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.


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 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.


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 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, 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:

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

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’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.

Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them? 800 531 Efi Pylarinou

Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

In October the US market witnessed the Robinhood effect. Schwab slashed its stock commissions to zero, which in turn forced TD Ameritrade, E-trade, Interactive Brokers, Ally Invest, and Fidelity to follow suit over the next few days. Schwab called this the zero-commission brokerage war, on CNN. A week or two later, after Bank of America reported better than expected earnings, they also announced the expansion of their online zero-commission program through the Merrill Edge Self-Directed program.

One private Fintech, Robinhood, has managed to drag along all these publicly traded companies. Some of them are pure brokerage businesses and others are much broader financial services providers. They are all however public and disclose their business practices and their revenue sources. Robinhood, despite being a native Fintech, has been relatively opaque about the way it makes money and its revenues.

Now that one private company and half a dozen publicly traded providers have all zero stock commissions, let’s look at how things are working behind the scenes. How are they making money from the happy clients that trade stocks for free? The happiest ones being those that actively trade, the high turnover DIY individuals or smaller money managers. There are only two ways to make money from such `users`: (a) from the interest rate differential on the cash balances they hold with you, (b) interest on margin balances © from payment on the order flow data that is sold to HFT firms, (d) by charging a subscription fee for the service.

Robinhood is the only one that is offering a subscription service called `Robinhood Gold` (1st month free and then $5 a month) to use premium services like professional research, real-time market data, etc.

Robinhood has just this month figured out how to pay interest to its users through sweep accounts, after making a regulatory goof last December with the launch of a cash account. They are now offering 2.05 % interest. Which seems considerably higher than what the public companies are offering. Feb 2019 figures show that IB ranked on the top with up to 1.9%, Schwab and TD Ameritrade were around 70bps and E-trade around 40bps. [1]

Where Robinhood gets shady and is not in alignment with Digital anti-feudalism that Fintechs supposedly represent, is in selling order flow data to HFT players, like Citadel and Virtu Financial.

Alphacution has researched this area in detail and shows the latest figures of order routing revenues (2018) in equity markets. Robinhood does not need to disclose all its revenue components but as a broker dealer it has to disclose some financial data. Alphacution uses what was disclosed to estimate Robinhood`s order flow estimate. There is a surprising jump in Robinhood`s 2018 revenues from selling order flow — over 200%. This shows that Robinhood has automated this process and that customers may not be getting the Best Execution.

Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

Last October Bloomberg reported, that Robinhood earned more than 40% of its revenue in early 2018 from selling its customers’ orders to high-frequency trading firms, or market makers.

This heating up of Robinhood`s order flow revenues seems to be the case for the entire sector but at 1/5th the size. Alphacution looks at the main players and calculates a 40+% increase in the sector order flow revenues in 2018.

Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

The only company that is not participating in this business is Fidelity. As Kathleen Murphy told CNBC, they are the only ones that do not take payments for stock or ETF trade flow. At least with Fidelity, there is no inherent conflict of interest with regards to best execution.

Digitization has grown clearly benefited customers in terms of better user experience and lower fees. Robinhood has pushed the sector to offer zero stock commissions. This happened in late 2019, while 2018 seems to be the year of substantial growth in another business:

The Business of buying and selling equity order flow data exploded in 2018.
Robinhood is leading this explosion.

This market is not mainly Citadel and Virtu Financial. Alphacution shows that they handled only 15% of the flows and the sector has grown since 2013 over 70%.

Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

Stock commissions go to zero and behind the scenes, equity order routing payments explode.

Thank you very much Robinhood.

Discounts brokers are transforming into businesses selling order flow.

These are the new intermediaries between the end customer and those in the opaque order routing business.

Who will disintermediate this space and bring those order routing commissions to zero and full transparency so that the best execution is built-in? Are we too far away from such a disruption?

Who will offer asset managers a way to pay direct for order flow and get best execution? Will this be the reason to tokenize publicly traded stocks and use smart contracts to handle order flow?

EFT Market

Will Robo advisors take control of the ETF market?

Will Robo advisors take control of the ETF market? 800 533 Efi Pylarinou

Will Robo advisors take control of the ETF market?

Betterment and Wealthfront are 11 and 8 years old. They set the tone in the market for Robo-Advisors, that are neither Robots nor Advisors as Paolo Sironi kept saying more than 4 yrs ago. They got leapfrogged by the incumbents which as of today manage 10 times more assets through their various digital wealth offerings.

Autonomous Next Research [1] shows a ratio of $550 over $50, Incumbents over Fintech Standalones as of the end of 2018.

EFT Market

The tug-a-war between no-human advice (which was the original purists’ approach), hybrid (some human advice and or someone to call); has tilted towards the hybrid advisory model.

The tug-a-war of flat fees versus % of AUM; remains tilted towards the % of AUM which was the conventional one. Flat fee advisory have been offered by XY planning network and directly to the consumer only recently by Charles Schwab (see No Trade-offs: Give customers everything they want as cheaply as possible).

Back in 2016, just after Vanguard stepped into the market with their Personal Advisor services, most well-known institutions [2] were predicting between $ 2.2 trillion and $ 3.7 trillion in assets to be managed by Robo-Advisory services in 2020 and $16 trillion by 2025.

Well, 2020 is around the corner and we have not reached $1 trillion yet.

The customer remains king. They can get digital-only service for as low as 15bps (once Vanguard Digital is live) or for $30 per month a hybrid service from Schwab.

The ETF market, which is the main product universe that powers all digital offerings, has been growing and has reached $4.7 trillion. Digital wealth seems to be managing 12% of ETF assets (as of end 2018).

EFT Market

It took the ETF industry a decade to reach $1 trillion in assets (in 2010). But the pace of growth picked up significantly thereafter and averaged close to 20% per annum. Will this pace hold, if equity markets enter a bear trend?

Can digital wealth maintain or improve its 12% share of the ETF market?

The growth in their AUM only started to be meaningful from 2016 once Schwab and Vanguard stepped in. Edleman`s 2018 deal to buy Financial Engines, was another significant contribution to Digital wealth growth managed by robos.

Aite group`s research in 2018 predicted $1.46 trillion for 2021 and BI intelligence $4.6 trillion for 2022. [3] Aite`s numbers mean that Digital AUM needs to grow at a rate of 38% per annum from 2019–2021 to reach the $1.46 trillion by the end of 2021. If this materializes and the ETF market continues to grow by 20% (reaching $8.1 trillion), then Digital Wealth will be managing 18% of the entire ETF market.

In the more aggressive scenario suggested by BI intelligence, the implied growth rate for Digital AUM from 2019–2022, is 70% per annum from 2019–2022. If this materializes and the ETF market continues to grow by 20% (reaching $9.5 trillion), then Digital Wealth will be managing 48% of the entire ETF market.

EFT Market

[1] Infographic from Roboinvesting event in London, Lex Sokolin`s keynote. Other research groups don`t take into account Edelman and Merill Edge and therefore arrive at a lower number. Investopedia (Robo-Advisors 2019: Still Waiting for the Revolution) reports that as of mid 2019, $440 billion is managed by robo-advisory services according to Backend Benchmarking, and a $350 billion range is Aite Group`s numbers.



Size matters Digital Deployment

Digital deployment in small and medium sized banks remains anemic

Digital deployment in small and medium sized banks remains anemic 800 533 Efi Pylarinou

Digital deployment in small and medium sized banks remains anemic

Temenos released in April its annual report[1] on the State of digital sales in banking and Jim Marous provided insights in Banks Not Meeting Digital Sales Expectations. In late August, in The Illusion of Digital Transformation in Banking he categorized the digital readiness of banks in 5 degrees. Which made it painfully clear that 83% of banks are NOT yet on a  large-scale digital transformation track.

Digital Deployment 1

I was even more disappointed with these observations:

More concerning is the reality that most of the high marks for digital sales continue to be garnered by only the largest organizations.

 Larger banks ($150B – $2,500B) not only have a financial and technological advantage, they benefit from a head start in the deployment of all digital account opening capabilities, allowing them to gain a share of mind advantage through media and word of mouth. 

Fintech technology was supposed to democratize banking not only for the end-customer but also for the smaller, less national, less international financial services providers. After all, fintech is by now overweight B2B providers with a rich variety of Saas offerings. As Jessica Ellerm pointed out ‘Something’-as-a-service, is the new fintech paradigm.

Despite the plethora of B2B unbundled fintech services out there, anything you can imagine as a service; the mid and smaller size banks remain overall behind. Of course, there is a variety of metrics and KPIs that one can use to measure their digital readiness. From mobile account opening, save and resume functionality, small business account opening, etc.

Digital transformation these days requires internal cultural and technological changes whose impact will be seen 3+yrs down the road. That means that mid to small size incumbents remain at a disadvantage. Their Boards surely won’t approve a budget for a transformation plan that may see results in 3 years. Surely,  they don’t have internal strategic funding mechanisms like Goldman Sachs has. Goldman’s Principal Strategic Investments group has made key investments in Kensho and Tradeweb and helped create Wall Street chat platform Symphony, and much more.

Small and medium sized banks are also exclusively served and in touch with Fintech innovation through their existing financial software providers. They in turn will only sell them innovations that they have integrated in their offerings and keep them hostage to those legacy systems. 

One promising initiative was launched in late 2018 by Fintech Forge. The so called Alloy Labs Alliance, is focused on addressing the innovation needs of smaller banks. They have 12 founding members and 20 additional members. This is a member driven innovation lab for smaller banks. 

Small and medium sized banks remain trapped. Unfortunately, the democratization of financial services, the explosive growth of Fintech Saas offerings, has not reached them. Size matters.

[1] The report includes the Temenos proprietary ‘Digital Sales Readiness Matrix’.

Dumb Pipes

Spotting `dump pipes` during the re-bundling of banking, is not easy

Spotting `dump pipes` during the re-bundling of banking, is not easy 800 439 Efi Pylarinou

Spotting `dump pipes` during the re-bundling of banking, is not easy

`Buy versus build` continues to be a discussion for incumbents.  Shared infrastructure allows for rapid deployment, economies of scale, and expansion in additional markets. On the other hand, incumbents have cultural issues and technology integration challenges that are real.

Increased Saas model adoption and APIs, make it difficult to predict whether incumbent banks or Fintechs are becoming the plumbing of financial services. For me, we actually need to reconsider whether this should be a question at all.

Two or three years ago, the `dump pipe` debate was hot and terms like Big banks becoming Dumb Pipes or Dumb pots, were trending as discussion topics in articles, conferences and debates [1].

`The “dumb pipe” debate originated from the telecom industry and there is a lot of literature on the subject. The grandfather of the debate is David Isenberg who in 1997 published the seminal paper The Rise of the Stupid Network.` Excerpt from Andra Sonea`s post On banking “dumb pipes” and “stupid networks”

We have been using the `dumb pipe` term because it works in the attention economy which is dominated with trendy jargon. But we each map the term to a different concept.

We are actually even biased. When we look at a Fintechs with a B2B Saas offering like Mambu, then we may think that it if Mambu powers an incumbent bank to offer lending, then maybe the bank is at risk of becoming a dumb pipe. On the other hand, when we realize (if we do at all), that Mambu is powering N26, we don’t classify N26 as a bank with a high risk to become a dumb pipe.

Mambu is a great example of a Fintech specialized in a Saas core banking offering. It powers up Oak North bank, which is the No.1 UK challenger bank. It is the heart and brain of the ABN Amro`s digital banking spinoff, New10, that focuses on SME lending; and more.  Mambu does not offer the banking license (a different approach to Solaris Bank). Just by looking at these two examples – Mambu and Solaris Bank – that have unbundled financial services in different ways; we have to pose the question `Where is the value being creating?`

  • Powered by Mambu means: Go to market fast with a Saas cloud-native solution – Client has the banking license; Fintech has the tech – Who is the dumb pipe?


  • Powered by Solaris Bank means: Get into banking with a Saas cloud-native solution – Client can offer banking services without a banking license of its own – Baas – Fintech has the license and the tech – Who is the dumb pipe?

The `dumb pipe` threat was native to the digitalization phase of unbundling as the disruptive force that was going to dominate. Now we are in a re-bundling phase and fintechs are growing their stack of offerings, incumbent financial institutions are transforming their offerings, and tech companies are also stepping in. From Habito powering the mortgage offering of Starling bank; to Kabbage powering Santander`s business loan offering, to Motif launching structured products for Goldman Sachs; to Goldman powering the Apple card; to Solaris bank powering Alipay`s acceptance in Europe; and TrueLayer powering Monzo

Starling Bank & Habito
Kabbage & Santander
Motif & Goldman Sachs
Goldman & Apple
Solaris Bank & Alipay
TrueLayer & Monzo

I hope you are convinced that we can’t spot easily dumb pipes in this kind of world. If business expansion is powered through a Saas cloud offering, then the next question to ask is whether this powers your ability to offer advice by analyzing what is processed in the pipes and whether it enhances your brand through strengthening your trusted relationship. As the re-bundling continues and the commoditization of transactional banking services also continues, the

Last man standing will be Brand and Advice[2].

If you use Saas offerings towards offering advice and enhancing your brand, then there is no reason to fear becoming a dumb pipe.

[1] Are Banks Destined To Become The Next “Dumb Pipes”? via Tech crunch

Banks May Be Turning Into Dumb Pots Of Money via Forbes

The Big Banks Are Becoming `Dumb Pipes`; As Fintech Takes Over via CBinsights

[2] Inspired, copied and stolen from Gary V`s tips from his the recent at The Financial Brand Forum’s. See 9 Priceless Tips For Financial Marketers From Gary Vaynerchuk

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