what they call ‘The Balance Sheet Light’ model. Loans are originated using Solaris Bank`s license. These can be passed on to investors with a small delay and without putting a long-term strain on the bank’s balance sheet.

“The Balance Sheet Light model is revolutionary. As a platform, we match supply and demand in the credit sector. At the same time, we maintain the flexibility to hold loans thanks to our banking license and can actively manage our balance sheet. With this approach, we can maximize the efficiency of our equity and make the securities market much more efficient and transparent.”

Alexander Engel, CFO solarisBank

The Crosslend SolarisBank combo could become the technology that makes the STS — Simple Transparent Standardized- vision of the CMU reality.

Walmart. Bricks, Clicks & Voice

Walmart, the retail giant combining Bricks, Clicks & Voice

Walmart, the retail giant combining Bricks, Clicks & Voice 1500 1000 Efi Pylarinou

Walmart, the retail giant combining Bricks, Clicks & Voice

Retail giant Walmart is not included in the FANGs or the GAFAs but is part of the THWAC — Target, HomeDepot, Walmart, Amazon, and Costco. Walmart is also the №1 employer in the US, ahead of Amazon, the e-commerce giant that is also in other businesses like cloud, delivery, entertainment, payments, smart home devices, and physical stores.

Retail giant Walmart is a native of the THWAC tribe that can actually stand respectfully next to the Bigtech Amazon and other large non-financials that are using Fintech technologies to grow ecosystems and transform digitally.

Walmart revenues were over half a trillion in 2018 and Amazon`s were less than half. Amazon, however, has had double-digit revenue growth over the past decade, ranging around 30%, whereas Walmart has been on the defensive with single-digit revenue growth (no more than 5%). [1]

The Walmart`s Smart transformation

Walmart serves its employees

Walmart invested $2.7 billion in retraining its employees in 2016–2017.

In late 2017 it offered its then 1.4 million employees and associates (people working part-time) a free financial wellness app. Even is an Oakland based Fintech with a budgeting easy to use solution (with saving, investing and borrowing capabilities). By the end of 2018, Walmart reported 2.3million employees (including associates). Recent reports show that over 300,000 Walmart employees use the Even app.

Even features, Instapay, that allows workers to qualify for an advance of up to 50% of their paycheck based on the hours you’ve already worked. Walmart subsidizes the use of these features, which is free to use a few times per year.

Walmart offers free financial wellness tools and protects its workers from the payday loan sharks.

Walmart continuously innovates in payments — the heart of any economy

Keep in mind that Walmart clients are mostly low-affluent people. The impact in their daily lives of low-cost payment options is larger than for the typical client of Amazon, who is in the mid-affluent range and higher.

Walmart started in 2015 with banking partnerships to offer all sorts of lower cost and convivence payment options. The WalmartPay was launched in 2015 and allowed shoppers to pay at the counter with a QR code.

Walmart has been fearlessly adding more payment options.

The Walmart prepaid card is reported to have resulted in $2 billion savings for Walmart customers over the past 2 years (details here). This prepaid card was launched in collaboration with Green Dot and Common Wealth.

Green Dot is the world`s largest prepaid card company by market capitalization ( NYSE: GDOT ).

Common Wealth is a Boston based company, designing and building fintech solutions that address challengers for financially vulnerable people and focus on consumer financial health.

The Walmart money transfer offerings are several and always through partnerships that enlarge Walmart`s customer base.

First was the Walmart2Walmart offering (W2W) that was launched as early as 2014 in partnership with RIA financial. In 4,000 Walmart physical stores, people with the Walmart app can transfer money (without a bank account) and the cash can be picked up by the recipient in any of the other participating stores. The cost is $4 to send up to $50, $8 to send between $51 and $1,000, and $16 to send between $1,001 and $2,500. Slightly lower than Western union, but real-time.

The next addition was sending money to the world via a collaboration with MoneyGram.Walmart2World offers pickup at any MoneyGram.

Through BlueBird2Walmart account holders of Bluebird — a US checking and debit alternative — can send money online for cash pickup at Walmart stores.

Last month, with Capital One, they launched credit cards with high cashback features.

The cobranded Capital One® Walmart Rewards Mastercard® and the private-label Walmart Rewards Card.

At the same time, Walmart has filed for a cryptocurrency patent, the Walmart coin to be used in its ecosystem. Most probably USD backed, with rewards and interest earning. [2]

Walmart continuously innovates in Ordering & Delivery

Walmart has increased its pickup service and reports show that they are ahead in this area compared to Target, Kroger, and Whole Foods.

WalMart`s service is free. It includes 2000 store location for pickup already (compared to 22 for Whole Foods) and plans to have over 3,000 stores by next year.

Consumer data shows that not only the average order is double the size for curbside pickup but this free service has brought new clients to WalMart that more affluent and include health, beauty and household items in their cart (50/50).

Walmart. Bricks, Clicks & Voice
AMAZON, WALMART, & THE SECRET BATTLE FOR FINTECH SUPREMACY: PART II

Cowen`s research calls for a $35billion Curbside market, pretty soon.

“Curbside is a manifestation of Bricks-Meet-Clicks”

The opportunity seems to wide open still and Walmart is a leader. According to Offers.com’s Grocery Survey 2019, only 20% of Americans have used a grocery pickup service, and they are primarily located in the south (Texas, Florida, Arkansas…). Among those using grocery pickup, 39% opted for Walmart’s free service.

Walmart is also innovating in Voice-meets-Bricks market too.

Three years ago, in September 2016, Walmart bought Jet, an online retailer, for $3.3billion. Jet has been running independently but at the same time cocreating with Walmart innovative services.

For example in large cities with few or no Walmart stores, Jet has is positioned to serving these urban customers. In NY city, Jet offers a “city grocery experience”. Customer can choose 3h scheduled same-day or next-day delivery for groceries, daily essentials and other items. Shoppers can add customized delivery instructions.

Walmart has also partnered with Google and offers voice-activated shopping.

Just say ”Hey Google, talk to Walmart” and the Google Assistant adds the items directly to their Walmart Grocery cart.

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