Digital Wealth – Shùzì cáifù – in China

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Heading into 2015, China had US$21 trillion dollars pent up in bank deposits. With such a large, investment hungry population with so much ready-to-invest capital, anyone with a WealthTech business idea can only start salivating.

Be careful and contain your excitement around this huge single market opportunity. There is no doubt that strong favorable winds are blowing in China because of:

  • Very high internet penetration
  • Reduced anxiety over data privacy
  • The internet of finance birthplace
  • Government support for innovation
  • A nationwide credit scoring system underway
  • Openness to Collaboration of restrained banks with fintechs
  • Capital looking for investments

On the other hand, look at who is already positioned in China to offer wealth management products and examine how they are delivering these services.

The Internet of Finance refers to financial services delivered through digital platforms (digital from birth).

Digital money-market type of funds

The money-market funds typically sold by the Charles Schwab’s or the HSBC’s in the West; are offered e-commerce giants in China. We are all familiar with the Yu’e Bao fund of Ant Financial (Alibaba when it was launched in June 2013), which by the way was met by the media with great skepticism since there were already more than 200 such funds in the Chinese market. Was it for small-size savers or was it for typical clients of wealth mgt services at banks?

To cut a long story short, the remarkable path of asset accumulation (summer of 2016 AUM 772 billion yuan (=$116 billion)) is even more stunning as the AUM growth occurred even though rates of return declined.

The fund started with initially offering 7.5% interest rates compared to 0.39% maximum interest rate that China’s national banks could give out. The Yu’E Bao rates are now only able to pay out an annual interest rate of 2.5%.

The fund is run by Tainhing Asset management and integration with Alipay, facilitated the growth of the retail user base. By mid 2016, there were close to 300,000 users reported.

Li Cai Tong’s fund by Tencent and Baifa fund offered by Baidu; are also major players in this space which continues to incentive users by offering better rates and better user experience.

Stock Trading apps

Broader Fintech type of activity in China is seen in the PFM space both from the e-commerce giants and the P2P lending platforms. Stock trading apps have been launched by several such platforms and are the first signs of integrated platforms that address investment and funding needs of individuals and their businesses.

These apps offer access to trade-invest in A-shares and mutual funds or structured products that are more diversified options. They are all heavily used by brokers (over 90% of usage) who form their end, tap into the growing customer base of these tech businesses. Some of the players are the ever present trio BAT, JD finance, Credit Ease, Wacai, and Tongbanjie. The latter two are standalone Chinese mobile apps. JD Finance is the financial subsidiary of e-commerce giant JD. They are in the process of following restructuring the organization and following pretty much the spinoff steps of Alibaba-Ant Financial. Credit Ease, run by publicly traded Yirendai (NYSE: YRD) was setup as both a lender (small business and consumer) and a wealth mgt business focused more on the middle and upper end of the wealth spectrum.

In addition to these local players, there are already noteworthy moves from foreigners positioning themselves through local partnerships in the stock, fund trading space. These strategic moves makes sense given the much anticipated increase of the limit for Chinese individuals for overseas investments and at the same, establishing a sensible presence in the local market.

Currently, Chinese investors can only trade overseas equities through the “QDII = Qualified Domestic Institutional Investor” framework which offers quotas to select institutions, which in turn channel to each Chinese citizen an annual exchange “allowance” of US$50,000.

Robinhood, the US-based free stock trading app, formed a partnership with Baidu in summer 2016 to tap into the mass market of Chinese citizens by offering them US stock trading access. They also launched their Chinese app, named Luobin Xia (罗宾侠), for US citizens in mainland China.

Another different partnership of two Asian Fintechs and an established global financial service provider originating from Europe, is that of Saxo Bank, WEEX, and Lean Work. The Chinese online trading platform WEEX of WallStreetCN, partnered last summer with Saxo Bank, the Danish-origin multi-asset trading business, and Fintech startup LeanWork to tap into the mass market of Chinese speaking users. Lean Work is a Shanghai based startup, focused offering cloud based risk management, back office, trading and brokerage solutions. The 15million monthly users of the WallStreetCN financial media business (a 3yr old financial content startup) will gain access to over 30,000 instruments via this integration.

Brokerage, social trading, robo-advisors

The lines between stock trading apps (linked to third-party brokers) brokerage businesses with bells and whistles, and robo-advsiors; are blurred. The grouping I have chosen is more for the sake of simplicity.

Tiger Brokers (Bejing based) is a 2yr old Fintech broker targeting the overseas investing market segment (Hong Kong and US). One of the largest mainland China brokers, Citic Securities (Shengzen based) participated in the Dec 2016 Series B funding round ($29mil) which will be used mainly to boost Tiger broker’s big data capabilities in financial advice. Xiaomi participated in the Series A round.

Jimubox (Bejing based) the Xiaomi backed marketplace Fintech, launched a trading app mainly to serve the overseas channel, the Jimustock app.

Snowball Finance (Bejing based) is a Fintech with a social information and investment platform that plans to add brokerage capabilities (Sequoia Capital participated in their $40mil series C in 2014).

ChaoTrade, is a newly launched social trading Fintech platform.

At the same time that Robinhood launched Luobin Xia, 8 Securities launched their free-trading app in Hong Kong, with an AI feature, Chloe, that can educate and help users in their investment discovery process.

In the summer of 2016 which is clearly a turning point for the Digital wealth space in China, CreditEase launched a robo-advisor in mainland China, ToumiRA. The offering allows overseas investing via ETFs instead of the expensive and non-transparent way of managed accounts. ToumiRA was launched in partnership with the US based B2B robo-advsior DriveWealth.

Pintec is the other significant player in mainland China. Pintec is a Fintech group that spun off Jimubox. XUANJI is their robo-advsiory offering launched also in summer 2016. They have an onshore and offshore version; and they have a B2C offering in addition to a white liable offering.

Digital apps using machine learning for investment advisory are:

Micai Fintech launched in Spring 2015

Clipper Advisor, launched out of California and with a motto “the Wealthfront of China”.

Our Chinese Fintech startup coverage in this post on wealth management is focused on the B2C segment. Hong Kong is booming right now with B2B offerings that mainly targeting the South East Asian markets (Indonesia, Malaysia ect). Another post will cover those trends.

Wealthtech China

China is leading in the integrated digital wealth management movement.

Credit Ease, is one Fintech launched with that mission; the PINTEC group is similar in its broad scope and aim to become a full range financial services provider. Alibaba, Baidu, Tencent, JD, the e-commerce tech giants, are spinning off subsidiaries and taking the lion’s share from Fintech funding (skewing global reality also, with the huge lump-size funding rounds) and dominating the financial services space. They are leading the way of digital cross-selling.

In a report recently published by EY and DBS on “The rise of Fintech in China” it is noted that:

“ The willingness of Chinese consumers to adopt FinTech services is striking. Forty percent of consumers in China are using new payment methods compared to 4% in Singapore. Thirty-five percent are using FinTech to access insurance products compared to1-2% in many Southeast Asian markets. There are also significantly higher rates of FinTech participation in wealth management and lending.”

Happy new year China.

Thank you April Rudin for tweeting the jewelry designs for the New year in case your gold allocation has some room.

chinese-jewelry

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Introducing China Fintech Week

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Happy New Year. 新年快. Chinese New Year is on what the Western Gregorian calendar records as 28 January. So while in America and Europe we are done saying Happy New Year to each other, this is when Chinese people are saying Happy New Year to each other.

新年快

The biggest mistake is approaching Fintech in China with preconceived notions based on the past.

In China, Fintech is called Internet Finance. There is more to this than a name change. The way that the Internet and Finance is evolving in China is utterly different from how they evolved in America because the Chinese figured out that controlling the Internet was more important than controlling Finance.  

Three things to know about China – it is big, it is fast growing and it is different (from the West). We focus on China because it is big and fast growing, but our analysis focusses on the last part – how Fintech in China is different.

In the West we grew used to the idea that American innovation is adopted with variations in different countries. So it became customary to refer to any local ventures as the XXX (American leader) of YYY (country in question). China is different. Not only are the local variants very big, they also do things fundamentally differently from American companies. This does not only have ramifications for the second largest economy in the world (which is growing faster than the largest economy, America). The China model may also come to define the 21st Century in the same way that the America model defined the 20th Century.

I wrote this before the stunning news about Ant Financial buying Moneygram came out. The cat has landed among the pigeons. The payments game has changed. Read to the end for our take on this.

Bits don’t stop at category borders

One of our mantras at Daily Fintech is that “bits don’t stop at borders”. This is what we learned in the search and social eras of the Internet and what we saw with our own eyes at Daily Fintech. We just wrote what we figured was interesting and people from 130 countries found us.

However, the Fintech coda is “bits don’t stop at borders, but money has to show its passport”. Financial Regulation is by country (and by State in America).

When we look at Fintech (or Internet Finance) in China, one thing jumps out. The Chinese Government was forward-looking and proactive. They wanted to control the future not the past. So they controlled Internet more than they controlled Finance. It was relatively easy for a Western bank to set up a Bank in China but very hard for a Western search engine or social network to set up a search engine or social network in China.

The other mantra is that “bits don’t stop at category borders”. This points to how the China model is fundamentally different from the America model.

In America, we grew used to each of these categories being separate with individual winners;

  • Search (Google)
  • Social (Facebook)
  • Ecommerce (Amazon)
  • Payment (Paypal)
  • Lending (Banks)
  • Wealth Management (Private Banks & Asset Managers)
  • Cloud infrastructure (Amazon)

The last one is interesting. Jeff Bezos is an amazing entrepreneur who understands that bits don’t stop at category borders. He saw no reason why a bookseller should not go up against IT giants by creating Amazon Web Services (AWS).

BAT Baidu Alibaba TenCent

We focus first on the Internet part of Internet Finance, dominated by the BAT triumvirate –  Baidu Alibaba TenCent – each of which has a fundamentally different strategy:

  • Baidu, the search engine giant, is going down the VC route by investing in ventures in all the above categories.
  • Alibaba leverages its e-commerce business to move first into the Payments sector, before expanding into Lending and Wealth Management. Given their heritage, they have focused on an area neglected by Banks, Small to Medium Enterprise (SME).
  • Tencent is tapping into its huge WeChat user base to build a consumer-oriented financial network.

These are the barbarians at the gates. Next we look at the incumbent firms behind those gates.

Incumbent financial institutions – watch out for Ping An

China’s banks are usually portrayed in the West as big and inefficient, with high non-performing loans. There is nothing here to match the scale and agility of a Goldman Sachs or JP Morgan Chase. Yes, we see some moves such as China Construction Bank and Industrial and Commercial Bank of China moving into e-commerce platforms; but this feels like catchup at best.

However, one incumbent financial institution in China is making some big waves – Ping An Insurance Group. This publicly listed holding company has two subsidiaries in traditional insurance: Ping An Life Insurance, Ping An Property & Casualty Insurance (where the company started) and various other traditional financial companies, but it is their Fintech holdings that are more interesting:

  • Pinganfang is a real estate e-commerce platform, helping home buyers to get mortgages. It is a collaboration with a major property developer in China called Shum Yip Group. They pitch it as “Real Estate + Internet + Financing”; this confirms the category busting “bits don’t stop at category borders”.
  • Ping An Puhui offers micro finance to the 67 million startup companies and 270 million blue-collar workers in China, a market that has not been well served by China’s big banks. This is critical to Beijing’s ambitions in financial inclusion and the transformation of China from an export-driven economy to a more broad-based consumer economy.
  • Zhong An is a full stack regulated InsurTech venture, created as joint venture between Ping An, Alibaba & TenCent. You can see a single round over $900m on Crunchbase; no step ladder funding here. Zhong An first got traction from return-delivery insurance for buyers on com(Alibaba online marketplace) and is a specialist in providing cover for various risks relating to the internet economy. Zhong An sells direct, not via traditional insurance agents and like Lufax is headed towards IPO.

Western banks are along for this ride as Ping An accepted investments from Morgan Stanley and Goldman Sachs in 1994 and from HSBC in 2002.

Bricks & Clicks – with a difference  

The Chinese consumer is the 21st century gold rush for retailers globally – offering both scale and growth. It is also of course brutally competitive but also the first market of this scale to come of age after e-commerce was the norm. The most fierce battles are in consumer electronics where two Chinese companies dominate the physical stores  – Gome & Suning. Both are combining their offline resources such as customer leads with data mining to design new financial products. This is like the American Banker’s nightmare of Walmart but worse as the Chinese banks are much less established with consumers. Consumer engagement and affinity are increasing, and online-to-offline mobile payment via smartphones has become a new battlefield where companies are already starting to compete fiercely for market share.

Wealth management

China’s capital market is opening up. As they accumulate more wealth, Chinese consumers are hunting for higher investment return. That provides opportunities for Internet-based wealth-management businesses. Younger Chinese consumers who get their first exposure to banking via mobile payments will find an upsell to wealth management quite natural.

SME finance

SMEs in China contribute about 80% GDP and 60% of employment. As in so many countries, the reluctance of banks to lend offers a huge opportunity for Fintech upstarts.

GAFA (Google Amazon Facebook Apple).

Uber gave up in China, but what about deeper pocketed GAFA?

Google seems to have retired from China.

Amazon is duking it out, with keen prices and pitching Amazon Prime hard in China. Jeff Bezos is not a man who is deterred by a price war. I suspect, Amazon may also score in another brutal price war and consolidation around cloud infrastructure. In China, financial institutions have mostly leapfrogged in-house data centers and gone direct to cloud-based services. Amazon faces stiff competition from Alibaba, Huawei and IBM.

Facebook is trying hard, but may have left it too late to get consumer attention away from WeChat.

Apple is a premium priced product in a price-conscious market but also seems to be in it for the long haul. On devices they will be beaten by cheaper products, so the real battle will be around digital services and there they face BAT.

Ant Financial buying Moneygram

Headline writers can have fun – ant eats dinosaur. Seriously the payments game has changed. Our thesis has been that e-commerce and payments are one market – that Uber is a verticalized payments system – and that the action is in cross border payments. To date we had a world of a) old fashioned payments rails b) banks c) scrappy upstarts. Each of those players will have to totally rethink their game. Banks will have rethink Trade Finance from the ground up, not tweaks to the current systems.

Jack Ma of Alibaba is one of those world-changing entrepreneurs, up there with Gates, Jobs, Zuckerberg, Bezos & Benioff. He stood outside Trump Tower and said he would help US small business sell to China. This is how he does that. Devil/God is in the details of course, but watch this space….

For the rest of the week’s coverage please go to:

Tuesday WealthTech

Wednesday Small Business Finance

Thursday InsurTech

Friday Consumer Finance

Happy Year of the Rooster.

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Wrap of Week #4: Japan-Bitcoin, Fintech-New Zealand, Insurtech, WEF theme-Fintech, Wells Fargo & Loyds -Fintech

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We started the week looking at what is happening in Japan and whether it is advancing the mainstream adoption of Bitcoin. Read Japan is another rich developed country where Bitcoin is becoming respectable

Our Eastern coverage took us midweek to the New Zealand Fintech sector.

We took the WEF theme of “Responsive and Responsible Leadership” and used it as a filter for Fintech innovations in Responsive and Responsible digitization of financial services.

In Insurtech we offered our insights on the news of the past week in our Thursday post.

In consumer banking we picked Wells Fargo and Loyds and inquired when their earnings and thereafter their stock price may reflect the Fintech disruption in the US and the UK. Read When will Fintech disruption show up in Wells Fargo and Lloyds Bank stock price?

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When will Fintech disruption show up in Wells Fargo and Lloyds Bank stock price?

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#6 of our top 10 Fintech predictions for 2017 was: 

“Analysts covering Banks will start referencing Fintech disruption when referring to a drop in profits at a major bank. Carried over from 2016. I believe Fintech disruption was the root cause of the Wells Fargo scandal, but this was not a generally held opinion.”

This post will look at why a major decline of profitability at big banks is inevitable and will look for signs that this may be imminent. The post will conclude with some investing/trading options based on this analysis.

 Why we only look at Wells Fargo and Lloyds Bank

To start tracking measurable impact of Fintech disruption, we look at two big banks that have been rewarded by investors with a premium valuation – Wells Fargo in America and Lloyds Bank in UK. The 10-year chart of these two stocks compared to an ETF of bank stocks shows the scale of the premium valuation.

wells-fargo-and-lloyds

Investors like both these stocks because:

  1. They stick to one country that they know very well – America for Wells Fargo and UK for Lloyds Bank.
  1. They mainly focus on Consumer Banking – avoiding big exposure to Investment Banking.
  1. They have strong balance sheets.

Sticking with these two banks avoids getting results skewed by:

– fear of another Lehman event (impacting banks with a weak balance sheet)

– Political risk e.g a return to something like Glass Steagall (impacting banks using retail deposits for a big play in investment banking).

It also makes sense because consumer Fintech innovation has been happening for a long time, but is more nascent in Investment Banking. In short, the consumer Fintech tsunami is a lot closer to the shore.

Why loss of profit is inevitable

This is very simple – the cost to process a transaction via mobile phone, or maybe call center for complex issues, vs via a branch. As more transactions go digital and remote, those huge branch networks turn from an asset to a liability. How close we are to that tipping point is the big question, but nobody seriously disputes the inevitability of most consumer banking being branchless in future. If you dispute that, try raising money for a new venture that sells financial services via your own branch network; selling via grocery stores or Post Offices does not count as those channels are also competition to a bank’s retail branch networks.

Cross Selling & KYC

Cross selling has been the mantra of banks with big retail branch networks. They talk of omnichannel – branch staff + ATM + website + mobile + call center – and the Customer Acquisition Cost of cross selling vs acquiring a new customer. This makes a lot of sense because KYC rules mean that acquiring a new customer is very expensive; that will change as KYC artifacts become digital (see this post for details). There is no question that consumers like the convenience of omnichannel; who does not like having options? The question is the profitability of those customers. That is where cross selling comes in.

The problem is that banks find it is harder to cross-sell because their leverage over customers has decreased.

Historically, banks were one-stop shops for most consumer financial needs. If you had a current account, you also probably had a deposit account and a loan account and a credit card. The unbundling of these services makes it easier for consumers and businesses to shop around, and not surprisingly, the best providers aren’t always the banks they have done business with for years. The rebundling by new services that give consumers a holistic view across multiple accounts further commomditizes the bank/consumer relationship.

No, problem – just put more pressure on the sales guys! That is what happened at Wells Fargo.

Good cross selling will never go out of fashion, but banks need  products and services that are competitive on price and feature and user experience. That is a lot harder than increasing the targets of the sales people.

Of course, that’s easier said than done, particularly given some of the challenges in recruiting digital talent, but it’s the only real solution.

The good news is that banks that can improve their products and services, and develop innovative new ones, will not only be in a better position to cross-sell to their existing customers, but to use those products and services as a wedge to lure new customers who do business with other banks. The bad news is that other banks a well as Fintech startups will be wooing your customers with the same strategy.

A level playing field is a big problem for banks that grew up with one tilted in their favor.

Why you cannot forecast when a drop in profits at a major bank will be revealed to the public.

The Wells Fargo scandal is a story about digital headwinds meeting a “make target at all costs” culture. In this post we outlined the Creative Destruction 7 Act Play. Two acts are most relevant to Wells Fargo:

Act 3. Denial

The changes are now real and management can see it. But they don’t know how to react, so they reach for high pressure management to make the numbers work. In some cases, management also reach for creative accounting tricks to smooth out earnings and make it look as if nothing has changed.

Many banks have been in this mode about Fintech since its inception after the Global Financial Crisis. 

Act 5. Blow up

This is when reality can no longer be glossed over. This is when we see scandals such as Wells Fargo (and the News Corp phone hacking scandal). This can lead to investors taking a cold hard look at the numbers and when the new numbers do finally appear, it can trigger a stock crisis, often with a restatement of earnings and a change of CEO.

At this stage the reality can no longer be denied and we see real crises in big companies. These crises may lead to radical transformation, or they may lead to Chapter 11 restructuring and fire sales. Before that happens we see the kind of behavior we just saw with Wells Fargo.

This is new for banking, which has not had a major headwind like this in hundreds of years. However, bankers can study other markets that have faced digitization headwinds – for example News Media.

The News Corp phone hacking scandal

News media faced digital headwinds a long time before banking did. To put it another way, software feasted on news media before it looked for the next tasty morsel in banking.

The day the News Corp phone hacking scandal hit, I happened to be meeting with an esteemed Wealth Management firm that had put up a list of their highest conviction stocks. Right at the top of the charts was News Corp. Oops. When questioned, they responded:

“Stuff like that happens. It’s impossible to predict that kind of thing where rogue employees run amok”.

The rationale for putting that stock top of the charts based on financial metrics was impeccable. It is also true that the problem that crashed the stock that day was a Black Swan event and they are by definition impossible to predict. The rogues were fired. Story over? No.

Nobody could predict who would go rogue and when and in what form, but it was reasonably predictable that somebody would go rogue fairly soon in some way.

It was an inevitable event, even if it was not an imminent event where you could predict the timing. The reason that the employees went rogue was that their business was slap bang in the path of digital disruption. Valiant efforts by sales people (Wells Fargo) or Journalists (News Corp) cannot save companies from digital disruption. Top management attempts to make that happen usually end in scandal.

Like Climate Change

Causation does not equal correlation, but when you see correlation you can adopt one of two strategies:

  • Either: say causation is not yet proven, so do nothing
  • Or: say causation is not yet proven, but there is some evidence and investing is all about assessing probability and so some action is needed.

In the case of Climate Change, the investment concerned is property/real estate in low lying coastal areas that is in danger of rising sea levels. The action you take will depend on your situation and assessment of probability, such as:

– buy more flood insurance

– Sell the property

– Short resort business with exposure.

The parallel is apt because the big force of change related to Fintech is the behavioral change of millions of consumers. You can see the individual change (e.g a Millennial who has never used a Bank branch) but tracking the rate of change in large populations is much harder. Nor can you say with certainty what causes the change.

We call this slow, steady & powerful but hard to measure change Fintech Change.

Investing options

In the case of Fintech Change, the Investing options will also depend on your situation and assessment of probability, such as:

– Reduce exposure to Wells Fargo and Lloyds Bank stock i.e. sell them.

– Short Wells Fargo and Lloyds Bank stock i.e. a more aggressive approach.

– Buy individual Fintech stocks (private or public) such as Lending Club and Square

– Buy a basket of public Fintech stocks.

– Invest in a VC Fund with good expertise in Fintech to capture the early stage action.

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What happened in InsurTech this week

cowboy_roundup

We have rounded up the news and analysis that we think is important this week in InsurTech. Consider it your weekly briefing.

We are trying a new format this week. Please tell us if it is useful and how we can improve it. We aim to give you a weekly roundup of the InsurTech news and analysis that matters this week – Thursday is always InsurTech day on Daily Fintech. We have a self-imposed limit of 10. So if there are more than 10, we select what matters. We do not aim to be comprehensive, our aim is signal to noise ratio; we want to give you just enough to do your job. We will link to our trends & analysis posts for background as well as to the news source, so we can be brief on the individual news item.

Ladder, Life Insurance and the Reinsurance layer of the stack

The news event was that Ladder launched in California. Ladder did a big Series A with top tier firms in October 2016. We included them when we did our roundup of Life Insurance startups in July. For background on issues and opportunities in Life Insurance, read this post.

Ladder is an example of a venture benefitting from the 3 layer Insurance stack that we have referenced here. Their innovation is enabled by the Managing General Agent (MGA) structure offered by Reinsurers. The MGA structure enables the Reinsurer to maintain the balance sheet while the startup focuses on customer acquisition and user experience. This is a business structure that combined with tech innovation such as Open API is very powerful.

Reinsurers are in effect offering Capital As A Service. That is a game-changer.

JVP and AXA partner for InsurTech innovation scouting

Both incumbents and VCs need to scout for innovation. This news shows an incumbent Insurer – Axa – partnering with a VC firm – Jerusalem Venture Partners (JVP) to scout for innovation by the well-proven method of offering prizes in a competition. Often the incumbent Corporate Venture Capital (CVC) unit is seen as competition by traditional financial VC. This shows a trend to partnering where the incumbent has deep domain expertise and the VC has deep expertise in spotting, valuing and nurturing early stage ventures.

Forward – a new Healthcare Provider to challenge the Payers

Forward is offering a subscription medical service at $149 per month  that aims to be the Apple Store of doctor’s offices. Techcrunch has the details.

What Forward is doing is a bit like what we spotted in Dental, except this is not a cooperative. It is a for profit venture that uses a mix of new medical technology, a new real world customer experience and business model innovation to deliver subscription pricing. This hits a major theme that we have uncovered as we dig into the hairball mess of Healthcare in the US, which is that innovation by Insurance Providers is useless without innovation by the Providers.

To a consumer, what is the difference between a $149 per month subscription service and $149 per month insurance plan? Theoretically the latter gives you choice; in reality it tends to give you high deductibles and claim hassles.

This is the sort of innovation in the real world that we all want Silicon Valley to focus on. It is not just another digital front end. What they are doing is much harder than that – like building a Tesla car vs building a ridesharing app.

MunichRe appoints Robert Mozeika to head InsurTech

14 InsurTech Conferences in 2017

We are deep in snow season, but some are looking at when the flowers return with the conference season. Business Insider uncovered 14 InsurTech Conferences in 2017 around the world. I suspect there are a lot more, even if you leave out all the free but high quality MeetUp events. We really need a community generated calendar of InsurTech events by date, location and cost. I created a thread on Fintech Genome to initiate this.

Please tell us in comments about any major InsurTech news  this week that I missed.

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Fintech squarely on the map in New Zealand

kiwibank-fintech-accelerator

When you come from New Zealand, you get used to being left off the map, quite literally. I kid you not, there is a blog that assiduously documents moments when the world forgot to draw its youngest sibling to the right of its brash and self-assured big brother, Australia.

But despite this regular oversight by the world’s collective cartographers , New Zealand’s tech scene is quietly getting itself onto the global map, in a big, figurative way. Investment and innovation is ramping up year on year and companies like Xero and Datacom are helping shape the country’s  technology narrative.

According to a Technology Investment Network 100 report released late last year, the local tech sector saw a 12 percent lift in revenue generated between 2015 and 2016, jumping to $9.422B from $8.412B. Tellingly, the gap between dairy export earnings and tech earnings is closing, signalling New Zealand’s push towards becoming a true information and innovation economy may be getting real traction.

For an interesting overview of the region’s growth you can also check out Tristan Pollock’s post on Medium here.

To add fuel to this innovation fire, the country has recently announced the launch of its first fintech accelerator, a collaboration between tech companies and the country’s state owned bank, Kiwibank.

On the 19th of January, the Kiwibank Fintech Accelerator announced its first cohort, a line-up of 7 local fintech startups with big ambitions. The accelerator will take a 6% equity stake in each company in exchange for $20,000 in cash and $800,000 in perks. Below is a brief overview of each startup and an extract from their full profile. To learn more, check out the full media release here.

Financial Literacy

AccountingPod

The AccountingPod platform provides each learner with a real life business in a real industry to build their financial literacy.

This is the first business focused financial literacy startup I’ve personally seen. Considering many businesses fail in their first year, it looks like AccountingPod have found a good problem to get stuck into.

Insurtech

Insurely

An online platform to bring clarity and management to small to medium business’ insurance policy management.

This is interesting, I saw something very similar targeted at consumers at Next Money Fintech Finals in Hong Kong last week, a company called PolicyPal.

Wealth Management

Sharesies

An accessible digital platform that makes it easy (and maybe even a little addictive) to invest.

Investful

An affordable, modern wealth management platform that helps people reach their savings goals.

Lending

HealthyAZ

Innovative health savings program to support people from all income groups to participate in a savings and rewards program that promotes healthy lifestyle and timely access to healthcare professionals.

Asset Management

Flatfish

An on-demand platform allowing landlords to manage their property for a fraction of the cost of a property manager.

Thinking of travelling down under?

The accelerator is building a network of mentors, so if you’re keen to get involved and feel like you might have something to offer, you can contact them here. Ideally you’d be able to drop in now and then, which does make it difficult if you live on the other side of the world. But who doesn’t need a great excuse to visit New Zealand anyway? The coffee is great, the people are top-notch and there are no animals that can kill you – unlike its nearest neighbour. Happy travelling!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Responsive and Responsible digitization of financial services

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There is no disagreement that technology will enable change in financial services, from banking to insurance. The only uncertainty is timing and the path to the new way of delivering and consuming financial services. At DailyFintech we have been writing about this journey and sharing our insights about where we are heading.

The disruption is unfolding and as Davos took place just last week with the main theme “Responsive and Responsible Leadership”, I couldn’t help but think how this relates to the transformation of the financial services ecosystem which is underway.

In this post, we look at what components of the digitization of financial services result from stakeholders being “Responsive” and what falls under the category of being “Responsible”.

Responsive

Fintechs and incumbents have been mainly responsive to digital natives and to digital immigrants; from mobile money to the mobile delivery of a wide range of financial services (payments, FX, PFM, wealth, credit etc). Few examples are Acorns, CBW bank, Betterment etc

The design of services and UX that are tailored for specifics target groups is also a result of a “responsive” ecosystem eager to serve clients and prospects as their expectations change. For example, designing hybrid automated savings and investment services for women, or retirees, or students.

Creating customized services by leveraging technologies like Machine learning, analysis of Big Data, cognitive computing; are all examples of more efficient financial services.

Shifting from opaqueness to transparency while delivering more complex financial services and products, is another component shyly present in the digitization of financial services, that has resulted as a response to customers feeling entitled to information around the value of paid services.

All responsive digitized financial services are actually some better, cheaper, faster version of existing ones. Even if that entails cannibalization of existing services,

Responsive leadership of a financial business aims to offer a more efficient service than previously available.

Responsive Fintech leadership started with startups but now incumbents are catching up. Regulatory changes have also been responsive to the new trends and the behavioral changes of consumers (i.e. 24/7 digital and mobile).

Responsible

This part is juicier because it includes two main categories.

  • Responsible Type A: Regulatory Off-springs
  • Responsible Type B: Disruption

In few cases there is an overlap either with the “Responsive” category or between type A and type B of this category.

Type A:

Taking on the responsibility of cyber-security; incumbents are front-loaded with this responsibility, which is heavily coming from the regulatory framework but not only. We are starting to see an overlap with Responsible & Disruptive types of ventures offering immutable, auditable and traceable processes in financial services.

Taking on the responsibility of acting as a fiduciary when offering financial advise or investment management services and at the same time being transparent; in the US this is being imposed from the regulators who have been heavily focusing on the fiduciary duties of advisors (in the UK also). In Europe, transparency will become more the name of the game as PSD2 kicks in.

We are seeing very early signs of overlap from disruptors that offer full transparency in the active investment management space and in response to the broad trend of crowd-sourced actionable insights.

Taking on the responsibility of building the API infrastructure required for PSD2’s full implementation and for the platformification of banking. Examples like Xignite, Kontomatik, or Fidor from the startup ecosystem; Open Bank Project, Capital One, Connet2OBC from the banking system and governments.

Type B refers to all stakeholders that have taken on the responsibility to change things. They maybe filling in a gap, offering a new product, or operating with a different business model.

The standard example would be the application of blockchain technology in capital markets. Imagine the mainstream adoption of a cryptocurrency, like bitcoin, as a currency. In other words, disrupting central banks and governments in their monopoly. Taking on the responsibility of the money supply and its circulation.

Taking on the responsibility of funding SMEs; undertaken by lending marketplaces like Funding Circle. This is an example, of a tech-enabled service that resulted in an economical way to serve a vital but underserved market (banks didn’t know how to analyze the credit profile of SMEs and didn’t have a profitable way to offer credit to them).

Taking on the responsibility of monetizing our personal data; undertaking the responsibility of monetizing our personal data and sharing the revenues while at the same time leveraging our digital assets. Examples are SeccoAura and Experian.

Taking on the responsibility of financial inclusion; whether it is a Digital ID, a basic current account offering to refugees or in impoverished countries, or mitigating wealth or gender inequality through financial empowerment. Examples are ample in Africa, M-Pesa, MyBucks, RainFin etc

“Responsive and Responsible Leadership” in Financial services will evolve. The responsive part is lower hanging fruit compared to the responsible. Tech firms in the West have mainly been involved in the Responsive part and only indirectly in the Responsible part (as infrastructure providers of those taking on the business responsibility). In the Rest of the world, tech firms have earned the “Responsible leadership” role as they are filling in gaps, offering new products, and operating with different business models (e.g. BATs).

The West has been more of a Responsive leader and the Rest has been more of a Responsible leader, in the digitization of financial services.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.