The AI powered tech rating agency with no conflicts of interest - Early Metrics

The tech rating agency with no conflicts of interest – Early Metrics

The tech rating agency with no conflicts of interest – Early Metrics 1100 636 Efi Pylarinou

The tech rating agency with no conflicts of interest – Early Metrics

Early matrix Logo

Early Metrics is an independent rating agency focused on early stage innovative tech startups. Operating out of Paris since 2014 and with significant presence in London, Berlin and TelAviv.

The tech startup world continues to grow as the cost to enter has dropped substantially and the capital looking to invest in the private markets is ample. Cost of failure for entrepreneurs is dropping too.

At the same time, the failure rate continues to hover around 90% which makes it challenging for investors. Corporate VC, VCs, private equity funds, family offices, angel investors are eager to pay for high quality deal flow that is conflict-free.

Undoubtedly, the subprime crisis brought to the forefront the long-standing conflict of interest in the oligopoly of rating agencies. The business model of all agencies has traditionally been that their “clients” are the companies that want to be rated.

Early Metrics is Not paid by the startups they rate.

Their business model puts the entities that are interested in partnering or investing in tech innovation, in the client position. Early Metrics clients can subscribe to one kind of service that offers a few select rated startups per month. A client can also request a detailed rating analysis for a tech growth company that they are focused on. The “to be rated” company can be a partnership candidate or a first investment prospect or under consideration for the next round of investing. In other words, Early Metrics offers a conflict-free high quality deal flow service to subscribers. Focus is always on the growth potential of the tech innovation. It is a clear equity approach that offers certain KPIs and a proprietary qualitative component that covers elements that are traditionally gaged by instinct. We all know that VCs for example, access the founders, the team with a “gut + experience=instinct” kind of approach that they typically, brag about as “the” differentiation factor.

Early Metrics’ “secret sauce” has developed a process that accesses each team member, their management skills and actions, and most importantly, the value and risks of the team as a whole organism. This process entails training and certifying Early Metrics “analysts” that can interview the tech team and feed the data into the proprietary algorithm that is can provide signal on many fronts. In addition, the project and the technology is accessed and the ecosystem it is operating in. Therefore, the rating is a combination of an IT filter, data automation that allows a continuous rating (instead of a one-time snapshot), and the interview with the certified analysts.

Artificial Intelligence
Early Metrics is a great example of technology that addresses a significant agency problem in the corporate rating market.

It also fills in an under-served part of the rating market, as it is

focused on the equity aspect of innovative tech SMEs and early stage ventures, instead of the credit part that most conventional rating agency address.

In practice currently, Early Metrics “plays” in the tech growth part of the market, with companies that have up to $20mil annual turnover. Naturally, startups are applying to be rated but Early Metrics ranks the “to be rated” pipeline as a function of the interests and focus of its clients. In simple words, their needs to be a match between the Early Metrics clients and the SME or startup, to move up the “to be rated” pipeline.

Early Metrics has already an established client base of corporates that has extremely low turnover. The art of growing their business successfully lies in sourcing high quality deal flow and matching it with their client base. Their “human” rating secrete sauce is explained in detail in their webinar “How human factors affect the growth of early stage ventures” (free to watch here).

There are other companies that gather data and offer benchmarking reports in the startup space, but not with a laser focus. Oddup is the better-known name in the startup rating space but has a broad focus (not tech focus necessarily) and is strictly data driven. Mattermark was another player who was sold (liquidation kind of transaction) in December to Full Contact (details here).  StartupRanking focuses on social statistics (the SR web and the SR social).

In my opinion, the space has room for more service providers. Innovation in the rating methodology is needed and one way to develop the space is with a sector focus. An example is an impact startup rating service that can incorporate impact metrics. Impact metrics and innovation metrics are no low hanging fruit. Secret sauces can be developed for these.

“Early Metrics is growing and serves investors and blue-chip corporates such as Visa, LVMH, Barclays, Sanofi, and more.” They remain focused on bringing transparency to the rating process and serving the decision makers that fund innovation.

A look through Morgan Stanley’s WealthDesk platform

Incumbent Robo-advice platforms, software, products: A look through Morgan Stanley’s WealthDesk platform

Incumbent Robo-advice platforms, software, products: A look through Morgan Stanley’s WealthDesk platform 1300 867 Efi Pylarinou

A race for a holistic advisory system is on, albeit at the pace of the financial giants that have accumulated assets under management and have thousands of advisors using their tools and services. Morgan Stanley is less vocal than JP Morgan, Blackrock, Vanguard, Fidelity.

What caught my attention in November is the “WealthDesk” rollout which is an integration of Morgan Stanley’s Goal Planning System, their investment screening dashboard and their portfolio construction tools. Empowering advisors to deliver a holistic service even though fees continue to be under pressure. Add on to that, the integration of the Blackrock Alladin risk management software into the WealthDesk platform. Alladin was previously only available for institutional investors. Now, advisors using the WealthDesk platform can perform scenario analysis for their clients and discuss alternative investment strategies with clients. Empowering advisors in this way, gives them a strong value-add headwind compared to competitors.

Even though UBS has a partnership with Blackrock’s Alladin risk management system, it is not integrated in its advisory platform. It operates separately which makes it difficult for advisors to offer the same fast and customized service as the UBS MD of managed solutions can.

In the Dec 3, Autonomous Next newsletter where the BlackRock’s $120 million buy of Envestnet stock and Morgan Stanley’s platform, is discussed; I can only agree with the Lex’s statement that it is “…surprising that the best way to sell iShares is to give Morgan Stanley some high quality roboadvice software.”

Morgan Stanley’s platform shows how challenging it is to upgrade and integrate tools and services in a way that empowers the intermediaries and delivers a holistic service to the end client. The tools are there, the business models are not the problem. What is challenging is getting alignment internally for the optimal tech integration that will produce the X factor in customer service. Morgan Stanley’s experience of this journey, indicates that it may take others at their level 3-4 years to catchup on this holistic integration.

Morgan Stanley WealthDesk also integrates the new version of the so called “Next Best Action” Machine Learning system to their 16,000 RIA. This system has been around for several years but as a rule-based system suggesting investment options for advisors and their clients. A system that every single bank with a wealth management offering has and that we all as clients wonder which is “best” (as if that is the right question in the first place, since none of these rule-based systems could be customized).

Morgan Stanley’s “Next Best Action” is using Machine Learning to support advisors in increasing engagement. The success of this tool will be measured by its effectiveness in enhance the dialogue with the client whether it is through in person meetings, phone calls or pure digital channels.

Like me, most of us are sick and tired of emails with pdf attachments of several analysts covering Alibaba (that I care about accumulating) and not knowing how to make sense of that. All of us, are realizing that only because of KYC stringent requirements, advisors look to  incorporate our life events and goals into an investment proposal. Morgan Stanley’s “Next Best Action” system is using ML to advice clients what to consider based on life-events. For example, a client had a child with a certain illness, the system could recommend the best local hospitals, schools, and financial strategies for dealing with the illness. The system monitors and learns from the reaction of the client to the “Recommendations” and based on the client responses, improves the quality of ideas each day.

incorporate our life events and goals into an investment proposal. Morgan Stanley’s “Next Best Action” system is using ML to advice clients what to consider based on life-events. For example, a client had a child with a certain illness, the system could recommend the best local hospitals, schools, and financial strategies for dealing with the illness. The system monitors and learns from the reaction of the client to the “Recommendations” and based on the client responses, improves the quality of ideas each day.

In a way, the system thinks for the advisor on a daily basis and presents relevant information and continuously improved recommendations. The advisor has a choice and can send customized emails and texts to clients. The system in a few seconds finds the clients’ asset allocation, tax situation, preferences and values.

A look through Morgan Stanley’s WealthDesk platform

The system is empowering the advisor and this is where the potential of widespread adaptation lies. Never forget that tech adoption is always more of a cultural issue rather than a technical one. In machine learning, the more the system is used the better the next best actions are.

If the community of the 16,000 Morgan Stanley advisors make the “Next Best Action” their ally, then MS will have an edge and a loyal army taking care of their clients.

This not some version of robo-advisory focused on best on-boarding and low fee execution. It is enhancing a hybrid wealth management offering in a way that offers a cutting-edge (value) to those using Morgan Stanley as a platform provider (i.e. the advisors) and the end clients.

Morgan Stanley has established its tech center in Montreal – Montreal Technology Centre. It has grown to 1200 tech employees focused in innovation in low-latency and electronic trading, cloud engineering, cybersecurity, AI/machine learning, and end-user technologies.

Barron’s reports that it took MS about 6yrs to develop the “Next Best Action”. The main KPI is customer engagement.  The other five variables monitored are: cash flow, brokerage business volume, new advice clients, the level of banking business, and account attrition.

Part of this article appeared in Machine Learning for RIA loyalty and customer engagement; by Morgan Stanley

Is Sustainability your driver? Stop Borrowing from the Future.

Is Sustainability your driver? Stop Borrowing from the Future.

Is Sustainability your driver? Stop Borrowing from the Future. 1300 650 Efi Pylarinou

Sustainable Finance and Investing, remains misunderstood. Language remains tricky, inaccurate, and subject to interpretation; which inevitably makes Mathematics the only Language that can be trusted (100% internally consistent) [1].

Looking at Sustainable investing, there are different approaches to qualifying.

  • The first sustainable investors, negated sectors like tobacco. This is the exclusion approach.
  • Then came a portfolio management approach, based on which ESG factors are used in traditional investment process always with the aim to optimize risk/return.
  • Lately, impact investing is more direct and explicit, by choosing companies that aim to generate measurable environmental and social benefits (alongside the financial return).

As I review a UBS Global Insights report (What’s on Investor’s minds, Vol.2, 2018) it struck me that Investing is lagging big time in the Shift in Values that is affecting other areas of our life. UBS looks at how our personal values (I would say, the shift in the hierarchy of our personal values) is driving major decisions in our lives. Their statistics show clearly that the Sustainability theme is driving our spending decisions, our willingness to pay a premium, our donations to charity, and even our choice of employment.

Source: UBS Global Insights report

Sustainability, however, factors considerably less (below 40%) in our investment decisions.

Sustainability investing varies considerably by market. The number of investors with more than 1% allocation to sustainable investments in Singapore and Switzerland are only 35% and China, Brazil, and the UAE + Italy, are in the 50s% and 60s% (probably more investors with smaller amounts).

Source: UBS Global Insights report

The expectation for growth is also very different. In the US and the UK, there are weak signs of a sustainable investment momentum. Whereas investors in the UAE and China, are largely convinced that this is the way to invest.

In Brazil, which has also a high sustainable investing adoption, there is a strong expectation that returns will outperform traditional investments.

Looking into the UBS report, it is clear that there is a lot of interest that is sitting on the sidelines and that advisors and influencers can play a major role in tipping these non-adopters over. We need to invest in converting these non-adopters because we cannot afford to continue borrowing from the future.

Join me, as I will be moderating a panel on Sustainable Finance at the Fintech+ event on October 1, in Zurich. I will be discussing with Sabine Döbeli, CEO of Swiss Sustainable Finance, Oliver Marchand, founder and CEO of CARBON DELTA, Anna Stünzi, researcher and co-lead of the foraus programme „Environment, Energy and Transportation“, and Rochus Mommartz head of Responsibility Investments. Come to participate in this exciting discussion, as I will be asking some tough questions around this topic that touches on a much broader issue:

Shift in values and technology

[1] A major topic that is worthy of a longer interactive discussion.

What has changed a decade after the financial crisis?

What has changed a decade after the financial crisis?

What has changed a decade after the financial crisis? 1300 865 Efi Pylarinou

What has changed a decade after the financial crisis?

Here we all stand about a decade later from September 15, 2008, when Lehman Brothers filed for Chapter 11 bankruptcy protection and when the tremors of the subprime crisis continued to shake the grounds where we built our homes, our pensions, and our dreams. Collapses, rescue plans, and a wave of socializing the costs of failures of several financial institutions; can describe in a nutshell the economic policies that have followed since. Bernard Lunn started the week with Do you remember where you were on 15 September 2008? and inspired me to reflect back too.

On Sep 15, 2008 I was living in Montreal and McGill University had asked me to teach Real Estate Finance with a one month notice (a part-time practitioner engagement). No textbook could reflect the unfolding reality. Freddie Mac, Fannie Mae, Ginnie Mae, the three GSEs (Government-sponsored agencies) were going to be restructured and it was exciting to understand the complexity of the evil mortgage-backed structures rather than the outdated textbooks.

Outside the university, everybody was affected, from end consumers, homeowners, corporates and the globalized economic activity whose Gas is mainly creditThe trusted institutions – the Gas stations – through which Gas is distributed to the people and to businesses of all sizes, have since created since a bottleneck that continues to choke the global economy. Over this decade, 2008-2018, we have seen (in retrospect) how this Gas station monopoly was affected by Central Bank policies that on the one hand, increased their inventories of Gas (more money has been available for banks to borrow from the Central Banks) but at the same time, new Regulations (changing the rules of the game for banks without consulting them) has led to these Gas stations shrinking their franchise network, reducing their willingness to provide service to their customers, and overcharging them/us.

Outside the university, everybody was affected, from end consumers, homeowners, corporates and the globalized economic activity whose Gas is mainly credit.

These licensed Gas stations who are led to dis-serve their clients but still hold a monopoly (granted by central governments) have led to movements like Occupy Wall Street and to lots of innovations around financial services – Fintech. From peer-to-peer lending, crowdfunding, to robo-advisors, and freemium PFM apps; and to Bitcoin. Let’s not forget that the genesis block of Bitcoin had hardcoded the title of London Times newspaper of Jan 3, 2009

“Chancellor on brink of second bailout for banks”

The hash of this genesis block is


There is a strong belief that this is no coincidence but a clear message of the failure of the financial monetary system which is designed and managed by states. A credit system based on the fractional reserve system and thus, creating Gas (Credit) out of thin air. A Credit system that can and will change the rules of Gas (Credit) creation and in the name of saving the financial system, it will pass on the costs of these bailouts onto taxpayers. Andreas Antonopoulos keeps reminding his audiences around the world, that a decentralized p2p network like Bitcoin is incompatible with fractional reserve banking and that Bitcoin is born out of the failure the latter system; Hello from Argentina (that is my addition and not Aantonop’s).

As traditional Fintech continues to make inroads – albeit by partnering with the licensed Gas stations or obtaining such licenses themselves – and as decentralized protocols, like Bitcoin, or God protocols (as introduced by Nick Szabo before even the internet was mainstream) are being tested left and right (still in early stages); what has happened to the branded Gas Stations over this decade and what has actually been accomplished regarding the Big Black Swan that haunts us since 2008  – The “Too Big to Fail” Black Swan?

What has changed a decade after the financial crisis?

Congratulations to the Central Banking system for reducing the size of the Big Wall Street houses – the Sell Side. The Wall Street Journal reported this week that their assets have shrunk 6% over this past decade.

Congratulations for kicking out from Wall Street all CEOs from the previous era. Jamie Dimon maybe one of the few, still standing strong.

Congratulations for dethroning Wall Street from being the Mortgage Kings.

#AndTheIronyIs that we need to make sure that we “Feed the Fink”, we network with Jamie Dimon and all those that were “cleaned up”, and we get our mortgage from our phone.

Blackrock, Vanguard, State Street, and Fidelity, have doubled their assets since 2009! They manage close to $17trillion and Vanguard brought $1billion a day of new money last year[1]. I call this the mushrooming of the Buy-side. Let’s all make sure that we “Feed the Fink” and we know from which direction the Black Swan may appear from.

Vikram Pandit, Citibank CEO until 2012, now founder of the Orogen Group investing in Fintech; Blythe Masters, the designer of Credit Default Swaps (CDS) at JP Morgan, now CEO of Digital Asset Holdings; Brad Katsuyama, protagonist in Michael Lewis’s book, now the co-founder/CEO of IEX Group; Susan Estes, MD at Morgan Stanley, Deutsche Bank and Countrywide Securities Corp, now the president/CEO of OpenDoor TradingLet’s be all clear that financial engineering is not dead and experience remains a valuable asset.

Non-bank lenders have become larger than Citigroup or Bank of America lending businesses. The WSJ journal reports[2] that US non-bank mortgage originators have grown from 9% to 52% over this past decade. Let’s all shop for homes in a new way (not from a bank but a kiosk or our favorite social app). And let’s make sure we know from which direction the Black Swan may appear from.

Growth in less regulated areas. From assets under management, mortgages, and experienced human resources.

Markets are still plagued from Black Swans that belong to the bread of “concentration of power and illiquidity risks”. From miners accumulating power of digital assets to the Buy Asset accumulating i-shares and passive AUM.

Markets overall continue to shift resources rather than reinvented themselves. #WhereMortgages, #WherePeople but same financial instruments designed and sold by the same people in different packaging and at different POS. Banks have been forced to downsize and be risk-averse and the Sell Side has taken over along with Fintech startups.

#WhereGas – #WhereCredit is where we can look for true innovation. Too early to see a newspaper title like:

“God Protocols on brink of privatising State Gas (Credit) monopolies”

inspired by Nick Szabo and Eric Lombrozo.

This post has elements of cynicism mixed with insights. Readers are left to distinguish the ironies from the insights.

Robo-advisors: What are the fact and figures telling us?

Robo-advisors: What are the fact and figures telling us?

Robo-advisors: What are the fact and figures telling us? 1300 813 Efi Pylarinou

Robo-advisors: What are the fact and figures telling us?

I am listening to my followers and readers. I see that Linkedin is not the first choice of quality content producers in the Fintech/Blockchain ecosystem. Other platforms like Medium are stealing market share with an accelerating rate. However, Linkedin is a better platform in spreading the word, the message, the vision and in getting others to interact.

My Daily Fintech post from last week Barron’s exclusive Robo-advisor ranking and 3 unanswered questions resonated and the digital KPIs alerted me to that. From double the views on Daily Fintech to 15,000 views on Linkedin but more importantly, several great insights shared in the commentary.

Who said What?

It is grape harvest season in the south of Europe. I’ve harvested the conversations and distilled them (not word for word).

Seth Godin “It’s far more dangerous to fly too low than too high” – “The Icarus Deception” book

Efi Pylarinou – “Doing Nothing in this new era, is Unsafe” – from my  Dec 2015 year end post Digital wealth management and the Icarus deception

Efi Pyalrinou – “We seem to be chasing existing customers instead of growing the customer base”

Richard Turrin – “The incumbents were initially “Robbing Peter to pay Paul”. This maybe continuing.”

Paolo Sironi -“Cheaper costs doesn’t mean, higher value for underserved clients that need help with understanding investing and investment products”.

Vinay Jayaram – “The robo-advisory adoption over the past few years, is mostly evidence of a Lemming effect at play and at scale.”

Lex Sokolin and April Rudin – “The devil is in the details. Qualitative comparison of features remains tricky.”

The facts and figures are not disputed but the true impact from this robo-advisory adoption is not at all clear.

Lemmings are small rodents that have been observed to follow each other as they charge to their deaths- into raging rivers or even off cliffs. They soon become victims of a psychological affliction known as “the lemming effect.” 

By Frits Ahlefeldt

The lemming effect has been frequently highlighted in the investment behavior of managers and is a behavioral reality that we like to ignore. The robo-advisory segment will have to demonstrate that it is not plagued by the Lemming effect. Lest gove it more time.


Originally published:

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions 1000 563 Efi Pylarinou

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions

It was 3yrs ago (2015) that I first produced the “Unadvised Assets” infographic – Salivating for Unadvised assets: a videographic and a year later the Digital Wealth management: a videographic update. My message was borrowed from Seth Godin’s Icarus Deception book and it echoed loud and clear to the incumbents that


Doing nothing in this new era, is Unsafe

Leapfrogging of the standalone robo-advisors had shyly started and independent financial advisors in 2016 were still staying on the sidelines – US Financial advisers: confused and plucking daisies.

Barron’s just published a great overview of the US sector with The Top Robo Advisors: An Exclusive Ranking in collaboration with Backend Benchmarking, a US analytics firm and publisher of the Robo Report, who tracks 28 current robo providers, a mix of independent pure plays and legacy-owned subsidiaries. Thanks, Urs Bolt for bringing this to my attention, fresh off the press. Backend Benchmarking publishes a quarterly free report that anyone can sign up for (Aug 18 is the release of the Q2 2018 robo report).

Backend Benchmarking put out their first article on Barron’s in the space, also in 2015 Robo Advisors Take On Wall Street. They highlighted the beginning of the insurgency which had begun in 2010 in Betterment (at the time a voice in the wilderness) and that technology was turning asset allocation models into a commodity service. Fast forward to today and the founder of Backend Benchmarking, Ken Schapiro who is a financial advisor, has spent $500,000 funding accounts at 28 robo providers which allow his analytics firm to monitor performance and changes to the robos’ products. They have created a scoring system for all sorts of factors that maybe differentiators in the space. Five out of the eight factors are qualitative, like transparency, customer experience, conflicts of interest, access to human advisors, and financial planning services.

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions

For now, they include 10 service providers, half of which are standalone; based on 2yrs worth of data. They will be adding Ellevest, SoFi, Fidelity, Wells Fargo, and T. Rowe Price in their future rankings. They are choosing not to include Hedgeable and Learnvest, because they are predominantly active allocators.

Performance comparison is presented using their in-house normalized benchmarking which shows Vanguard on the top.

The questions that remain unanswered in my mind, as the sector is crossing the $200 billion AUM, are:

  • How much of these $200billion was unadvised? Maybe we are simply witnessing a shift to low cost passive with better UX? As Lex Sokolin said when covering news and insights on crypto digital lending this week “Imagine if robo-advisors accounted for 36% of new assets raised this year and neobanks had 36% of new deposits,…” (see here)
  • How many “Low intent” end customers have been acquired and at what cost? “Low intent” (a term used a lot from Envizage) prospects are those that don’t know what action to take, for example, how much to save, how much to borrow, how much to invest etc. In other words, how many genuinely and fully “underserved” clients are being served in these $200billion? Because, if it is me and you, moving from being served from one incumbent to a robo-service, then this is an upgrade, it is good in terms of increasing the competitiveness of the market, but its impact in terms of genuine democratization and opening access, is not evidenced.
  • Why hasn’t the culture changed in terms of transparency? Schapiro reports and I believe him, that in several occasions his accounts were shut down with one excuse or another. I have a similar personal experience when we proposed to a couple of standalone robo-advisors in Europe to join the free Investment by Objective service (IBO) and provide real-time performance (anonymized) data towards developing an index and also using that to adjust models – Swiss pictograms for investment performance – Performance Watcher.

Who is redesigning financial services?

Who is redesigning financial services? 1000 624 Efi Pylarinou

Who is redesigning financial services?

Simon Sineck says that you always have to start with the “Why”. True, but for the digitization of financial services, we have already answered the “Why redesign financial services”. The “Who” and “How” is a work in progress. The “Paradeplatz meets Silicon Valley” event in Zurich last week, organized by RFS, was an opportunity for me to think around this multi-faceted topic. My insights today are by no means an attempt to cover it all but to shed light and a few noticeable trends.

This is Switzerland, the small country in which Swiss banking contributes around 80billCHF to the Swiss GDP. This includes banks and insurers, that account for nearly 10% of GDP. Despite the fact it has been declining, it is still much higher than several G20 countries.

As I reflect on whether Swiss Banks and Insurers, are the ones that are taking the lead in redesigning their businesses; the answer is that they are not. This is in alignment with the fact that Swiss Banks and Insurers understand their businesses very well but only Backwards (as Dan Kimeling, of Deciens Capital said). They are not those that foresee and shape the future of their businesses. They are not pushing their own thinking and challenging their current offerings like Google X does. They are trapped still in the mode of growing their market power by acquiring more assets to manage. They are not in the mode of acquiring human resources, IP, and investing heavily in being in the flow of innovation wherever it is happening, in whatever way. There is no Goldman Sachs in Switzerland. Meaning, there is no boutique, brand investment bank, that is in the flow of it all. With Marcus, with Honest Dollar, partnering with Betterment, investing in Kensho, with and Circle & Poloniex. There is no BBVA here. There is UBS and SwissRe, but not as aggressive and with no sense of urgency.

Switching over to the firms that have been in the financial software business, like Salesforce, they are the ones that are powering the Software as a service (Saas) model and becoming platforms which integrate the scattered Fintech innovations. They are the ones that have the distribution channels and can “save” their clients (the banks and insurers) the resources and time, needed to integrate. Switzerland does have a Salesforce and a Finastra of its own. Temenos and Avaloq are the ones that redesigning financial services. At “Paradeplatz meets Silicon Valley”, Francisco Fernandez, co-founder and ex-CEO of Avaloq reminded me of several Fintech innovators that are already integrated on their core banking.

IBO – TheScreener  –  Spitch – Sanostro

Avaloq’s app store and developer portal, is already 3yrs old and includes over 90 apps or Banklets as they call them, for a diverse use (PFM, payment mgt, alternative investments, asset & market info, etc) and through their recent strategic investment in Metaco, they also offer custody solutions for crypto assets that can be integrated in a bank’s core system (SILO). Will the clients rush and buy from such Saas providers? The signs here in Switzerland are not that encouraging. The offering is there, it is a work in progress but the buyers have to make the strategic decisions. The bottom line issue is that IT people in banks and insurance companies are not the majority on the Boards or at high-level management. Martin Naville, CEO of the Swiss-American Chamber of Commerce, highlighted this issue when he was discussing on stage the successful case of Swissquote. This is a 30yr old Swiss listed company that merits to be called a Fintech focused on online financial and trading services. With robo-advice, e-mortgages, e-forex, and crypto offerings, Swissquote is the leading online banking /trading platform in Switzerland and has even established partnerships with banks that are white labeling their technology (e.g. Postfinance e-trading powered by Swissquote).  Their annual conference in collaboration with EPFL is a unique combination of academics and startups. What is the main reason that a 30yr Swiss bank, is an unstoppable leading innovator in online financial and trading services? It is a business founded and managed by engineers.

Technology and data parlance is built-in organically in their board meetings and amongst all their decision makers.

If you come from that angle into today’s reality, then you can cannibalize your business offering; you can even “hire the young to teach the old”. Anyone 35yrs and up, can qualify as old actually and can benefit hugely from being mentored by the young. Young people get it, how Revolut is acquiring 10,000 customers a day and is only 2.5yrs old. I get it too, because it took me a few minutes to open a business account on Revolut this past weekend which is open 24/7.

RFS by Who?  –  (Redesigning Financial Services)

Here in Switzerland, it is the seasoned financial services businesses that are overweight engineers that are pushing the status quo to change. The redesigning of financial services can happen from the Avaloqs or the Swissquotes. These are those transforming into Saas platforms for B2B penetration or those growing fast their digital offerings for B2C and at the same time white labeling their technology to other players (B2B2C) and revenue sharing.

However, if the banks don’t “buy” into all this, then these offerings will be exported and German or African or Middle Eastern banks and insurers will digitize faster than the Swiss. At the same time, there is still one major factor that the Swiss ecosystem has not leveraged enough, and which may turn all the above into a tale much like Aesop’s “The Tortoise and the Hare” race. What is this underutilized X-factor?

Swiss data protection laws, coupled with the unstoppable Transparency trend

Regulation has more or less shaped the dominant technology, in all innovation cycles (inspired by Guenther Dobrauz, PWC partner).

The place to Open Transparency centers that enable international stakeholders to review the vetted offerings, is Switzerland.

With the toughest data protection laws, quality control is essential. At the end of the day, this is how the Crypto ecosystem scaled in the Alps. One of the tipping points was when foreign businesses moved here.

Financial services will become invisible and intertwined with IOT. Whether you enter and exit a parking lot and payment is done; whether you send money or borrow money with an SMS; or your online financial advisor keeps you intact with your long term goals; or your insurance claim processing is done with two swipes; it will be all about Data quality and trusting the code that connects behind the scenes the devices and the service providers. IOT and invisible finance, is no utopia. It is happening as we speak. Switzerland can be the home of Open Transparency centers for all data used for the networks that will link invisible finance via IOT and make it all a reality. Regulators and entities like governments, agencies or corporates will be able to review and monitor these invisible business processes (data & code).

It was Kristine Braden, the country officer of Citibank, that opened her keynote with the FT headlines about “Spying fears prompt Russian software company move to Zurich” at the RFS event in Zurich and highlighted Kaspersky’s decision to move to Zurich and open a Transparency center for their antivirus software. This is a facility where trusted partners and government stakeholders can review the Kaspersky products’ source code as well as the tools they use.

Robert Ruttman, founder and CEO of RFS, and head of Customer Insights for FS at the Institute of Customer Insights at the University of St. Gallen; is always smiling, full of energy and a host on stage. As I walked out if the Aura hall at the end of the first  day of the RFS event, I thought:

RFS by Who and How?

Secure invisible finance in an IOT environment hosted out of Switzerland! The locals don’t see it yet. Maybe the “foreigners” do and will start moving here and that can turn Switzerland into the hub for secure, transparent centers because everybody gets it: Tough data protection can work magic within a transparent environment.

Nudge-Budge banking software lagging in the attention economy

Nudge-Budge banking software lagging in the attention economy 800 1040 Efi Pylarinou

Nudge-Budge banking software lagging in the attention economy

It’s been 10 yrs since the best seller “Nudge” hit the market. Richard Thaler, the Chicago economist and co-author of the book was awarded the Nobel Prize of economics for his pioneering work in behavioral economics (popularized in the “Nudge” book).

I find it remarkable that there has been only one Fintech PFM app called “Nudge” after such growth in this fintech subsector (and even that one has changed its name). I find it even more remarkable that the oxymoron term “Libertarian Paternalism” coined by the Thaler & Sunstein isn’t used in the Fintech ecosystem (too political maybe). I would have expected that at least accelerators, incubators, hackathons would “Nudge” participants to design solutions that affect behaviors in consumer banking, wealth and asset mgt. and small business banking.

Could it be that the “Fintech crowd” (all of us included) is silently voting against the Nobel Prize “behavioral theory” that points to all sorts of Predictably irrational behaviors and suggests that “Libertarian Paternalism” is the way to go? In plain words,

are we not convinced that it is possible and legitimate to affect customer behavior through the implementation of “Nudges” while still allowing for customized services and in alignment with all fiduciary principles that protect personal goals?

Is it true that the only tangible “Nudge-Budge” effect that Fintechs in WealthTech have managed up to now is more investing in “indexing” and more growth of the ETF sector? The robo-advisory decision-making influence has yet to prove to us that it offers a sustainable risk-adjusted outperformance.

Maybe there is a more tangible “Nudge-Budge” effect from Fintechs in PFM targeting cognitive biases towards increased savings, which in turn leads to more investment and better retirement. Bottom line analytics on this front are yet available but it is the only subsector that promises to provide several “Libertarian Paternalism” case studies for the near future. Challenger banks are clearly going down that route; from the Monzo app, Tandem, to the Starling Goals app. Digital micro savings apps like AcornsStash, and Qapital also. Incumbent banks have also entered this space with HSBC being one of the earliest to use real-time customer analytics to increase self-awareness of spending patterns for its First Direct customers. HSBC developed internally a savings app, coined Nudge, in 2016 and then developed into SmartSave a microsavings app developed in collaboration with Fintech Pariti. Old mutual had launched a similar service with the 22Seven app. This collaboration continues but 22Seven has gone independent because they have ambitions to grow globally.

Nudge-Global is another a Edutech company that has been focusing on financial education. Standalone fintechs like Oval MoneyPensionBee, and WeatlhWizardsare examples that “Nudge-Budge”. Personetics technologies is one that is laser-focused on cognitive banking solutions, so a variety of “Nudge-Budge” software that aim to be the next generation Nudging apps.

Nudge-budge fintech approaches in consumer banking still don’t have an impact. Culture before technology. Let us wait and see how our inertia and behavioral biases, withstand these technologies.

“Keep winning me”, says every robo-investor

“Keep winning me”, says every robo-investor 1000 517 Efi Pylarinou

“Keep winning me”,
says every robo-investor

“Not another post on robo-advisors” maybe your first thought. But 2020 and 2025 with projections of either 10% of total AUM or $2 trillion managed by digital platforms; are far away still. So, we will be seeing lot more pivoting in the business models and the stacks, in robo-advisory.

We have already witnessed the commoditization of passive investing; the increase in passive investing; the pivoting towards hybrid digital platforms.

“I want passive, cheap, and online” investing options for relatively low amounts.

Thanks to the fact that over the past 5yrs 80% of active large cap funds underperformed their benchmark indices, passive ETFs remain in demand and the suppliers are responding too.

Morningstar, reports that U.S. fund fees have been declining steadily since 2000, going from an average expense ratio of around 0.90% to a record low of 0.57% in 2016. Still high compared to passive ETFs. reports that the price of the “Cheapest ETF Portfolio” for the U.S. market is Less than 0.06% a year.

“Pay attention to my culture” says the American, the German, and every robo-investor

It is standard practice in all digital platforms to have a home bias. German robo-advisors overweight European ETFs, while U.S. tend to use more U.S. ETFs. Solactive’s Robo-advisory (see links below) report states that in Germany, on average 40% of the ETFs are European. In the US, the home bias is higher, with an average of 52% to US ETFs.

More interestingly, Solactive reports the different optimization approaches between US and German robo-advisory platforms. These are the two areas with the largest concentration of robo-advisors. The US is clearly more aggressive in equity allocation for the same risk-profile. Solactive compares 3 different “personalities” and indicates that “, in the U.S., the percentage of funds allocated to equity for a more conservative portfolio ranges from 0% to 47%, whereas in Germany, the percentage of funds allocated to equity ranges from 9% to 30%.”

“Pay attention to my values with all this index investing”

Long term performance on a risk adjusted basis has always been the name of the game in financial investments. But our culture is changing. Whether it is in preparation of entering in the astrological age of “the Age of Aquarius” (shifting from the Age of Pisces) or not; we can already sense the shift in values. Philosophically the “Age of Aquarius” is an era that we care less about money, personal success, and boundaries and more about personal and collective consciousness, social justice, equality etc.

Wealthfront has already responded to client demand to omit buying securities from indices in sectors from four main categories: fossil fuels, deforestation, weapons and tobacco. So clients can click on which categories to omit instead of buying the whole index. That way, a client doesn’t loose the diversification benefit of an index and at the same, is not in conflict with his or her values.

Direct Indexing is part of PassivePlus®, Wealthefront signature suite of investment features which allows investors to optimize tax harvesting from moves of individual stocks. Since summer 2017, Wealthfront clients are able to build their portfolios in a Socially Responsible Investing (SRI) style

Morgan Stanley Access Investing, the new robo-advisor launched at the end of 2017 already allows investing in thematic startegies that include gender diversity, climate action and other sustainability themes. This new offering is priced at 35bps annually. Clients can choose from indexed ETFs, mutual funds, and thematic strategies.

Betterment has showed genuine concern around the limitations of existing SRI financial products and for now, is using the iShares MSCI KLD 400 Social Fund, which tracks the MSCI KLD 400 Social Index and has large-cap stock exposure. Companies involved in tobacco, military weapons, nuclear power, adult entertainment, and genetically modified crops are screened out. And the iShares MSCI USA ESG Select Fund for tax-harvesting purposes. Both these ETFs have high fees of 50bos compared the average of 9bps for Betterment’s core portfolio.

Personal Capital, the third largest US standalone robo advisor in terms of AUM and with a hybrid approach from the start, is also listening to the increasing interest and demand from clients. For no extra charge to clients, Personal Capital will screen U.S. equities on environmental, social and governance factors. The analytics are provided from Sustainalytics, a provider of ESG research and analytics,  to determine best-in-class companies in each domestic peer group.

With this ESG offering, Personal Capital may also be drawing more attention to its hybrid advice model. It is the human advice service of Personal Capital that is a paid service. Increased engagement around ESG investments with clients may increase the conversion from the free service to the paid service.

WealthSimple, the Canadian robo-advsior that opened doors recently in the UK, has also included SRI capabilities in their offering. “We always look to our clients for feedback on which features they want to see next, and SRI has been requested from the first day we launched in the UK,’ said Toby Triebel , CEO Europe to Citywire. It isn’t clear which specific funds have been include but the focus is on investments in cleantech innovation, fair labour standards or low carbon emissions.

Two standalone digital investment platforms that are 100% dedicated to sustainable investing, are OpenInvest and Earthfolio. OpenInvest is a YCombinator and Andreessen Horowitz-backed startup focused on the under-served markets in customized ESG asset management. They offer their services for 50bps flat fee. They have also designed a proxy voting app that just makes it easy to exercise your rights as a shareholder; with a swipe. Earthfolio is approaching sustainable investing with a thorough screening approach on multiple factors.

“Keep winning me.
Pay attention to my values.
Lets show the world that ESG and SRI investing, is good business”

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