Fintech Global Tour goes to Greece to find both local & global innovation

Financial markets in Greece

A strained and chocked financial sector, functioning under Capital Controls for two years (this June) that has priced in the probability of a Grexit (for the third time in 7 yrs). All banks, except for Alpha Bank (Euros 1,63), have become penny stocks with National Bank of Greece trading around 0,25 Euros! Eurobank, who was traditionally the aggressive player in the Greek Banking sector, trading around 0,55 Euros.

Necessity is the mother of invention.

Greece has the potential to become a Fintech hub, starting from the necessity to solve many problems that are idiosyncratic to the current conditions. From offering digital identities to immigrants, to issuing a cryptocurrency as a parallel currency, to small Business solutions (working capital, import-export trade etc),….

Greece has been witnessing an accelerated rate of exports of high skilled people (doctors, engineers, programmers etc). Greeks are technically strong and creative; and therefore, an ideal fit to be part of an innovative ecosystem. Funding, regulatory and government support; are the only missing ingredients.

The Fintech process has started shyly in Athens over the past 6 months. The National Bank of Greece launched an accelerator program in November last year, BeFinnovative, which resulted in 9 Fintech startups who are part of the program. Most of the areas are Consumer banking and wealth management (see a list here). Just last week, Interfima and the National Bank of Greece organized the first Fintech Forum in Athens. The event had participants from all over Europe and Chris Gledhill delivered the Keynote with a theme on “Disruption”.

old stock exchnage greece.jpg

Athens Old stock exchange; Image byChris Gledhill

Just this past weekend Eurobank held its second BeyondHackathon with more than 130 participants from the Balkan region. Eurobank has a presence in 7 countries. I was honored to deliver the Keynote with a theme “On the Fintech Runway” (you can watch it here) to a packed room.

Eurobank has a full stack digitization roadmap already in place and Sotiris Sirmakezis, who is leading the Digital innovation across the board, has a powerful vision of the transformation journey over the next two years.

Fintech in Greece and out of Greece

The Fintech sector is just emerging but Insurtech is leading! Oseven  is 2yrs old and has taken a behavioral analytics approach to a user-centric telematics insurance offering. Oseven was a winner in the European Fintech awards in 2016 along with Knip, Funding Circle and Kreditech. They have moved their headquarters in London.

In consumer banking, the leader is Viva Wallet. With a rich offering both for retail and for businesses.  It is the first Greek mobile wallet that enables payment in online stores, mobile apps and physical stores. Viva Wallet is branching out into the Balkans and has a roadmap to grow further. Their most recent offering to businesses owners cuts the cost of card processing by 20%. See details here. Viva Wallet also runs an incubator, Viva Nest, that is very active presence in the startup scene.

In wealth management, there are two mature Fintechs that have a global customer base. Logical invest (we have covered extensively in the past) who is a signal provider for DIY investors and who is an example of a decentralized business founded and operated by three partners in three different locations  – Greece, Switzerland, and US. Zulu Trade, is one of the top global social trading platforms.

Fintech list by vertical

Insurtech

Hellas Direct – auto insurance

InsuranceMarket – comparison site

Oseven – Insurance Telematics

Consumer Banking & Small Biz

Viva Wallet – app for payments (retail and business)

BillIt – app for small biz invoice tracking

Elorus – small biz invoice tracking

Early stage

BitforTip – tips with bitcoin

Bcash – Greek Bitcoin ATM

Wealth Mgt

Micro-national: Logical invest

Global Social Trading: Zulu Trade

Early stage

Teastock – ML for stock trading

Echofin – Chatbot for traders

StampD – blockchain based notarization of ownership of any digital asset

Capital Markets

Open Circle Project – equity crowdfunding

Easystarter – donation crowdfunding

Crowdpolicy – Crowdsourcing experts (crowdfunding, apps, hackathons, and more)

Fintech with Greeks

For the Greek diaspora (which is not negligible in size and influence) who wants to follow the Greek Fintech ecosystem, there is a Fintech Greece linkedin group that one can join.

There are plenty of noteworthy Greeks who are part of the international Fintech scene in various capacities, e.g. Leda Glytpis, Spiros Margaris, Nektarios Lolios, and many more.

Fintech a la Greque

I would like to start a wish list of the kinds of innovations that should and could come out of Greece. Please, add on to this wish list:

  • Chris Gledhill: A blockchain voting tech would be good from the birthplace of democracy. A digital Crypto drachma (albeit politically sensitive).
  • Spiros Margaris: The Greek government should internationally promote Greece as a source for highly-qualified tech talent. It would help Greece, and it would help European companies to close the talent gap. That’s what I call a win-win proposition. Greece also ranks very high in the EU in SME innovation (see visual below).
  • My own wishes: A bank for refugees, A HellasCoin – a broad cryptocurrency, an innovative solution for income from illiquid assets (i.e. Greek real estate).

Screenshot 2017-03-20 11.05.26.png

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.

Wrap of Week #11: Blockchain, SEC – Bictoin ETF, Financial Wellness, WeFox, Microfinance in India

 Blockchain is definitely not boring but Blockchain needs to become technically boring.

What did we learn from the rejection of the Bitcoin ETF this past weekend? Time for the SEC to adopt an Open Research approach.

Revisting Financial wellness in the workplace, especially for small businesses.

Digging into:The WeFox #insurtech story is about augmenting rather than replacing agents

A rare guest post on the Effects of Demonetisation on Microfinance in India.

The Fintech Genome platform

Join any of the conversations on the Fintech Genome. The global community is sharing insights, creating great conversations, and business is starting to happen.

Check the latest topics that include artificial intelligence, insurance, ICOs, marketplace lending, etc

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Time for the SEC to adopt an Open Research approach

As Bernard Lunn reiterated in yesterday’s post Blockchain needs to become technically boring, much like TCP/IP in depth knowledge has become for internet users.

In wealth management, ETF structures have become technically boring long time ago.

Nobody cares and often most users don’t understand the magic redemption/creation process. Most users don’t even know the instrumental role of Authorized Participants (APs) in the smooth functioning of ETF markets. For those wanting to know more around this topic, we outlined the main risks in Are ETFs Trackers that Fintech can turn into Trucks with No Brakes?

Naturally, the media highlights malfunctions in the ETF market during flash crashes. As robo-advisors have accelerated the growth of low-cost passive investing, mainly through ETFs, we have been following such events which showcase incidents of illiquidity and mispricing. Check last summer’s mis-communication debacle in The Betterment/Brexit incident – What the Fintech Genome community spotted.

At the same time, we don’t get excited anymore by the fact that we can invest in the Japanese stock market (and many other country trackers) while they are even asleep and from almost any location.

ETFs are boring!

Except for the recent disapproval by the SEC of the Bitcoin ETF filed by the Winklevoss Bitcoin ETF, $COIN. We covered the “boring” part of it (i.e. the amendments) last week Wedding announcements pending between Old & New Finance Tribes: Bitcoin in an ETF gown!

We need to revisit the topic after the rejection this weekend, to cover two areas:

1.    What did we learn about Bitcoin trading, during this event

2.    What did we learn about the state of capital markets, following this event.

Mid March Bitcoin trading

Lots of worthwhile observations from the market reaction to this event.

Bitcoin is trading as we speak, with a twelve hundred handle (in USD) which is not that far from where it was hovering before the decision. That shows that the bitcoin market continues to shrug off events (from 2 recent PBOC decisions, to the ETF rejection). Market capitalization is also more or less in line, having recovered from dips, to the $20bil area.

This reflects, in my opinion, the steady growth in customer adoption which is outpacing merchant adoption for the first time. Although we don’t have aggregated comparison data to justify this, we can at least point to the most recent Coinbase results that are impressive in terms of the numbers of users and digital wallets; and to the “color” we crowdsource from our network.

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Bitcoin, behaved very much like conventional assets traded in centralized exchanges, this weekend.

Bitcoin, the P2P digital asset which is settled in a decentralized way, experienced a flash crash following the announcement of the rejection. More importantly, the bid/ask spread widened substantially ($35-$60); the volume dropped and then surged ($17bil-$20bil); the price discrepancies between exchanges were large ($50-$100); and the intraday high-low was very wide ($50-$170).

Screen Shot 2017-03-13 at 09.30.26

 

Source: CoinDesk BPI exchange

Disclosure: I had sold my Bitcoins before this weekend (with an 80% profit) and managed to re-open a small position at $1,100 (moved into cold storage, to be forgotten).

If you prefer a professional fund manager, making the decisions on your behalf, for your digital currency allocation, there are two alternatives that I can suggest for your review.

Hedgeable, the next gen robo, has incorporated Bitcoin in its asset allocation via a partnership with Coinbase (who provides the digital wallets and cold storage needed). Hedgeable views Bitcoin as an alternative asset, like a currency, in determining the optimal allocation for each client.

ArkInvest, the US based fintech creating thematic fully transparent ETFs, is the first fund manager to invest in bitcoin in its ETF, ARK Web x.0 ETF (NYSEARCA: ARKW). ARK has made its investment through the purchase of OTC publicly traded shares of Grayscale’s Bitcoin Investment Trust (OTCQX: GBTC).

Capital Markets processes are dysfunctional

In a nutshell, the SEC after 4yrs and 6 amendments, rejected the Bitcoin ETF on the basis that they can’t allow an unregulated asset (that is not physical), to be wrapped in an ETF wrapper. As if soybeans, and pork bellies that trade through futures are regulated and cant be “hacked” by weather conditions or viruses.

I cannot but reiterate Ian Goldin’s mantra

“Today is the slowest day of the rest of your (our life)”

Over the next year, there be more digital currencies issued than in the last 4yrs (even if there are no more than half a dozen that gain significant traction). Isn’t this actually how the ETF market has emerged, i.e. a few really large ETFs?

Screen Shot 2017-03-13 at 10.11.43.png

There will be more ICOs listed (albeit small size), than in the last 4yrs. There will probably be an OTC trust publically trading, linked to a basket of digital currencies (e.g. Bitcoin, Ether, Dash, Ripple, ect) out of Europe (not the US).

Looking at the SEC’s archaic process of inviting commentary from the people, a kind of hearing process, around the Bitcoin ETF; I italicized the SEC questions below:

  1. The proposed fund, if approved, would be the first exchange-traded product available on U.S. markets to hold a digital asset such as bitcoins, which have neither a physical form (unlike commodities) nor an issuer that is currently registered with any regulatory body (unlike securities, futures, or derivatives), and whose fundamental properties and ownership can, by coordination among a majority of its network processing power, be changed (unlike any of the above). Moreover, as the Exchange acknowledges in its proposal, less than three years ago, the bitcoin exchange then responsible for nearly three-quarters of worldwide bitcoin trading lost a substantial amount of its bitcoin holdings through computer hacking or fraud and failed.57 What are commenters’ views about the current stability, resilience, fairness, and efficiency of the markets on which bitcoina are traded? What are commenters’ views on whether an asset with the novel and unique properties of a bitcoin is an appropriate underlying asset for a product that will be traded on a national securities exchange? What are commenters’ views on the risk of loss via 56 57 See supra note 3. See Notice, supra note 3, at 25 n.19. 12 computer hacking posed by such an asset? What are commenters’ views on whether an ETP based on such an asset would be susceptible to manipulation?
  2. According to the Exchange, the Gemini Exchange Spot Price is representative of the accurate price of a bitcoin because of the positive price-discovery attributes of the Gemini Exchange marketplace. What are commenters’ views on the manner in which the Trust proposes to value its holdings?
  3. According to the Exchange, the Gemini Exchange is a Digital Asset exchange owned and operated by the Custodian and is an affiliate of the Sponsor. What are commenters’ views regarding whether any potential conflict of interest or other issue might arise due to the relationship between entities such as the Sponsor, the Custodian, and the Gemini Exchange?
  4. According to several commenters, there is a need for the Exchange to provide additional information regarding “proof of control” auditing, multisig protocols, and insurance with respect to the bitcoins held in custody on behalf of the Trust, in the interest of adequate security and investor confidence in bitcoin control. What are commenters’ views on these recommendations regarding additional security, control, and insurance measures?
  5. A commenter notes that the Gemini Exchange has relatively low liquidity and trading volume in bitcoins and that there is a significant risk that the nominal ETP share price “will be manipulated, by relatively small trades that manipulate the bitcoin price at that exchange.”58 What are commenters’ views on the concerns expressed by this commenter? What are commenters’ views regarding the susceptibility of the price of the Shares to manipulation, considering that the NAV would be based on the spot price of a single bitcoin exchange? What 58 See Stolfi Letter, supra note 4. 13 are commenters’ views generally with respect to the liquidity and transparency of the bitcoin market, and thus the suitability of bitcoins as an underlying asset for an ETP?
  6. The Exchange asserts that the widespread availability of information regarding Bitcoin, the Trust, and the Shares, combined with the ability of Authorized Participants to create and redeem Baskets each Business Day, thereby utilizing the arbitrage mechanism, will be sufficient for market participants to value and trade the Shares in a manner that will not lead to significant deviations between intraday Best Bid/Best Ask and the Intraday Indicative Value or between the Best Bid/Best Ask and the NAV. In addition, the Exchange asserts that the numerous options for buying and selling bitcoins will both provide Authorized Participants with many options for hedging their positions and provide market participants generally with potential arbitrage opportunities, further strengthening the arbitrage mechanism as it relates to the Shares. What are commenters’ views regarding these statements? Do commenters’ agree or disagree with the assertion that Authorized Participants and other market makers will be able to make efficient and liquid markets in the Shares at prices generally in line with the NAV? What are commenters’ views on whether the relationship between the Gemini Exchange and the Trust’s Sponsor and Custodian might affect the arbitrage mechanism?Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml); or · Send an e-mail torule-comments@sec.gov. Please include File Number SR-BatsBZX- 2016-30 on the subject line. 14 Paper comments: · Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.

Who actually sent commentary to the very important and well posed issues raised by the SEC? The SEC publicizes this data with names and responses (click here). The list shows very few business affiliations and is really short given the issue at stake. It does include the Bitcoin critic, Jorge Stolfi, Full Professor/Professor Titular, Instituto de Computação/Institute of Computing, UNICAMP, university professor; the Bitcoin proponent –fund manager Chris Burniske, Blockchain Products Lead, ARK Investment Management LLC; Kyle Murray, Assistant General Counsel, Bats Global Markets (the exchange to be listed); and a few more.

Crowdsourcing information, filtering the relevant data, ranking and weighing it by “reputation”, is what should be done by the SEC.

Such Capital markets processes cannot be left anymore to forums that include ranking algorithms of their communities members, to select the “best conversations” (for example, thread on Reddit). Fintech innovation is still very scattered. Sentiment analysis fintechs (e.g. Sentifi), crowdsourced scientific research (e.g. Stanford Daemo), and applying machine learning; are floating out there and need to be incorporated in the decision making processes in capital markets.

This is the kind of micro-services that the SEC can implement in their digitization process. ArkInvest is already using an innovative process in their own research Open Research Ecosystem. The Innovation Ecosystem brings cross-industry innovation leaders together to design and invent their innovation journeys.

Screen Shot 2017-03-13 at 10.38.58.png

Source: ArkInvest

The SEC needs to replace its old-fashioned invitation for comments process, to one that uses technology to make the research process meaningful (not simply procedural, a tick in the to-do-list), efficient, and value added.

 

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.

 

Wrap of Week #10: Women in Finance, Bitcoin ETF, SmallBiz fintech, Insurtech, Metro Bank

 

bitcoin-etf

We started the week naturally with The woman in the global Fintech arena which highlighted what is importnant in the financial services businesses as they transform.

We zoomed into the ETF bitcoin approval-disapproval Wedding announcements pending between Old & New Finance Tribes: Bitcoin in an ETF gown!, as the decision was looming (now disapproved).

In our small business post on Wednesday, we shared our insights on Symbiotic channel strategies key to making B2B fintech scale.

In Insurtech we used the funding lenses in our review of The Top InsurTech Ventures by Capital Raised (don’t miss the comments).

In our consumer banking coverage, we looked closer at Metro Bank, publicly traded Challenger bank with a unique business model. Can you ride the Metro to the Challenger Bank future?

We made an announcement as we are extending an invitation for an author on the Daily Fintech platform focused on Insurtech or consumer banking. If you are interested in joining us, read here.

The Fintech Genome platform

Join any of the conversations on the Fintech Genome. The global community is sharing insights, creating great conversations, and business is starting to happen.

Check the latest topics that include artificial intelligence, insurance, ICOs, marketplace lending, etc

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Wedding announcements pending between Old & New Finance Tribes: Bitcoin in an ETF gown!

bitcoin-etf

Source

In many countries weddings announcements in newspapers are still a necessity and in others they have become a tradition or have moved to social media.  Over the next month or so, in the US there are three pending wedding announcements. The two ones upcoming on March 11 and March 31st, are the more crucial ones.

If you are hoping that this post is some sort analysis of whether the wedding announcement event is already priced into Bitcoin’s price or not; then you are in the wrong place. I can however, recommend this scenario analysis Estimates on the price impact and capital inflows of a Bitcoin ETF.

In this post, I want to highlight facts around the pending weddings, because these are innovative ETFs in dynamic market conditions and there is no appropriate comparison really. Some have drawn conclusions from the approval process of the first Gold ETF (GLD) but in my opinion, it really doesn’t serve any purpose.

Also, because it so peculiar to be witnessing the potential of packaging a decentralized asset into a conventional wrapper like the ETF. We are moving towards a world that for every asset there will be an ETF, but to see Bitcoin wearing an ETF gown (wrapper) is awkward.

Dates and pending wedding announcements

March 11 – The Winklevoss Bitcoin ETF, $COIN

March 30 – The SolidX bitcoin ETF

Thereafter – An ETF wrapper of the GBTC Grayscale Bitcoin Trust, which already trades on the OTC market (like a closed-end fund)

The Winklevoss ETF journey

The Wilkenvoss brothers filed to the SEC 3.5 yrs ago for approval of an ETF linked to Bitcoin. They have also constructed an index the Winkdex to track the price of Bitcoin.

WinkDex is calculated by blending the trading prices in U.S. dollars for the top three (by volume) qualified Bitcoin Exchanges during the previous two hour period using a volume-weighted exponential moving average. This proprietary formula weights transactions proportionally by volume as well as exponentially by time to give greater weight both to higher volume transactions and more recent transactions.

The twin brothers first filed for a listing on the NASDAQ stock exchange in July 2013, this is exactly the time that M-pesa in Kenya linked with Bictoin. The filing was for 1million shares and each share would be worth about 1/5 the Bitcoin price. At the time, Bitcoin was trading around $90. Therefore, the original filing would be wrapping up in an ETF roughly 200,000 Bitcoins. The max offer was $65million.

Since then, there have been 6 amendments that have addressed various issues of concern.

Naturally, one of the first concerns were around safety and consumer protection from hacking. This financial structure has not been targeting retail investors but rather institutional investors that are subject to regulatory constraints in terms of the kind of financial structures they can hold. Right now only the XBT Tracker comes close (EUR, USD, SEK versions). It is traded on the German and Swiss exchange but is not ideal because the backing up of the shares is not one-to-one with bitcoin.

Retail investors are better off doing their own research and investing directly into Bitcoin via some service a la Coinbase, and avoiding the additional costs of an ETF financial structure of this type.

The Winklevoss Bitcoin ETF carries a kind of insurance called the Fidelity Bond, since October 2015. This is a requirement in the state of NY where the custodian of the ETF, Gemini is registered. The fidelity bond coverage includes, among other things, insurance against employee theft, computer fraud, and funds transfer fraud. Gemini is a New York State-chartered trust company that is owned by the twins and acts both as a custodian and as a bitcoin exchange.

State Street was chosen in Oct. 2016 as the administrator of the ETF that will oversee pricing and reporting.

During the 3.5 yrs journey and the six amendments, the Twin brothers decided to change the listing from NASDAQ to BATS. Just the last two months there have been two very significant amendments to the original filing that need to be understood: a) the size of the deal has been substantially increased, b) a hard fork clause has been decided.

The size of the deal is now 10 million shares (tenfold increase), $100million (instead of $65million) and the max price offer that was $65 has been lowered to $10! If approved and fully subscribed, the ETF structure would wrapping up roughly 80,000 bitcoins (much less than originally filed for).

In the prospect of a network split following a software hard fork, the creation and redemption of the ETF will be suspended during the first 48hours. This maybe fine-print (maybe not) but it is important not to miss. Thereafter,

the $Coin ETF (the administrator in consultation with the custodian) will default to using the chain with the most hashing power, but will reserve the right to decide otherwise.

In other words, the ETF will choose the the chain (after a split) which enjoys “the greatest cumulative computation difficulty for the 48 hour period following a given hard fork.”

“If the Custodian, in consultation with the Sponsor, is unable to make a conclusive determination about which Bitcoin Network has the greatest cumulative computational difficulty after forty-eight (48) hours, or determines in good faith that this is not a reasonable criterion upon which to make a determination, the Custodian will support the Bitcoin Network which it deems in good faith is most likely to be supported by a greater number of users and miners.” Source

Needless to say that this recent amendment is controversial already in the crypto communities.

The differences with the rest of the ETFs

The SolidX bitcoin ETF structure is similar to the Winklevoss and mainly differs by offering classic insurance in case of theft. Another difference is that while the Winklevoss ETF relies solely on its own bitcoin exchange, the Gemini, for price discovery; the SolidX ETF uses multiple exchanges.

The third proposal outstanding, the GBTC Grayscale Bitcoin Trust, differs in that it is already trading over the counter. We have referenced ARKInvest in multiple posts since they are innovating in investment management, and are the first public managers to invest in bitcoin via GBTC.  It has been trading much like a closed-end fund and therefore (at a discount or a premium). Their ETF filing hopefully, will alleviate this discrepancy.

Related Wilderness Tips

For traders that have an itch, you can bet on the probability of approval or disapproval of the Winklevoss ETF which is now at 52% (up from 30% a month ago). Check COIN_BH17 on the Bitnex exchange.

For the Winklevoss brothers:

If BATs doesn’t get the honor to list the first Bitcoin ETF, maybe the Winklevoss brothers should consider switching to SIX and seeking approval from FINMA instead. Over the past few days, we have seen the announcement of the Crypto-Valley association headed by one of the best, Oliver Bussmann; and chalet and apartment rentals by VisionApartments accepting payments in bitcoin.

For retail investors that have missed on the bitcoin rally because they didn’t want to do the homework of opening a digital wallet, understanding cold storage, and didn’t want to invest through ARKInvest either; these ETFs when approved are not the solution to your indecision. Go get a wallet.

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.

 

 

Wrap of Week #9: Fintech categories, APIs – programmable bank, QR codes, Insurtech, Active Trading

We started the week looking at the overall Fintech sector, through a powerful metaphor Choose your Boxcar on the Fintech Freight Train (Daily Fintech design with 7 Box cars).

We reported from Australia’s API days Conference about the programmable bank; Program your own bank – the power of APIs.

Passive investing is undoubtedly the new balck with more room to grow. The puzzle we addressed is how t actively manage these passive investments; Active trading is hazardous to our health! What to do?

Insurtech is undoubtedly gaining steam in the tech race in Finserv. We explored this week the 4th layer of the Stack in Insurance (designed by Daily Fintech); We interview Joe Taussig to learn whether insuring the unpredictable is the big InsurTech disruption.

We ended the week with a look at the mass adoption of QR codes in consumer banking; How the humble QR code may usher in the cashless society, starting in India

The Fintech Genome platform

Join any of the conversations on the Fintech Genome. The global community is sharing insights, creating great conversations, and business is starting to happen.

Check the latest topics that include artificial intelligence, insurance, ICOs, marketplace lending, etc

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If you enjoy reading the Daily Fintech insights by our experts è Subscribe to this newsletter.

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Active trading is hazardous to our health! What to do?

Passive is the new black

“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle,” Buffett wrote in the famous annual letter of Berkshire Hathaway.

Yes, there is the innovation of the ETF financial structure that we shouldn’t forget was incubated in the womb of the nowadays-incumbent land. It was early 1993 that the first ETF, the S&P SPDR, began trading. This is was a time of financial engineering nirvana in the WTC. I was there, sitting at the desk that Myron Scholes ran, the fixed income structured products desk at Salomon Brothers.

Yes, there is also the innovation of robo-advisor investing that Wealthfront and Betterment led. Adam Nash and Jon Stein both merit substantial credit for advancing the idea that fees eat into returns in a significant way in the long-run, and designing a tech-enabled solution.

Vanguard’s passive investing cult comprises of mutual funds and ETFs. In 2016, Vanguard reports that net inflows into their funds amounted for $227 billion in new money, compared to $407 billion for the industry – more than half of the total assets (Source).

The ETF industry in the US showed record inflows: $284billion. Don’t miss the State of ETFs keynote given at InsideETFs in January, by Dave Nadig and Matt Hougan of ETF.com.

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The robo-advisory space has shown impressive growth, with Betterment and Wealthront amassing around $10bil (doesn’t mean they are profitable since the CAC remains very high). Vanguard’s robo (also not profitable yet) with $47billion, Schwab with $12+ billion and the rest of the US robo D2C space around $15.5billion.

I also need to point out an even stronger trend towards indexing vehicles, that relates to ETF Trading and its correlation to market volatility.

Flow numbers in the US into general passive vehicles of all sorts (mutual funds or ETFs) are even higher: $844 billion for 2016!

But it is not just flows, it is also the amount of ETF trading, that tells an even stronger story. ETF.com tracks the amounts and shows a fairly steady and significant trading activity over the past three years, around 30% of total value on the exchanges comes from ETF trading. They also report that the correlation of the ETF trading activity with volatile trading periods is significant but heading lower, from 70s to the 60s (VIX versus ETF trading).

Even Warren Buffet, echoed in this year’s annual letter for the first time, that when he buys a company it doesn’t mean that it is forever.

 “But we have made no commitment that Berkshire will hold any of its marketable securities forever.” (Annual Berkshire Hathaway shareholder letter)

Actively managing passive investments, is the puzzle

The passive low cost investing culture, is here to stay and the only valid question going forward is

“How can we make the best out of it, for the long run (of our life-time)?”

Given that we are embracing low-cost investing at various rates in different regions, the other major reason we manage poorly our money, is in a nutschell

All kinds of cognitive biases

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Source: TED talk by Victor Haghani, of Elm Partners, who uses the puzzle of the missing billionaires. This helps us explore how and why most of us fail to capture the returns offered by the market.

We are in dire need of an approach that combines the best features of low-cost index funds with the appealing and successful aspects of active management, all for a 1/10th the price that many of us currently pay.

Who else can help us on this front? Maybe Watson? One thing is for sure, we will be seeing more Deep Learning applications to managing portfolios that use low-cost financial structures and mitigate for the cognitive biases.

For now, here a few straightforward Fintechs to consider as an investor or an independent advisor.

Elm Partners, the US based Fintech can be an “advisor” to manage our assets Forever at a low cost (discretionary management only for accredited investors, 12bps per annum). Elm Partners, was founded and is run by Victor Haghani, a partner at LTCM, which gives an additional message as to where the industry thinking is heading to.

Logical Invest is a global Fintech that offers services using low-cost ingredients and sophisticated quant rebalancing but for self-managed accounts. They offer 13 strategies (monthly rebalancing signals provided) with a monthly subscription model (from $30 per month per strategy). These are used by DIY investors and financial advisors. They recently launched The Quant Trader application, coined as the Swiss army tool for investing. It allows optimization between the 13 existing strategies and customization. They also partnered with The Estate Planners Group (US investment advisor) to offer separately managed accounts based on the Logical Invest signals.

Alpima, is a UK based Fintech but a global Fintech, that offers multiple strategies (coined Bricks) that can be used independently or to create a multi-strategy portfolio (coined as Stack). There is an extensive menu of Bricks (e.g. from Multi-asset, to others Equity focused) that can be customized and can be used to create a personalized Stack that is dynamically optimized and rebalanced. The advisory fee is 40bps per annum and combined with low cost execution (e.g. Interactive Brokers) can compete in solving the missing billionaire puzzle. The audience is DIY investors, financial advisors and private bankers with discretionary assets under management.

Which other Fintech is competing to solve the “missing billionaire puzzle” in a simple way?

Disclosure: I am a subscriber to the Logical Invest strategy signals.

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.