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

Don`t confuse People-centric Banking with Customer-centric Banking

Don`t confuse People-centric Banking with Customer-centric Banking 800 551 Efi Pylarinou

Don`t confuse People-centric Banking with Customer-centric Banking

A bank that is people-centric is one that supports, inspires, and grows a community with strong ties. This is much more than a customer centric bank. The customer centric hashtag may mean a great app that is simple and easy to use, or an onboarding process that is fast, secure and efficient, or a rich menu of choices of products, or an adaptive learning chatbot, or a transparent advisory service,….

A genuinely people-centred approach to business, includes the way a bank handles a delinquent mortgage or loan payment. A bank that starts by asking `Why` the delinquency is a people centric business. It stays in conversation with the customer, shifting from a transaction centric mindest and focusing on supporting the client to move forward.

A bank that has customized tech solutions to advise and support the customer who can’t pay, even if that means no transaction for the bank. Gi Fernando MBE, founder of Freeformers, refers to such a case implemented at Barclays in their mortgage area. Instead of repossessing homes of people that found themselves in long term financial difficulties, they connected them to other organisations that could them (from government organisations to accessing money from different sources). His chapter `Banks at the heart of a people centered economy` in the People Centered Economy book goes into more details.

Here is another concrete example of how a people-centric bank operates. Frost Bank is a 150-year-old Texas based bank that started off as a small mercantile store and is now one the 50 largest banks in the US. Frost bank has also been receiving the Greenwich Excellence award in the middle market  and small banking category.

What caught my attention is their Optimism campaign called Opt for Optimism. They chose to link Optimism with financial health. They are a concrete use case of a bank whose focus is on supporting its customers to thrive in life, which inevitably includes financial issues.

First, Frost Bank embarked on a research study about the link between Optimism and financial health. Here are some of their findings:



They published their research in Mind over Money showing how attitude and mindset toward money impact financial health.

At the same time, they launched a campaign about Optimism through a 30 day challenge during which people can join in performing 30 acts of optimism. They also created a community sharing portal to inspire each other. People can also explore the financial habits of optimists,  watch inspiring films the bank produced for the campaign and find out why Frost Bank cares about something like optimism in the first place.

They are building a community around intangible values that we all care about even though they are not reflected in productivity and GDP numbers directly. Their lack of, is reflected in the fact that burnout has become officially a disease according the WHO. Does your bank know  that you are sick or that flirting with this disease? How would you feel if your bank  actually advised you on how to prevent falling sick from one the rising risk factors – burnout? A disease that  has multi-faceted financial health implications. 

As you read this, you may think that there are several banks that have all kinds of social responsibility initiatives. I will not disagree, but they are peripheral and segregated from the 99% transactional business they run. These activities are not strengthening the ties within the community of their users. They remain branded as a politically correct item on the corporate list.

The People Centred Economy

Robo-advisors increase AUM but the Cash pile in the market hasn’t decreased

Robo-advisors increase AUM but the Cash pile in the market hasn’t decreased 800 533 Efi Pylarinou

Robo-advisors increase AUM but the Cash pile in the market hasn’t decreased

The top five robo-advisors have accumulated over $187 billion in AUM.

Two incumbents and three Fintechs are leading.

Growth in asset gathering continues but as per Autonomous Research, the jury is out as to whether gathering assets or gathering users are good measures of success of robo-advisors.

The growth has been double-digit, the kind that VCs like. Despite the fact that robo-advisors have clearly not lowered the customer acquisition cost (CAC) and ironically, in most cases have been deploying the same old-fashioned channels to acquire customers; VCs have been generous in funding them. Just for the top three Fintech robo-advisors, Betterment, Wealthfront, and Personal Capital VCs have invested ($275, $204, $265) nearly $745million.

The market share (as measured by AUM) amongst the top 5 US robos, is 20%-80% between Fintechs and incumbents.

One of the metrics that I had chosen to follow from the very beginning of the robo-advisory trend, was Unadvised Assetscash in physical wallets and in checking & savings accounts. For me, Unadvised Assets are a measure of the market opportunity for robo businesses. Deloitte reported in 2014 that in the US there were close to 13 trillion of such, unadvised assets.

Looking at the Q3 2018 U.S. Federal Reserve report and recent Money data, from grandmothers to hedge funds holding cash, in overnight money market funds, to checking accounts and currency; I realize that the AUM served from robo-advisors have had none or negligible impact on Unadvised assets.

In the US, Unadvised assets continue their solid growth. In 2016, I had reported $13.4trillion and now we are looking at $14.5trillion. An 8+% growth over the past 3yrs.

Unadvised assets in the Euro area, have grown from a total of 10.3 trillion EUR to 11.8 trillion EUR – a 14+% growth over the past 3yrs.

In the UK, from 1.56trillion GBP to 2.4 trillion GBP – a 5+% growth over the past 3yrs.

Cash continues to be up for grabs, for robo-advisors, for P2P lenders, for crowdfunding platforms, and tokenization platforms.

It was in 2015 that Schwab and Vanguard stepped into the robo-advisory market and leapfrogged the standalone top US robo advisors, Betterment, Wealthfront, and Personal Capital. SigFig was also a big contender at the time but has pivoted since into a predominately B2B business.

Now we are 4 years later and neither the cash pile has been reduced, nor the Customer acquisition cost has dropped. Robo advisors have cannibalized the onboarding, asset allocation part of the investment cycle.

[1] Advertising, mailing services, cheap initial offers….


Tencent & Goldman Sachs fuel Nubank`s expansion

Tencent & Goldman Sachs fuel Nubank`s expansion

Tencent & Goldman Sachs fuel Nubank`s expansion 800 450 Efi Pylarinou

Telecoms, banks, and e-commerce giants

Last October, the Chinese multinational conglomerate Tencent Holdings Limited, better known as ‘Tencent’ invested $180 million in Brazilian digital bank and credit card operator ‘NuBank’ (Nu Pagamentos SA). [1]

This FinTech pioneer, an early mover in Latin America’s largest market offering fee-free credit cards and digital payment accounts, has recently obtained clearance from Brazilian Central Bank to offer loans to its customers. With a total of $330 million raised since it was founded in 2013 by Sequoia Capital ex-partner David Vélez, Nubank is one of the best-funded start-ups in Brazil. In 2016 despite the political and economic problems in Brazil, Goldman Sachs invested in Nubank by providing them a loan of 200 million reais ($50 million) using a receivables securitization structure.

To date, [1] Nubank has issued 5 million credit cards and served over 8.5 million customers. Its business model rests on providing a streamlined, transparent service to customers wish to avoid the bureaucratic and heavily administrative practices of established banks. The neobank’s systems, mainly rooted online and in a mobile application, allow users to make transfers, pay bills and earn interest on deposits.

Nubank’s impressive expansion has opened the rally to an ever growing landscape in the Brazilian financial technology market, with 188 ventures being launched in the past eighteen months. This includes independent competitors in the neobank category such as Banco OriginalSDBankLabsBankbeBank etc. and initiatives launched by incumbents. An example is Digio, that was launched by Banco do Brasil and Bradesco in 2016 to compete directly with Nubank’s fee-free business model.

It is the inefficiencies that plague the Brazilian financial system that makes the case for neobanks, and FinTechs in general. According to research, 30% of the population does not have access to traditional banking services. This represents 50 million individuals and a potential market of roughly $170 billion that FinTech ventures and neobanks can tap into. [3] In addition, the portion of the population that does have access to traditional banking services, are most likely to be clients of one of Brazil’s top five banks, that hold 84% of total loans and are characteristically more expensive than their neobank counterparts. Not only that, but Brazilian incumbent banks have proven to be delivering a poor service, with over 10’000 complaints over financial institutions registered by the central bank in the first quarter of 2018 alone. [4] As a result of these events, the Brazilian Central Bank has put forward new regulations to encourage competition in the financial sector, notably: Resolution no. 4.656/2.018 which passed on the 26th of April of this year and opens the gates to the aforementioned, strongly consolidated, credit market by the creation of two, new, regulated, financial bodies that FinTechs and Neobanks can apply for.

On a wider scale, the implications that have been observed in the Brazilian market permeate across borders and speak for the whole continent. Indeed, according to the World Bank, 50% of the Latin American population remains unbanked. [5] Brazil’s neighbouring economies have concentrated banking systems with sluggish initiatives and slow developments towards innovation. The most stimulating factor in favour of FinTechs and neobanks is surely the changes and new regulations that these governments are putting in place to increase competition in their financial systems. A case in point is Mexico, second runner up in the Latin American FinTech league, that put in place a FinTech law in March of this year, covering cryptocurrencies, crowdfunding and open banking to stimulate financial stability and prevent money laundering across the nation.

With both an inherent structural need for disruption as well as positive regulatory developments in the favour of neobanks and FinTechs to enter the Brazilian and Latin American financial markets overall, the future is bright for these companies, amongst which Nubank has managed to attract major international attention and investment. Through its investment, Tencent increased Nubank’s capital by $90 million and repurchasing the equivalent amount from Nubank’s existing shareholders, pushing the neobank’s valuation up to $4 Billion. Just a few months earlier, in May 2018, Oscar Williams-Grut in RANKED: The 27 fintech unicorns from around the worldlisted Nubank as number №13 with a $1-$2billion valuation and 3million customers!

According to Reuters, Tencent President Martin Lau explained that the investment will help Nubank “build a full-service personal finance platform.” [6] The Chinese conglomerate is no stranger to these transactions, with major shareholdings in other FinTechs and Neobanks around the world such as Italian online bank WeBank, and Chinese online insurer ZhongAn Online P&C Insurance Co Lt.

According to CEO David Velez, the investment is for Nubank a great strategic standpoint to gain insight on- and learn from the Chinese financial market. For Tencent, this is a means of expansion of their existing portfolio of challenger banks and technology-based financial services ventures as well as a robust point of entry to the booming Brazilian FinTech Market.

In early May, Nubank publicly announced its expansion in Mexico and Argentina. These are massive markets. Stay tuned.

Telecoms, banks, and e-commerce giants

Telecoms, banks, and e-commerce giants

Telecoms, banks, and e-commerce giants 800 517 Efi Pylarinou

Telecoms, banks, and e-commerce giants

MPesa`s early success in Kenya will remain the mobile money business case study of payment innovation in Emerging markets. [1] It was 12 years ago; in 2007 when Vodafone launched the service.

Africa continues to be the continent where `Necessity is the mother of invention`.  Africa brings to market further efficiencies, improving the MPesa business model and pushing innovation in financial inclusion (be it remittances, micro-payments, or micro insurance). 

However, it is not as easy as it may seem. As Chris Skinner notes:

Not only was M-Pesa a roaring success, but its concept was copied in most countries across Africa, Asia and South America. I say concept because M-Pesa itself has failed to repeat its success in other countries. [2]

Today, EcoCash, is a success story in Zimbabwe. It is a rich mobile payment platform hosted by local telco, Econet. Despite recent tech glitches on the Ecocash platform [3], Econet the parent telco continues an expansive digital strategy. It spun off Cassava Smartech, an entity that offers more financial services than just mobile money. From remittances, digital banking and all kinds of insurance.

Orange Money, started in 2008 in Côte d’Ivoire and has currently 40million customers in Africa in 17 countries (francophone and anglophone)

Late last year MTN Money [4] and Orange Money, teamed up to create a JV, called Mowali [5]. They are targeting the 300 million mobile money users in Africa. MTN and Orange alone operate in 22 African countries. Mowali is built on the open-source software payment platform Mojaloop, of the Bill & Melinda Gates Foundation. The aim is Interoperability at a pan-African level.

South African startup, Wala, has launched its own mobile money solution, with the Dala utility token, using blockchain technology. Wala provides no-fee banking services and is creating a decentralized financial platform (Defi) functioning with the Dala coin. Listen to my interview with founder Tricia Fernandez on the unique approach of the Wala foundation.

Dala is one example of the opportunity that Telecoms can grasp by using tokens, be it stablecoins or some such, in order to offer their existing customers ways to manage their digital lives. Alex Mifsud, Co-founder and CEO, Open Payments Cloud emphasizes this point [6] and uses the example of Dala in South Africa and another approach used in Mongolia. The Mongolian telecom company, Mobicom, has received approval to issue a stablecoin (pegged to the national currency), called “Candy”.  Every Mongolian citizen will be able with a mobile phone to pay bills, shop online, transfer funds and take out microloans. The pilot will start in the capital, Ulaanbaatar.  [7]

Now back to the West – US and Europe. The recent T-Mobile announcement of a bank account offering did create some talk. For me, it is a move from a Telecom to extend services to non-T-Mobile customers. But the business innovation is lacking, as it is backed by a conventional bank  Customer Bank is behind the Baas service of T-Mobile Money.

Telecoms, banks, and e-commerce giants

This is actually very different to Orange Money, that has also a bank of its own that was launched in 2017.

Orange bank is built from the start with a customer relationship model based on AI technology. It has signed up 200,000 customers as of the start of Q1 2019. It has set a target of reaching 4 million customers and €500 million of net income from banking within five years.

Back in the US, there is another potentially interesting move in the works from Amazon who maybe looking to buy Boost Mobile, a prepaid telco business unit that has been divested from Sprint.

Will Chris Skinner`s 20yr old dream soon come true?

Banks and Telcos? Two become one!

“My conclusion was that banks would merge with telecommunications firms and become hybrid institutions. Twenty years later, it hasn’t happened.” excerpt

Efi Pylarinou Quotations Pointer

Will Orange become the business case or some African entity?

Who will customers trust for their financial digital business?

Will blockchain be the enabler?

or will AI banking be enough?

Advertising is the new high-priced tobacco and vendors are addicted to it

Advertising is the new high-priced tobacco and vendors are addicted to it

Advertising is the new high-priced tobacco and vendors are addicted to it 800 583 Efi Pylarinou

Advertising is the new high-priced tobacco and vendors are addicted to it

We have to fly high to get a different view of what is happening in the world. I started looking at the revenues of Big Tech companies like Amazon to see where growth is happening.

Looking at the 2018 revenues of Amazon, there are three main businesses lines: e-commerce, cloud computing, and ad revenues. What struck me was that growth came from ad revenues which are `lumped` into a generic category labeled `Other`.

Remember 2015 was the first year that Amazon reported cloud revenues separately, revealing specifics about its AWS business.

Today, four years later, Amazon reports advertising revenues in a category that is named `Other`. According to the GeekWire for 2018, Amazon reported $10.1 billion for the “Other” category. According to Amazon`s financial statements this category “primarily includes sales of advertising services, as well as sales related to our other service offerings”. Fortune reported that in Q1 2019,

Sales in Amazon’s “other” segment, which is mostly advertising, increased 34%, to 2.72 billion. The company’s digital advertising franchise has grown into the third largest in the U.S., trailing only Alphabet’s Google and Facebook, researcher EMarketer estimates.

Let me spell this out loud: Amazon`s advertising business is getting ready to be publicly disclosed as one of the main businesses competing openly with Facebook and Google`s Alphabet. This is important because the top marketplaces are Ad driven and don’t seem to intend to switch from that business model. Actually, it isn’t easy for them to switch to another marketplace business model.

Are you aware that merchants that want to sell on the Amazon marketplace have to compete amongst themselves to reach end customers? That means, paying advertising to Amazon in order to move algorithmically up the ranking on the Amazon marketplace. This is the game that each and every Western Bigtech uses in its closed ecosystem. You have to understand the algorithm and pay to play based on the rules of algorithm; be it Amazon marketplace, Facebook, Alphabet.

This realization makes me think that maybe, I only say maybe, merchants borrow from the SME lending arm of Amazon, to finance their advertising campaigns on Amazon. So, Amazon wins twice. I don’t have data on this, so it is only a conjecture.

We know that the technology is there to launch an e-commerce marketplace that vendors can reach end customers (B2C or B2B) without having to pay high advertising fees and incur costs to play on the platform whether they sell or not. Who can execute on this? We just need one success story of such disintermediation. Will it be in selling books or music or baby formula or online education? Will it happen in the West or the East? Will Amazon dare to cannibalize its e-commerce business at least in one area?

What we do know, is that it won’t happen from Facebook whose business is 98.5% based on advertising and their plans for a Facecoin won’t change that business model. It won’t come from Alphabet either, who earns 15% of revenues from non-google ads but 70% from advertising of the Google family (youtube, gmail etc). Both are Titanics in advertising and can`t disrupt themselves.

Advertising is the new tobacco and merchants are addicted to it

A few days after I published this opinion piece, Business Intelligence put out a thorough report `In The Rise of Amazon AdvertisingThis is exactly what Amazon is doing to siphon billions of ad dollars from Google and Facebook and why brands love it`

Do you envy Goldman Sachs? Join Marcus.

Do you envy Goldman Sachs? Join Marcus. 800 534 Efi Pylarinou

Do you envy Goldman Sachs? Join Marcus.

Come on, lets admit it. The world has long envied Goldman Sachs. This never faded away, even while Goldman Sachs was going through an identity crisis after the 2008 financial crisis.

Goldman Sachs is an example of how an incumbent builds a Fintech business. It is not in a lab, nor as a rebranding exercise. Goldman Sachs`s Marcus ecosystem is unique because it is positioned in the value stack below its established competence – an investment bank getting into retail banking and wealth management for mass affluent & the hoi polloi.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by offering free access to its analytical tools SecDB – explained in my article in the 2018 WealthTech Book  `Empowering Asset Owners and the Buy Side`.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by partnering with Apple on a credit card – Apple has 900 million devices and it is expected that the Apple Card will bring 21 million users to GS by year end.

Goldman Sachs is a publicly traded company that is trading right now below book value and there are more than enough GS analysts out there to get estimates on the revenues from the different GS `consumer banking` new initiatives.

For now, Goldman Sachs has been building up aggressively deposits (the usual way of offering above-market deposit rates when entering a new market). The 3yr old deposit business has accumulated now $46billion across the US and the UK! The expected growth is in the order of $10billion per year going forward.

Marcus has issued $5billion in personal loans. These are unsecured loans that naturally, may worry shareholders, who typically get nervous easily (even though this is crumbs when taken in context).

The credit card part of the Goldman Sachs business is newer and could also grow at double-digit annual rates. Goldman Sachs knows well that credit card lending gets favorable regulatory treatment – less capital is required against this kind of debt – and as long as this holds it is a win-win situation. Why? Simply because Goldman Sachs will get their hands on valuable data from retailers and their shoppers, in order to process the Apple credit card application.

Goldman Sachs hits two birds with one stone. It gets to issue consumer debt on a global scale with lighter capital requirements, and it gets to process new, valuable consumer data globally.

The Apple & Goldman Sachs card economic terms are not known. Even if they are not that juicy for Goldman Sachs and even though the GS logo is on the back of the Apple card; the consumer data access and processing from 40 countries that this brings to the table is invaluable.

Marcus Goldman Sachs

The Apple & Goldman card will grow an important global data pool for Goldman Sachs to leverage in its planned WealthTech offering.

Apple credit card

In case you haven’t noticed, Marcus has been moved into the Goldman Sachs asset management unit, which will be renamed the consumer and investment management division. The October 2018 memo says that Marcus has plans to “launch a broader wealth management offering.”

A global consumer outreach is being built in preparation for this broader wealth management offering. And for all those concerned about a growing unsecured loan book, Goldman has great risk management experience and could with great elegance securitize part of this debt, once there is enough to do so. Elizabeth Dilts and Anna Irrera, raise this point too in ` Goldman’s Apple pairing furthers bank’s mass market ambitions`.

Marcus is a brand whose heritage is in risk management and investment banking. They will use these competencies to manage growth in their retail-focused wealth management offering. This is a huge advantage compared to Fintechs that started with unbundling a specific financial service (be it loans, or deposits, or investments) and is now, growing by re-bundling additional services (e.g. adding robo-advisors to loans, or deposits to trading, etc).

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No Trade-offs: Give customers everything they want as cheaply as possible

No Trade-offs: Give customers everything they want as cheaply as possible

No Trade-offs: Give customers everything they want as cheaply as possible 800 420 Efi Pylarinou

No Trade-offs: Give customers everything they want as cheaply as possible

XY planning Network XYPN deployed successfully a subscription based offer for financial advisors in the US, 5years ago. They actually celebrated their 5yr birthday on April 4th with 900 members that use the service. This is evidence that a subscription service for financial advice works at the B2B2C level.

On the 28th of March, Charles Schwab took the subscription service of financial advice to another scale.

Charles Schwab subscription service rhymes with Apple`s news service.

For $30 a month, Schwab offers a financial planning package.

Schwab Intelligent Portfolios Premium (rebranded name) is offered at $30 a month after a one-time $300 fee with a $25k minimum. Asset allocation is from a universe of 50+ ETFs, including a financial plan with a customized roadmap and unlimited one-to-one guidance from a CFP professional. Regulated financial-investment advice at $630 a year. 

Schwab Intelligent Advisory (the original robo name) was at 28bps per annum 0.28% of assets.

Think of the 300,000 Schwab Intelligent Advisory accounts ($37 billion). Some will remain in the free, no-advisory offering. But a significant part will switch over to Schwab Intelligent Portfolios Premium and get advice.

Evidently, any account with enough assets ($125k seems to be the magic number) will switch over.

What will this move do to the rest of the large players?

When will Vanguard follow suit?

This is another discount brokerage moment in the investment industry. This is the subscription financial advice retail moment.

Eric Balchunas, the Bloomberg Intelligence analyst, has baptized the fee war that has been going on in the US, “the Vanguard Effect” simply because the major ETF producers rush to cut their fees, responding systematically to the lead of the 43yr old low-cost producer.

Now the Vanguard Effect` for financial advice is upon us but led by Schwab.

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[1] “You’re able to get extraordinary quality at extraordinary value now,” Bettinger says. “That’s where our industry is. And in reality, that’s where the whole economy’s going.”
Bettinger is president of the Charles Schwab corporation

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. 

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