Q&A with CEO of Klarna

The following is a Q&A between Sebastian Siemiatkowski, Co-Founder and CEO of Klarna and Michael Halloran of The FinTech Blog.

MH: How was the business started for those who don’t know Klarna’s story?

SS: Klarna was founded by three classmates including myself from Stockholm who wanted to make it safer and easier to shop online.

The checkout process at the time was so complicated, and packed with lots of frustrating steps that led to people dropping out and not completing their purchases.

There has got to be an easier way, we thought. So without any prior fintech experience, we founded the company and joined an incubator. With a little bit of seed money from an angel investor, they managed to build a first version of the product and have grown to become one of the world’s largest and fastest growing payments companies.


In 2011, Sequoia Capital invested in Klarna and the company has been on an international expansion quest since then. Today, Klarna has operations in 18 countries and launched in the US late last year. More than 65,000 merchants partner with Klarna, and close to 50 million users have used the service.

MH: Tell me about decision to come to the US

SS: Klarna has always grown together with the merchants that use our services, and the decision to expand beyond Sweden came after merchants asking us to do so.

The same is true with the US, where many European merchants asked to have the same integration in the US, and US merchants asked for help with solving payments in Europe.

The US ecommerce market is huge and presents major growth opportunities for Klarna.

MH: Any lessons learned in terms of growing in so many new markets?

We’ve made mistakes in every single new market we’ve gone to, but we learn and hopefully do not repeat the mistakes. Every market is unique in the regulatory requirements, the consumers preferences and the merchant setups.

And the key lesson is that you can’t take what works in one market and just assume it’s going to work in the next. We need to tailor our product to every new market.

MH: Tell me about today’s big news you’re announcing. The Wall Street Journal calls you the company that wants you to get rid of your credit card – but you’re actually launching your first US credit product.

SS: Yes. Today, we are excited to announce the launch of Klarna’s real-time consumer financing solution for the US e-commerce market.

Klarna is launching our flexible solution together with leading players in ecommerce, like BigCommerce, Shopify, Magento, Cybersource, Demandware and OpenCart.

Signing up to finance a purchase over time, historically, has been optimized primarily for an offline environment. The online equivalent, however, has often been an ordeal.

For online consumers wishing to finance a purchase, redirects to other websites, lengthy forms, unclear information and unnecessary complexity are often the norm.

Klarna’s solution takes users less than a minute (all done on the merchant’s site!):

  1. Add what you’d like to buy to the cart.
  2. Choose Klarna at the checkout to pay over time.
  3. Enter basic top of mind information.
  4. Know instantly if you’re approved.
  5. Complete the purchase.

You can check out a video on this at klarna.com/us.

MH: It’s pretty exiting news. 
You seemed poised to grow and I saw you’re looking to hire a Head of Product in the U.S. Why the decision to be based in Ohio?

SS: As naive Swedes we would naturally have looked at SF or NYC to start with. But it turns out that the US is more than that, and thankfully our US team pointed us to alternatives.

Columbus was great for many reasons, but primarily because the talent pool is both deep and wide with Ohio State and lots of financial institutions having their offices there.

There are a lot of great merchants and we have a great partnership with the State and City. We’re about 100 people in the US right now and the vast majority are in Columbus.


Klarna’s HQ in Stockholm

MH: Can you say more about your people and culture, since our readers are often looking for new opportunities in FinTech?

SS: Engineering is our biggest division globally, but the majority of that team is based in Stockholm. We also have a big hub in Tel Aviv.

In the US, we’re right now more focused on the operational side of the business, although we do have a small product, engineering and UX team in Columbus. Klarna is at the core a product driven organisation and the role of UX/Design can’t be overstated. It affects everything we do, and our product team work together with all parts of the business.

MH: What was key to your growth, beyond innovation re: no login and password?

SS: We have one of the best regulatory and compliance teams in the world and that has been instrumental to our success. To give an example, Klarna will be the only company in the world to be able to do issuing globally – and that’s both a Product and compliance achievement.

MH: Will Klarna go to China?

SS: Nope. US & other parts of Asia are better opportunities for us, with their old and slow moving banking system. Alipay is too good. They haven’t yet cracked the European and Global markets.We hope to be able to work together with them to support that growth.

MH: What will impact of Brexit be on Klarna and FinTech in Europe?

SS: Brexit is a terribly sad thing in total, and it increases complexity for merchants and consumers across Europe. For Klarna, ironically, that’s actually a good thing, because we can help merchants and consumers solve that complexity.


MH: From a technical standpoint, what’s Klarna view on Erlang vs Python or Node.Js? 

SS: We started Klarna on Erlang, but are already working with the other frameworks you mentioned and believe they can co-exist.

MH: What’s Klarna’s take on blockchain?

SS: We’re following closely, and it will have fundamental implications on not just finance and payments but broader areas as well. But it’s not quite there yet.

MH: Looking ahead, what’s your point of view on psd2/xs2a?

SS: PSD2 will be as fundamentally important to payments in Europe as Apple’s decision to open up their app ecosystem to third party developers. It will herald a wave of new innovation to European consumers.

MH: Thanks for sharing an update on Klarna and its mission to transfer an industry that’s been slow-moving with some of your fans who read The FinTech Blog.

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Max: Multi-Bank Cash

Mac Air and Iphone for print

In addition to publishing The FinTech Blog, I lead Partnerships and Business Development at MaxMyInterest, an award-winning FinTech firm that provides a way for high net-worth individuals and their advisors to earn dramatically more on cash.

We offer a service called MAX that combines a multi-bank solution with higher yield than brick-and-mortar banks, brokerage accounts or money market funds – with broader FDIC insurance protection, and features to optimize your cash.

max-logo-registeredI’ve seen first-hand the huge role that cash plays in the multi-trillion dollar wealth management business from working in online banking and wealth management. Max is smart for clients with substantial cash – and a great product for financial advisors, who have lacked any form of compelling solution for clients seeking a better return on cash.

After the one-time setup, Max continuously monitors interest rates to make sure you’re always earning a competitive yield. It operates much like how family offices manage cash for ultra high net worth families, but is available to a broader demographic.

Max helps you manage a portfolio of online bank accounts, linked to your own existing checking/brokerage account so you don’t need to visit multiple websites to both see and manage a combined balance across multiple banks.

Max Dashboard w GS 4-26-2016

With Max, funds are “waterfalled” across your accounts, so cash is always earning the highest rates.

Since Max is not a bank – and never takes custody of your funds – your money is always kept safe in your own bank accounts, held in your own name, to which you have direct access at all times.

As part of the service, Max includes a “rate following” feature, whereby if a bank were to either raise or lower its rates, your funds automatically move to the higher payer bank, while keeping you under the FDIC insurance limit.

Another benefit is the automatic cash sweep. To help prevent inadvertent build up of cash in accounts paying very little interest, Max includes an automatic cash sweep that sends cash above a target account balance to higher-interest accounts (and topping up your checking account, if your account falls below a threshold you set).

Some banks and brokerage firms offer a sweep, but sweep from one account to another at the same financial institution, and often to money market funds that don’t pay much.

Higher Yields with Lower Risk

How is Max able to deliver yield that is 10x greater than most bank accounts, and 50-100x greater than most brokerage accounts? By leveraging the costs savings associated with online banking. Yet the risk is actually lower, since the funds are FDIC insured and often spread across multiple banks vs. concentrated at a single institution.

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The yield benefit is substantial, and Max provides reporting tools to see how well you’re doing including what you’re earning versus what you might have earned at your bank.

Max also has Consolidated Tax Reporting, so you don’t need to worry about looking for your 1099-INT statements, despite having multiple banks.

Max includes time-saving features such as Intelligent Fund Transfers, so you can specify an amount to move out of your Max account, without having to know which bank:  Max is smart. It draws from your lowest earning bank account first, and does the reverse as any  funds are deposited, filling up to the FDIC limit.

Do you need a multi-bank account?

For those with little cash, Max offers features that may not make sense for its fees. Max is a smart answer for advisors to give to their clients with substantial cash. Some advisors, especially those who are not fiduciaries (or don’t focus on client’s best interest) may be tempted to leave clients in money market funds or not ask about held away cash.

Whether held away or in the brokerage account, the research shows that HNWI’s in the U.S. prefer to hold cash at significant levels, since cash drag is less of a concern given their overall financial picture, or a preference for cash as ‘dry powder’, hedging or for other reasons, such as capital calls.

Percent Cash and Yield Advantage

Max members are typically business owners, doctors or dentists, technologists, lawyers, startup founders or early employees, investment bankers, engineers and others with significant cash. While Max is open to everyone and there is no minimum balance requirement, Max members tend to hold between $50,000 and $5,000,000 in cash.

The individual FDIC insurance limit is $250,000, so Max helps people obtain broader FDIC insurance coverage by opening accounts at multiple banks and spreading funds across these accounts. Max also supports individual, joint as well as revocable trust accounts.

Max is “set it and forget it” service that makes money for you while you sleep.

Helping Advisors in a Low Yield World

One reason I joined Max was its focus on financial advisors. Many FinTech startups focus on competing for eyeballs in highly fragmented markets by giving away B2C services for free and then finding other ways to ‘monetize’ their customers, or chase business in the crowded marketplace lending or alternative lending category.

In wealth management, it’s not always about cost, and investors value their privacy and don’t want to be ‘monetized.’ I also think advisors play a key and growing role for clients with substantial investments.

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Since Max is capable of delivering an extra 0.90% of yield on cash, that’s equivalent to helping investors earn an extra 0.21% across their entire portfolios.

We’re glad to bring Max to forward-thinking advisors looking for creative solutions for their clients. Many clients are looking for smarter ways to get a better yield on their cash, and Max is a compelling solution that can boost a client’s returns on all their holdings – inclusive of cash – while enabling an advisor to provide more holistic advice.

The Future

Max is now compatible with accounts at 15 of the nation’s largest banks and brokerage firms, integrates with advisor CRM systems and, soon, portfolio accounting systems.

In the future, investors will insist on making the most of their cash in the bank. According to the RBC/Capgemini World Wealth Report, high net worth households currently keep 23.7% of their holdings in cash.

Max California


Advisors who already use Max to help their clients earn higher yield are doing their clients a great service. It won’t be long before all advisors realize that cash, the most-often-overlooked asset class, is worthy of greater attention.


Max is a new and exiting player plus an emerging aspirational brand within the upper end of financial services landscape, and offers a glimpse of future of financial services as a multi-bank world.

While only growing by word-of-mouth and referrals from advisors, individuals can sign up for Max by speaking to their advisor or via Max website at MaxMyInterest.com.







It’s what the character of Mark Baum says in The Big Short during a scene of a debate over whether subprime mortgages will cause Wall St. to melt down.

Screen Shot 2016-05-17 at 10.26.50 PMKaboom is what I thought when I read Prosper would let go 28% of its staff a week ago, followed by news of the ouster of Lending Club’s CEO.

What’s going on? As I wrote at outset of the year, 2016 looks to be a year of consolidation. The last few years have been high growth years with startups in financial services looking to seeking to outwit banks and other traditional financial companies.

But the need for corporate governance, strong internal controls and the need to find your place within a complex and fragmented ecosystem is now more apparent than ever.

Until recently it seemed entrepreneurs and venture capital firms saw almost any revenue stream at a financial service provider as potential white space for a “disruptor” or more innovative startup.

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Today many – especially those in the public markets – are seeing the market space as more crowded vs. wide open. You can’t just be a “me too” player in these markets, so the whole category is going to be given more scrutiny in terms of business models.

Screen Shot 2016-05-17 at 10.07.23 PMLendingClub news last week was, to be fair, less a macro story and about weak controls, disclosure as well as self-dealing by LendingClub’s CEO that didn’t sit well with its Board. The coverage by the Wall Street Journal  tells the facts of the case well. Other articles have raised question of the sustainability of the business model or the marketplace lenders.

I think the Board acted quickly to show it saw a problem, and wanted to take swift action that was both necessary, but shows that they were not asleep at the wheel.

I hope LendingClub bounces back. Everyone loves a come back story, but for all startups out there, there is a cautionary tale here, just as in the case of Theranos. It takes more than just vision. You have to sweat the details, especially in financial services.

Marketplace Lenders – Will They Need To Become Banks?


2016 is far from the end of FinTech. But with so many “me too” players in alternative lending space, we’ll see needed consolidation in sectors like lending and investing.

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To me, investing in the notes (or slices of loans) from marketplace lenders is similar to the causes of the last financial crisis,: loans sliced and diced; questionable assurances on the underlying risk.

Some have said that marketplace lenders will ultimately  need to become banks, or regulated as carefully as them, which strikes me as wise given the recent headlines.

Focusing on origination (vs. recurring revenues) and/or market is a dangerous game to play.


What happened to Prosper? I was offered the opportunity to invest in them by buying out employees shares at a valuation of $1.8B, which I declined a few months ago since while at a discount to the private value of SoFi at over $4B, it seemed expensive.

I admire Ron Suber and Aaron Vermut for taking the early action to right size Prosper; for those keeping track, Morgan Stanley has now reduced the total market share these new alternative lenders might take from 20% to 10% of market by 2020 in its latest research.

prosperLooking ahead, I expect that Prosper will prosper again after consolidation in the sector.

Like SoFi pivoting from a focus on student loans, Suber’s deal with BillGuard made sense for its plan to not just be a loan originator. But it’s tough going, with 28% of staff let go , including head of business development, as evidence of the headwinds.


Others are finding it hard to prosper in 2016. I learned last week the once high-flying UK marketplace lender, Funding Circle, has scaled back its U.S. ambitions.

A year ago, Funding Circle USA was planning to make acquisitions, expand its reach via partnerships and do a more internationally. Now its corporate development plans in the U.S are largely on hold. Growth in the U.S. has also hit a wall.

Sorry for all the bad news in this post.  I’m still  bullish on the opportunities in FinTech for those with a sound strategy and a partnership plan with incumbents, but it’s time to focus on serving your clients and not thinking about your “next round.”

Look for a some success stories to come in upcoming editions of The FinTech Blog.

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Looking at LendIt 2016


One of the must-attend FinTech events is LendIt USA, which took place April 11-12 here in San Francisco. LendIt is a key conference where a cadre of investors, executives and startups get together to learn, network and do deals in the non-bank lending space.

I caught up with three pioneers coming to LendIt: Ron Suber, President of Prosper; AdaPia d’Errico, CMO of Patch of Land, and Brendan Ross, CEO of Direct Lending Investments to talk about LendIt and talk about their involvement.

“Lendit is an annual event by which many measure time, progress or growth. I expect to see venture investors, funds and others looking for high quality, alternative finance and lending companies to evaluate for investment and partnership,” d’Errico says.

At Prosper’s offices in San Francisco, CEO Ron Suber comes across as highly confident in the prospects of the industry he represents, as one of the leading marketplace lenders.

“How have you been?” I learned is Ron’s general greeting, even when meeting someone for the first time; he introduced me to Aaron Vermut, a friend of Andy Bond, a NYC-based former colleague of mine at Scient, but focused our conversation on MaxMyInterest.

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Since the New York Times was waiting for him after we spoke, we did speak about P2P, but mostly chatted about his angel investments, including Patch of Land and Apple Pie Capital (watch its 2015 LendIt Presentation), a rival to fintech company Funding Wonder I was an advisor to prior to joining MaxMyInterest.

Prosper is one of the Platinum sponsor of LendIt USA 2016 and announced its ending its relationship with Citi, which was a big partnership announcement last year.

While companies such as Prosper garner attention (given their position as one of the largest FinTech firms, with a private valuation of $1.8B), I found a lot of insight speaking to smaller, innovative firms that were able to say more about where alt lending is headed.

Direct Lending Investments CEO Ross says: “I’ve been at LendIt from the beginning, when few people were attending. Going now is like a reunion, where you see people you’ve known for a long time.”

In 2016, Ross says alternative lending faces the challenges of having too many lenders vs. borrowers, and finding customers without direct mail or paying for brokers. That will be one of the key conversations to follow at LendIt 2016.

DLIHow is Direct Lending Investments succeeding?  Ross says “we add  value by focusing on profitable niche markets. Being a fund vs. a web site trying to do everything has been critical,” Ross says, adding that DLI “adds value for our investors by sourcing unique dealflow – being focused on areas of lending that are not served well by banks.”

Ross brings a range set of experience across wealth management, as a turnaround CEO, along with expertise in private credit having purchased over $1 billion in loans and receivables from non-bank lenders (more than any other investor worldwide).

But he credits success to his team, including Dr. Bryce Mason, DLI’s Chief Investment Officer, with deep experience in independent loan scoring models and loan portfolios. James Alexander – a former banker from Goldman –  rounds out the management team.


Patch of Land’s CMO d’Errico told me LendIt has “been a pivotal event for me and Patch of Land since our first appearance in 2014.”

This year, she was a mentor for PitchIt, where she work with startups in alternative lending space. “I can already tell by working with the finalists that the level at which these startups are operating is world-class,” she says.

D’Errico also shared that Patch of Land hit two milestones: having  originated over $100 million in short-term loans for real estate professionals who purchase, rehabilitate and refinance undervalued residential and commercial properties; and returned over $25 million in principal and interest to its investors.

What’s remarkable about this news is that Patch of Land is still 85% crowdfunded, unlike a lot of firms like Prosper  that receive most of their funding from institutional investors.

One big piece of news this year is the decision by SoFi to stay away from LendIt. They are #notabank and also #notatlendit, causing some to speculate why. A common theory is SoFi is looking to separate itself from the category of lender, as it works to promote itself as a broader provider of services with a more unique positioning.

Overall, the reaction from many at LendIt USA 2016 was that the event was quite different from 2015, when the euphoria over the Lending Club IPO was still dominant, and many providers were trumpeting their recent funding rounds.

This year’s LendIt was still a great event, but as one noted, it’s more like an asset-backed lending conference (just without the banks, and with a hefty dose of startups that you might otherwise see at Money 20/20 or Finovate).

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‘Big Models’ & FinTech

Wireframe Human Heads Face Faces with Binary Code digital data talking


Data is power in our world today.

Data-driven decision making helps online businesses achieve better results in marketing and operational efficiency.

Financial services has long used data from markets, companies and credit history, fintech innovators today are harnessing ubiquitous but less conventional personal data to shift the power from large institutions into the hands of individuals.

Applying the ‘big model’ approach that considers multiple aspects of each person, a new generation of fintech analytics empower individuals to make better investment and spending decisions, gain access to credit and take control of their personal data.

Invest Smarter with Wealth Analytics


Totum Wealth applies holistic analytics to change how wealth managers assess risk and recommend investments for clients.


This recently-launched wealth analytics platform offers advisors institutional-quality analytics to deliver fully-customized portfolios and to differentiate from the automated investment services (or ‘robo advisors’).

Unlike typical financial planning software, Totum goes beyond age and income to measure the impact of human capital factors, including geographical exposure, industry concentration, career growth potential, health, family responsibilities, real estate and balance sheet.

totum sample.pngBy examining these risk factors, Totum helps advisors accurately target the specific risks in each client’s life and create a portfolio tailored for the client with open architecture.

The multidimensional risk engine can derive intelligent insights by combining data from advisor’s existing CRM and custodian, additional data from the government and companies, as well as those sourced from the investor’s other investment accounts, social media and wearable devices.

As it minimizes time-consuming data entry and spreadsheets, advisors can focus on how to better serve today’s clients, who have cheaper options for investment advice. The platform also involves clients in the investment process with interactive visualization of performance and risk to make informed decisions.

Gain Control on Monetizing Data


Datacoup is another company that sees the value of holistic personal data, enabling consumers to build and sell their own online profiles.

Individuals can bring together transaction, browser history, social media, fitness and mobile location data onto Datacoup, which facilitates transactions between individuals and data buyers for a transaction fee.

Insurance companies, retail merchants and mobile carriers, for instance, can place requests to customers to share particular bits of information about themselves in return for discounts or other special offers at point-of-sale or after sale.

Datacoup gives brands access to a valuable, difficult to obtain combination of personal data attributes with customer consent vs. the current model of third-party collection.

Access Credit without FICO

Expanded data analytics is also shifting how consumers access and maintain credit, as illustrated by the initiatives of Float.

Screen Shot 2016-02-17 at 9.19.49 PMDifferent from traditional lending methods, Float considers multiple factors beyond a credit check when lending, allowing consumers to access, build and maintain credit from their smartphones.

By looking at a borrower’s income and spending habits, rather than just credit history and FICO score, Float can quickly onboard members with customized terms based on their financial capacity and provide the user with their personalized line of credit in three minutes.

Consumers can access on demand credit that can be spent online, in stores or transferred to a bank account. Float is among the fintech companies that build alternative risk assessment models to provide credit to those who do not have a credit history or cannot get credit otherwise.

Build Better Spending Habits

wallet.AI logoIn the personal financial management space, wallet.ai attempts to helps people make better spending decisions by providing feedback on behaviors that affect their finances.

Its artificial intelligence engine analyzes income and spending data to discover patterns, predict future transactions, and detect anomalies.

Wallet.ai was founded in response to existing financial tools requiring too much work to be useful for most on a daily basis. The founders – inventors and scientists – envision a future where AI can help optimize a person’s cash flow awareness and financial health.

“Big Model” Impact

The initiatives of these fintech companies are indicators of how “big model” analytics are changing the financial services industry.

The prevalence of data and digital technologies has unleashed an array of insights into consumer needs and behaviors, resulting in valuable opportunities for individuals to get access to better financial service.

As consumer expectations evolve with technology, financial institutions and professionals can leverage these intelligent analytics to better understand their clients and enhance their service.

This post was written by Min Zhang, CEO and co-founder of Totum Wealth.

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2016 Predictions


Hello. It’s me. As we kick off 2016, look for consolidation as private companies are forced into the arms of larger players, along lines of last week’s purchase of Jemstep by Investco, or the acquisition of Yodlee by Envestnet, BillGuard’s purchase by Prosper or BlackRock’s acquisition of FutureAdvisor.

It’s incredible how much is written – still – on Robo’s being “on fire” when the facts are so different. Look for capitulation in 2016, among startups in the robo advisor category and continued dominance by a handful in the lending space.

Robo advisors are private, so it’s hard to know how much case they are going through but the themes of recent news (e.g. lowering investment limits) suggest we may see one of the bigger players disappear in 2016, if not 2017.

This development is not specific to digital wealth management, so consolidation and capitulation is my prediction for all areas of FinTech.

pac manIn 2016, look for consolidation within the most crowded areas (e.g. alternative lending, robo advisors) with too many ‘me too’ companies. Look also for some acceleration of Product innovation at bigger firms, as they try to respond to the to FinTech startups who’s captures headlines over the last few years.


Advisors: Where the Action Is

The real story is slow demise of the big name firms like Merrill Lynch and Morgan Stanley, as they lose top advisors and clients to RIA’s (not robo advisors).

Less covered by tech media, look for RIA’s to continue to take share from brokerage firms, even as firms like Morgan Stanley explore automated investment services.

What’s behind Morgan Stanley reportedly planning to introduce its own ‘robo advisor’ service is not competing with Betterment, but trying to stay relevant and nimble as it loses share to RIA’s that offer better services, products and technology.

FinTech industry followers are better served to listen to Michael Kitces and Bill Winterberg rather than read press releases from robo advisors.

Financial Data Comes to the Cloud

Is Market Data as exciting as marketplace lending or mobile payments? Maybe not, but it deserves attention, especially as one innovator, Xignite, behind Wealthfront, Betterment, Personal Capital, Motif and StockTwits –is looking to shake up an industry.


I recently sat down with the Founder & CEO of Xignite, Stephane Dubois, in San Mateo. He noted how robo advisors were among early clients of xIgnite, but that his target market now includes larger financial institutions.

I asked him whether xIgnite was like Stripe for the market data world? My rationale was Stripe has been successful in payments in part due to its focus on developer community.


Dubois saw the parallel, noting that xIgnite is focused on API’s, innovation and targets developers, while financial data incumbents (e.g. Thomson Reuters, Bloomberg, S&P) often seek to sell products, not delivering the actual data clients want.


But he emphasized Xignite targets both developers and businesses (both startup and larger companies at this point in the growth trajectory). As Dubois expressed it, xIgnite’s goal includes growing its business through enabling more responsive front-end tools for financial institutions, and helping it slash back-end costs.

Is Xignite the Stripe of the market data world?

From my experience at Morgan Stanley, I think there’s opportunity. Although there is a lot of focus on controlling market data expense, in light of reduced profits in many trading areas, executives such as Morgan Stanley’s Ken Brady are smart and strategic, looking to control expenditure but also enable the business.

Focus on the Apps, Not the Integration

Screen Shot 2016-01-18 at 10.17.18 PM

This illustration from xIgnite captures the essence of its value proposition and also highlights one issue for large financial institutions.

Banks do a good job managing their third-party expenditures and risk; teams focused on partners on Wall St. (ranging from Operations, Market Data, Tech Risk, Vendor Risk, Corporate Services, COO Teams). What big banks can learn from startups is to focus on the apps, not the integration (and using xIgnite can help with that approach).

Morgan Stanley legend Merritt Lutz jokes that in a post Dodd-Frank world, you can find a risk officer hiding under every desk on Wall Street. But the red tape on risk and expense  management, has slowed down execution. Clients using Morgan Stanley Online can’t see basic portfolio performance reporting online, in contrast to most of its competitors.

As a result, wealth management units of banks suffer from too long development cycles. Instead of navigating bureaucracies, expense approval and risk teams, developers should be able to focus on apps and the data they need to serve clients.

Bigger banks should be more API-centric approach and embrace Agile in order to enable faster time-to-market on Wall St. and compete with FinTech firms.


Final thoughts on 2016? I’m looking forward to incumbents moving faster, adopting API solutions like Xignite, during consolidation since as one executive from J.P. Morgan Chase said, ‘Do we really need 1,000 mobile wallet startups?’

I also don’t foresee any big IPO’s in the FinTech space, given the state of the markets, although SoFi and Stripe have all the right pieces in place. For now, I can see Financial Technology Partners being busy with lots of deals focused on the middle market.

2016 should offer a few surprises. I look forward to telling you about them.

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Wells Fargo’s Head of Innovation, Steve Ellis

Steve Ellis.png

The following is an edited transcript of a conversation between Steve Ellis, Head of Innovation for Wells Fargo and Michael Halloran of The FinTech Blog.

MH: Your have a new role as Head of Innovation for Wells Fargo. Given its record as an innovator, in areas like online and mobile banking, why do you think the bank is not as well known as it should be for innovation?

“Creating the Innovation Group puts an even larger focus on creating the products, services, and technologies that will allow us to stay competitive and allow our customers to do their banking when, where, and how they would like.”  – John Stumpf, CEO of Wells Fargo

SE: I’ve seen different waves within the bank and across the broader industry. Right now there’s tremendous interest in innovation.

Innovation has always been there: It’s just sometimes the case that other messages stand out. Take the financial crisis of 2008. During that time, a lot of the energy was put into risk and controls. Or the integration of Wells Fargo and Wachovia. It took a lot of effort. But the innovation story is real.

We have been innovating for a long time. There is remarkable creativity in our organization. There is no lack of ideas. I see our role as to give a voice to ideas, which come from all areas across the bank – as well as outside the bank; it’s so easy to focus on what’s internal and miss what’s going on outside that’s interesting.

MH: How do you see Wells Fargo’s Innovation Group compared with other models? e.g. CitiVentures has a mission, beyond its venture investing, to bring innovation to Citi. Capital One Labs’ mission is to deliver products with big impact, but gets involved in acquisitions (e.g. LevelMoney).

SE: Our team is 150 team members strong. Our initial focus is on 5 areas: R&D; innovation strategies; payment strategies; design & delivery; and analytics.

We want to bring focus to the great ideas within Wells Fargo and serve as a catalyst to foster innovation in areas ranging from business models to user experience. We want to innovate across the entire organization — at a time of increased risk and regulatory focus.

We also want to encourage our team members to sit up and look outside the organization for innovation and ideas.

wfc startup accelerator

An example of this is the new Wells Fargo Startup Accelerator.

Our Startup Accelerator expands our vision of the future of financial services beyond the boundaries of Wells Fargo and banking, and introduces us to innovators who want to shape how our customers handle their financial needs in the future.

MH: When Morgan Stanley’s Technology Business Development Group put on its CTO Summit, our focus was on innovation, as well as team building and business development. Is that true for Wells Fargo?

SE: Yes. There’s an advantage for us to have early interactions with the startups in the space. The accelerator gives us an opportunity to get involved and connect with the brightest startups from around the world.

MH: What innovation areas are critical to you now? Given Wells Fargo’s current focus on growth in credit cards and wealth management, investments and retirement (WIR), is it in areas like analytics?

I can see us going in a direction of offering identity as a service…

SE: Analytics is a great example of an area rich in innovation opportunities. Others are security and identity management. We’re good at security; as a bank, you have to be strong there. It’s fundamental to our business. The Innovation Group also owns initiatives like mobile wallet services to propel innovation in this important area for Wells Fargo.

We have a lot of good ideas. We literally have received hundreds of good ideas from team members across the company since forming this group. I see it as part of our mission to drive focus and execution on a reasonable number of focus areas, so we’re working on five big ideas vs. five hundred.

MH: I know the innovation group at Bank of America struggled with issue of mission creep by expanding its mission from ‘innovation’ to execution in areas, e.g. social media and mobile, that put it in conflict with areas of the bank that owned those efforts. Is that a risk?

SE: We are a small group by design, and we have to clearly understand our mission and purpose for the company. I was invited to speak at Wells Fargo’s companywide Town Hall with our CEO last week. We talked live with team members across the country about the mission of the Innovation Group.

Internal communications is important, and we want to clearly articulate how we will give a voice to innovation and ideas across the wider organization. Our group will stay focused on our customers – and I’m confident the ideas and solutions will follow with rapid execution.


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MH: You mention the Innovation Group is a small organization. Do you think you will bring in individuals from outside to help the team?

SE: We have a lot of interest from Wells Fargo team members in joining the group, and we’ll grow. Would we hire some talented technologists or those with other skills who don’t know banking and teach them about banking? Yes.

MH: As someone who’s worked at a startup and a bank, it frustrates me to hear VC’s say ‘Banks haven’t done anything innovative in the last ten years’ and have people believe them. How do you feel about that?

SE: I’ve been around long enough to recognize that a lot of people who are driving the conversation are pushing an agenda. I’m accustomed to it. We maintain a good relationship with the venture world along with startups.

We think we can innovate with the best. For instance: biometrics. There’s a lot of seriously cool stuff that’s happening in that area.

If you think about it the area of identity management and authentication is one in which the banks are really exceptional. I can see us going in a direction of offering identity as a service, for example.

I think the predictions about what is going to happen in 3-5 years are not as interesting as what’s going to happen in 20 years.

MH: Despite the success of Bloomberg ‒launched with Merrill Lynch as a minority owner – there hasn’t been a lot of consortium offerings from  banks. Why is that?

SE: To drive a program through a large institution, you quickly need to get a lot of specific people in meetings who have decision-making power. A consortium, to me, makes the whole process much more difficult. With the right idea, of course, anything is possible.

MH: What do you see when you look ahead?

SE: I think the predictions about what is going to happen in 3-5 years are not as interesting as what’s going to happen in 20 years. There are things we can do using APIs, however, that will be interesting to watch unfold.

In terms of the big picture, I think change happens slowly and steadily. It’s easy to miss, including changes that can have tremendous impact on the industry. I’m not a big believer in Bitcoin or the related technologies. They seem more like solutions looking for a problem.

MH: Wells Fargo has been a leader in online and mobile banking on both the retail side, as well as wholesale banking side. Wells Fargo’s Virtual Channels Group has done great things, yet many startup pundits seem to say that big banks ‘don’t get it.’ How are you proving them wrong?

SE: We do not want to become an Innovation Group that publishes white papers and just does R&D. We are about being a catalyst for rapid execution.

One example is a California-based corporate client that asked if we could build a new technology solution for its customers. They were considering working with a startup. Wells Fargo built a custom solution within the timeline and exceeded their expectations. That’s what it’s all about: delivering benefits for your customers.


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Insurance: The Next Frontier

insurance chalckboard


While the golden age of Fintech is upon us, insurance has been relatively untouched – one of the largest industries yet to embrace the digital age.

Yet insurance presents an enormous opportunity for entrepreneurs. In fact, the fact that Prudential recently formed Gibraltar Ventures – following the model of Citi with its Citi Ventures unit – shows the that incumbents are recognizing the potential for startups in the insurance sector.

Last year, the U.S. insurance industry’s net premiums written totaled to $1.1 trillion, a 25% increase from 2009 (net premiums written are defined as premiums that will be collected over the life of a contract less cost of reinsurance).

Insurance carriers and their related activities in the United States accounts for nearly 2.5% of the US GDP and employs 2.5 million people.


Despite being such a large industry, insurance remains one of the highest cost areas of financial services.

According to CoreVC, a VC firm focused on FinTech, $.60-$.65 of each dollar is paid in claims, with the rest covering costs of admin, marketing and reinsurance.

This presents a significant opportunity for disruption. With improvements in technology, we should see reduction in each of these cost items.

Examples include automating policy administration, improving distribution via marketplaces, reducing underwriting risk using big data and machine learning.

Recently, more and more entrepreneurs have launched startups to disrupt this massive and antiquated industry. Here are a few startups going after interesting consumer problems.



Ovid is a life insurance exchange. Ovid offers consumers the option to sell their life insurance for an upfront cash payout if they no longer need or can no longer afford their policy.

A policyholder with a $1,000,000 policy could sell the policy for up to $300,000 and would no longer be responsible for paying annual premiums.

Ovid was founded because over 80% of U.S. life insurance policies never mature into a claim1 – the insured generally lapses or surrenders their policy. This results in high profit for insurance companies at the expense of consumers – turning years of paid premiums into a sunken and irretrievable cost.

Ovid attacks $100 billion of annual household financial waste by building a liquid secondary market where institutional investors can bid on consumers’ policies.



guevaraNormal car insurance works like this: you pay an annual premium which your insurance carrier pools with all their other auto insurance premiums in order to diversify their risk of a single accident. However, this means that safe drivers are essentially subsidizing risky drivers.

Guevara is piloting a new approach: instead of lumping your premium with all drivers, your premiums are pooled with roughly 30 drivers who have similar driving habits and records to you. Your pool is then used to pay for the group’s claims.

If there is money left in the pool at the end of the year, the leftover money is returned to the insured. This way safe drivers will have significantly lower insurance costs and are not subsidizing reckless individuals.

Guevara says after an average year with five claims, everyone in your group still saves 30% each over your competitive insurance premium. Furthermore, even if you’re in a group where everyone gets into accidents, there’s a cap on premiums – so all else equal, you never pay more than you did in the first year.



Oscaroscar was founded after Josh Kushner received an explanation of his health benefits that he was unable to understand. Oscar is a new health insurance company that sells simple-to-understand health insurance plans to consumers both directly and through health exchanges.

Unlike traditional health insurance where consumers typically have no idea how much they will be paying, Oscar attempts to bring transparency to its customers using technology.

A user can visit the Oscar website or mobile app, enter in his or her conditions and symptoms, and receive a list of primary care physicians or specialists along with estimated costs. Furthermore, customers can even call in for unlimited free consultations with physicians who can prescribe medications.

While Oscar is still not profitable, it will be interesting to see if its business model can disrupt the traditional players and reform one of the largest and most complicated industries in the U.S.


thezebraFounded out of Austin, TheZebra is an auto insurance comparison engine, which compares estimated quotes from different car insurers for users – kind of like Kayak.com for car insurance.

Users are served estimated quotes with as little as two pieces of information and can try different combinations of inputs to see what factors most affect their rates. All results are anonymous and instant – making it easy for consumers to get real quotes.

The company now compares over 200 insurance carrier’s rates and is a licensed insurance agent in almost all U.S. states. With big names like Mark Cuban and Floodgate as investors, there are high hopes TheZebra will change how people buy car insurance.

This guest post was written by Lingke Wang, currently an MBA student at Stanford’s Graduate School of Business, and co-founder of Ovid. 

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Talking vs. Doing

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CEO of Nerdwallet, Tim Chen, Speaking to VC in San Francisco

Even though Home Depot moved on from its slogan of “Less Talking, More Doing” I’ve been thinking about that statement in the context of FinTech. There are so many conferences and places to network, it’s easy to spend too much time listening to experts versus doing the hard work of growing a business.

Reinforcing this, Level 39’s Head of Ecosystem Development, made this point at SIBOS last week in Singapore (see tweet).

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It’s not that events are a waste of time – it’s just critical to focus on what you do at them, i.e. focus on learning and giving back to partners and others.

As CoreVC‘s Kathleen Utech said, events like Money 20/20 are valuable in part for one-on-one conversations you set up, so make sure you plan them.

Buzz vs. Buzzkill

While there’s still a lot of buzz associated with financial services tech startups, with the latest news being the planned IPO for Square, a successful Los Angeles-based private investor in FinTech told me, “I’m sure a good percentage of startups with huge private valuations will never seen a liquidity event.”

We agreed that well-known startups are suspect, especially in some categories, e.g. robo advisors and online lenders. I’m bullish on the big names in the startup space, such as Prosper, but wonder about the second and third tier.


I recently sat down with Ron Suber of Prosper the other day and talked about innovation. I think the BillGuard deal was a very smart move. Prior to meeting him, I’d read the Stanford GSB Case Study on Prosper. It’s striking to see the similarities between today’s fascination with FinTech and the earlier euphoria  over E-Loan in the period during the last dot-com boom.

I recommend the case study to see the difference between a good idea and execution, and the key role of regulators. Another important lesson is that VC’s are not the final answer: It’s up to you as the entrepreneur to make smart decisions.

Being Smart: Investing vs. Paying the Price Later

I saw Bill McKnight, Head of Product and Technology at RealtyMogul the other day. It was interesting to see the energy of the office, which was quite different from offices of places like Prosper, which have more of a tech company environment.

realtymogulThe office atmosphere reflected the high percentage of employees who come from a real estate finance background, resulting in a mix between a tech company and a traditional lender.

Bill spoke to me about the importance of moving fast, yet being smart about investments in engineering to avoid “technical debt” later.

Transparency: Metrics that Matter

Another player in the real estate space within FinTech is Patch of Land. I met the CEO, Jason Fritton and CMO, AdaPia d’Errico, on a recent trip to Los Angeles. A somewhat earlier-stage startup than RealtyMogul, I was struck by the strengths of the team in terms of client and market focus.

I’ve also been impressed by Patch of Land’s ability to build a community through its social media efforts. Would be winners in FinTech would be smart to look at how AdaPia’s team uses SM to bolster growth.

Here’s some comparative metrics for Patch of Land (on top) vs. Lending Club. It’s clear from the SM metrics that the objectives are different, with one being more of a broadcast model vs. means for community engagement, but the figures are striking.


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Steady Growth

Tim Chen, CEO of NerdWallet spoke to a packed house of about three hundred members of the SF FinTech Meetup at its offices in San Francisco recently.

nerdwalletPersonally, I was impressed by Tim’s modesty as he spoke of growing NerdWallet from tough early days when it made very little money. He won the crowd over with his timeline showing user growth matched by the SEO work to grow reach (building links and creating content).

Talking to others in the world of FinTech is useful, since I think each and every interaction with others can be a learning opportunity, but beware attending too many conferences on FinTech, when you could be building something.

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