Fintech – News and Analysis

A couple of weeks ago a Wall Street Journal columnist plaintively asked why the electorate was so angry and supporting people like Sanders and Trump when the economy was actually doing pretty well. Perhaps they had been reading the Journal’s editorial page which has been loudly arguing for 7 years that Obama was driving the economy into the ground.

Yesterday Martin Feldstein, hardly a Democratic apologist since he chaired Ronald Reagan’s Council of Economic Advisors, weighed in with his evaluation. Households are in good shape with disposable income up 3.5 percent and despite reports to the contrary, real household income rose 40 percent between 1979 and 2010 when you take into account taxes and transfers.

He expects the decline in oil prices will slowly show up in household spending, after people finish paying down debts, a move that will occur in 2016 and 2017. Interesting piece, but the WSJ does have a paywall.

Interesting to read over the weekend that London’s mayor Boris Johnson has decided to throw his charismatic and not inconsiderable weight behind the “NO” campaign. Most agree that this shifts the possibility of a Brexit from remote to now distinctly possible. I wonder, therefore, what this means for all the rules we are in the midst of implementing as part of MiFID, EMIR etc. Theoretically none of these rules would necessarily apply, which would leave the UK potentially in a bit of a mess. Of course other European countries such as Switzerland and Norway, that are not part of the EU, mirror the MiFID rules as this makes interaction with their trading partners easier. But they are not forced to, and equally don’t have anything like the trading activity that happens here in the City on London. So it would be up to UK regulators to decide if, how and when they implement the rules coming out of Brussels. This might create the temptation to re-examine some of the more controversial aspects, such as the dark pool trading caps or payment for research. Would this in turn lead to a rethink in Europe so that it doesn’t fall victim to regulatory arbitrage? Or would we end up with the kind of interminable mutual reciprocity dialogues we have between the CFTC in the US and ESMA here?

I guess the point is that whether the UK likes it or not, and whatever the rules, it is intrinsically part of Europe. However onerous some of those rules are, creating and playing by different ones will only make things more complicated and increase the frictional cost of trading.

Interesting account in Businessweek about how banks are patenting their processes and educating the patent office on how banks work so they don’t get clobbered by fintech firms taking out patents on business processes that have been routine for decades.

“There is so much innovation in finance right now that if you want to stay ahead and maintain an edge, you have to patent it,” says Linda Coven, a banking and payments analyst at research firm Aite Group.

I think the first patent on a financial business process was Merrill Lynch which got a patent on sweeping odd funds into a single account at the end of the day. Now banks have to fend of both fintechs and patent trolls.

“Bank of America has won the most patents among U.S. banks in recent years, with an active portfolio of more than 3,000. These include patents covering blockchains, a wearable financial indicator such as a watch, and automated teller machines that can be operated by a smartphone. MasterCard applied for 500 last year, 10 times the number in 2010, according to Colm Dobbyn, head of the company’s patent program.

Good article by Susan Decker and Elizabeth Dexheimer 

From Nerd’s Eye View by Michael Kitces in his Weekend Reading for Financial Planners

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a scathing letter submitted by Senator Warren to the Department of Labor, pointing out that while insurance and annuity companies have insisted that a DoL fiduciary rule would be disastrous, when legally obligated to disclose the rule’s true impact to shareholders on earnings calls the major insurance companies have confessed that the rule will have “no significant impact” on their companies and that they’re ready to adapt as necessary (which Warren uses as leverage to encourage OMB to quickly approve the DoL rule).

Richard W. (Dick) Evans, who will retired as CEO of San Antonia-based Cullen/Frost Bankers Inc., spent nearly 16 years serving in some capacity in the Federal Reserve.

“My concern is that the Fed is moving away from a model of leadership ad guidance toward an analytical, model-driven one. Nobody questions the importance of data, but part of being a central bank is about leading, inspiring confidence and bringing a human element.

“Lately there has been this ‘analysis paralysis’ where the focus on data has taken precedence over leadership, and it has led to a lot of confusion. When analysts need to parse through every phrase of a  press release that the Fed puts out in order to figure out what they are trying to do, that isn’t leadership. It has become so technical that nobody really knows what is going on.”

Basker Rangachar has joined Zafin, a leader in relationship banking software for the financial services industry, as chief transformation officer and global head of advisory services.

In this newly created role, Basker will lead two strategically important pillars in the growth agenda for Zafin — capitalizing on  business opportunities through a coordinated transformation of Zafin solutions, processes and disciplines to achieve scale and speed and  global expansion of advisory services.

Basker has 28 years of  experience across B2B and B2C industries including financial services, private equity, retail, manufacturing, oil and gas, consulting, and audit. Prior to joining Zafin, he was the global head of brand and retail marketing at Standard Chartered Bank where. Over a 10-year career there he held senior consumer banking leadership roles across the bank. In recognition of his strong achievements, Basker has received several industry awards including being named Marketing Magazine’s Marketer of the Year in 2012.

“I feel privileged to join the leadership team at Zafin,” said Basker. “Having known the founders since 2009, I remain deeply impressed with how they have exponentially grown the company by enabling banks to live up to the promise of client centricity and deepening client relationships. Industry recognition of Zafin by Deloitte as one of the fastest-growing technology companies in North America in both 2014 and 2015, and American Banker’s naming of Zafin as one of its Top 10 FinTech Companies to Watch in 2014, are a testament to their continued success. The diverse talent, rich experience and strong core values of Zafin makes it a compelling proposition for me to join the team and contribute to its next wave of growth.”

“In addition to his extensive banking experience, Basker has a deep understanding of various cultures, as he has lived across India, Dubai, Singapore, Australia, Thailand, and Hong Kong,” said Al Karim Somji, Zafin, founder and CEO. “His domain knowledge of financial services, successful track record in growing businesses, and his extensive network with senior banking executives makes him a unique talent in the industry. His personal career transformation from CFO to CMO shows that he is perfectly suited to lead our corporate transformation agenda and help grow the company”.

Pendo Systems (Pendo)  was widely recognized by industry leaders and publications including ACQ5 Global Awards which named it Capital Markets Technology Provider of the Year and SWIFT’s InnoTribe Showcase, which awarded Pendo the title of Top Innovator.

“Capital Markets shifted in 2015 from searching for alpha to searching for the unicorns,” states Pamela Pecs Cytron, Pendo’s founder & CEO.  “The industry is creating  innumerable contests and incubators and every bank to every insurance company created a ‘fintech’ fund.  There are now over 5,000 so called #fintech start-ups, and on top of that, 700 blockchain entrepreneurs.”

Cytron says, “If you are looking from the outside in, you are thinking about unicorns and pixie dust, but underneath the noise, the theme really stayed the same.  The established #fintech vendors continued the consolidation theme, as the FIS acquisition of SunGard showed.  Market headlines remain filled with issues about data, transparency and regulatory compliance.”

Between the headlines and hash tags, Pendo was able to focus on the growth of their pivotal product strategy.

“The year not only provided for skyrocketing growth; we launched our new platform to beta,” says Cytron.

To support the growth and adoption, Pendo expanded its staff and opened a Charlotte, NC office.  It appointed Philip Dodds CTO early this year; followed by the appointment of Doug Richman as its COO.

Doug Richman is an experienced and innovative financial services investment technology executive focused on delivering robust, scalable, and low-cost business solutions to both sell-side and buy-side businesses. Philip Dodds is a serial entrepreneur in financial services.

Pendo’s unveiling of its new platform in 2016 focuses in improving the access to dark data held in financial firms’ back offices

“I’ve been in this industry for 30 years, and 2015 was the most fascinating year I’ve experienced,” says Cytron.  “During 2008 to 2013 the amount of private equity and venture capital focused on financial services technology was reduced almost by double digits.  Yet now we have a bubble.  Who’s trying to disrupt the institutions themselves, and who is focused on enabling the institutions to transform?   Pendo’s vision is clear; we are an enabler to the industry.”

Pendo believes the replacement market is over.

“We don’t anticipate an exodus of vendors, but we do envision accessing and releasing the valuable data in the enterprise to gain transparency,” states Cytron.  “Pendo’s transformation will set a foundation for the future. A marketplace that allows for streamlining and repurposing data sets in the back office to provide universal inventory that can then be fed to any system, any consumer.”

There are a lot of good new products on the market, added Cytron.

“Many small vendors are making significant investments in our industry.  But they are all slaves to the data they can consume.  We are making all of our data available to market participants to begin to build the bridges to discover and unite data.  The most valuable data in our enterprise is being held hostage in the back-office, and we have to monetize that data.   So we have our pixie dust to share with a community — a community of customers, vendors, and market participants that will re-imagine the future of the capital markets back office.”

Although from reading about contemporary banking you might get the idea all the business is getting done from mobile phones, physical branches and ATMs are still key to most banking interactions, from transactions to advice to wealth management.

So with 5,500 branches and 18,000 ATMs located across 23 states, JPMorgan Chase relies on geographic information systems (GIS),  along with customer data to choose facility locations and to support marketing.

“The customer data is quite impressive,” said Jeremiah Glascock, vice president and GIS market manager at Chase during the July Esri conference in San Diego. “One of every two of you has some sort of relationship with Chase.”

His group analyzes every piece of data that comes across its desks, he said. It had used that familiar data tool, Excel before moving much of its analysis to Esri GIS.

“What was spreadsheets has now evolved into a location strategy,” said Wally Johns, vice president and market research group manager at the bank. “Most data points have spatial components, such as branches, ATMs, where customers shop and where they live, and where our employees are located. We have a tremendous amount of data in-house.”

For several years the bank had a branch planning group of two people working with the site selection team to help make real estate decisions, and a separate marketing group doing geo-analytics to support direct marketing mail campaigns with very little overlap or information-sharing.

Then two years ago the bank decided to enter the Jacksonville, Florida market. Glascock and Johns got together and decided to collaborate on the project using Esri.

Instead of site planners going out in person and drawing on maps, the bank is using technology to build models, capture data from existing locations and work with the site teams.

“We had to persuade our clients that this was going to work for them,” Johns said. “We assured them that working together we could provide what they needed. We moved from a mapping exercise  to building out a location strategy for the Jacksonville market.”

From mapping providers the team has grown into an internal consulting firm at the bank.

Besides facility location planning and marketing, the GIS group is developing resilience planning for the bank.

“We experience minor and major disruptions every day of the week,” said Glascock, “From power outages and networks going down to terrorism, cyber attacks, bank robberies and storms. The business resiliency team has resource and tools to analyze the risks and prepare strategies to mitigate them, and that involves a whole lot of spatial data.”

During crisis events, ranging from protests near JPMC locations in the Philippines, nationwide strikes in Argentina to power outages and structure damage resulting from hurricanes like Hurricane Sandy, Glascock helped provide GIS application and analytical support.

“Now we are getting a lot of requests from folks we didn’t know had a need, from the investment bank to credit cards.”