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The Future of Money

Unlike Money 20/20 in Las Vegas last month, this week’s Future of Money and Technology in San Francisco was more of a true Silicon Valley event with generally more technical attendees and venture-backed start up’s, and fewer speakers and sponsors from traditional/online retailers or the card industry.

There was more discussion, as one might expect, on startup’s, bitcoin and where things are going in next five to ten years.

Personally I was struck that group of panelists drew a complete blank when asked which startup or relative newcomer would transform financial services in the next ten year (excluding Stripe and Square). The field seems wide open to the experts.

Key Takeaways

Look for the Cloud to drive up adoption of long-standing tools like account aggregation and data integration, with leaders like Yodlee continuing their evolution into platforms for other banks and partners.

While getting less buzz, especially given the chatter about Apple Pay, expect a shift from mobile payments to wealth management and big data solutions, in terms of what’s important in the FinTech landscape in 2015 and beyond.

In next 12 months, look for the big banks to embrace Bitcoin, initially just as investors as they will wait for clearer direction from regulators before the use of any form of cryptocurrency within their core businesses.

The Silicon Valley (vs. NY and London-centric) FinTech ecosystem is far more focused on disruption within FS (vs. incremental improvements) or enabling better services from big players, through selling to them.

Intuit and Personal Capital

Starting the day off was a fireside chat with Bill Harris, CEO of Personal Capital and former CEO of Intuit, and Barry Saik, SVP of Intuit, who’s runs their consumer ecosystem including its Mint.com product.

Harris remarked on the power of information to drive behavior, noting that people who see their actual spending and how it fits with their goals through online or mobile apps actually spend about 15% less to achieve their goals.

He also sees opportunity in FinTech for start up’s and established players to better serve the needs of consumers, at all levels of income, much as Personal Capital meets the needs of the so-called “mass affluent” by providing better returns through lower costs and more efficient use of technology.

Saik pointed out that Millennials in particular, and young people in general, are less taken with banks and traditional provides of financial services – comparing their online and mobile experiences with other activities; they ask, “why is it so complex/slow/confusing” and seek FS providers who are as easy to use as Uber.

In other remarks, both panelists commented on the problem of good information and advice on financial services, and cited that as an opportunity. I’ve often wondered why Motley Fool, a company that I negotiated with earlier in my career when launching an online bank, didn’t capture more of this opportunity and go after other segments than their core market of self-directed investors. Perhaps there’s an opportunity out there, where Ed Tech meets FinTech?

The session concluded with Harris noting that Big Banks, in the US, vs. FinTech startups are examples of East Coast (hierarchical, annual planning focus) vs. West Coast (whiteboards, collegial atmosphere) business culture.

The API Ecosystem

Next up was an informative session on the API Ecosystem in Financial Services. Certainly from my experience working at Morgan Stanley and earlier with likes of Barclays, MBNA and CheckFree, I see the promise of greater integration and more innovation by means of the somewhat wonky (to the non-technical) API.

Although XML and web services fell short of their promises to transform, Restful API’s and the Cloud are enablers of new, consumer friendly services from established players, like Wells Fargo and Chase, plus start up’s like Simple (now part of BBVA) and Addepar.

The API Ecosystem demo started off with probably the highest energy moment of the whole day, with Justin Woo, a Developer Evangelist at PayPal. With great excitement, he showed how easy it to enable a site or app to accept cards, through adding a few simple lines of code calling the PayPal API.

Jeff Kaditz, CTO of Affirm, Max Levchin’s latest FinTech start up, spoke about the role of API’s in allowing people to break free from the traditional bank solutions that people increasing do not trust, he says.

Kaditz got a few laughs for making fun of Wells Fargo’s logo, which include the horse and stagecoach as an example of how rooted big banks are caught up in the past. Ironically, as I’ve tweeted on Nov. 19th, Wells Fargo’s Digital Channels is ranked among highest in the US, so I would disagree with him on that front.

But Affirm, like Simple or WealthFront, is a great example of a FinTech startup, with enormous ambition, strong backers, and a vision to “fix problems” using technology and a fresh approach, e.g. API centric solutions.

John Beatty, cofounder of Clover cited how Information Security approvals take months if not years at big banks. With an open API (unlike most banks), its platform for Android devices enabled POS solutions to reach the market quicker.

Christine Laredo of Yodlee, who moderated the API panel, also marked how FinTech start up investment was $3B for the last year — 3x the level in 2008.

Bitcoin, Stripe and Stellar

Although I couldn’t attend the entire panel, Sean Percival of 500 Startups joined moderator Mark Rogowsky of Forbes, and several other Bitcoin executives, including Sonny Singh of BitPay, and Jackson Palmer of Dogecoin.

The Bitcoin conversation continued with a panel on Stellar: Building a Common Financial Platform. Moderator Dan Rosen of Commerce Ventures and Joyce Kim of Stellar noted 30% of the session’s audience said they hold bitcoin, yet across the US and around the world, the percentage of much smaller.

Stellar, as a non-profit, was also represented by Jed McCaleb, who created Mt. Gox, the first bitcoin exchange, and Ripple, prior to founding Stellar.

Greg Brockman, CTO of Stripe, spoke about the relationship between Stripe and Stellar, noting that they invested $3M for 2M Stellars, a virtual currency, and work with Stellar since they share the vision of greater “inter-operability” between currencies, virtual and real currencies, and passion for the future of commerce. Brockman also noted that while Stripe is in beta with their bitcoin offering, he expected it to go live shortly.

Brockman talked about the frustrations with inter-operability, and the details that inhibit payment innovation, while Kim of Stellar highlighted innovations like the 1% inflation rate, the focus on a “freemium” model to encourage adoption.

Everyone on the panel agreed that the future of bitcoin and other crypocurrencies is just beginning. McCaleb noted he founded Stellar to address what he saw as issues with bitcoin, including mining that negatively impact the environment.

Although below the radar, just three months after their launch, I was impressed with Stellar’s vision, how clear Kim was about Stellar’s vision and mission, and the alignment of the panel on relatively “uncool” issues like protocols and messaging.

The panelists seemed unconcerned whether Stellars would be the next bitcoin – and came across as far more motivated to reduce payment complexity and inefficiency, and create a smarter, more transparent network for payments.

But with demand outstripping their forecast – and 4M wallets in use today (47% of whom did not hold another virtual currency like bitcoin), Stellar is worth watching both for its initial product as well as their long-term vision and set of partners in the FinTech space.

Angel & Corporate Venture Investments in FinTech

David Rose of NYC-based Gust, a rival to AngelList, and expert on Angel Investing gave a fact-filled talk on what it takes to be a good Angel investor, citing the need to have a long-term vision, people skills, self discipline, willingness to learn, self control, and desire to be at forefront of innovation (without the drawbacks of being an entrepreneur).

Rose cited statistics, such as the fact that 5 of 10 Angel-backed startups will fail and you will lose all of your money. Also, if you have the ability to back in 10 startups as an Angel, on average 2 of the 10 will return your money (by being acquired or bought for their IP). If you’re lucky or choose right, you will make money on 1-2 of the 10, but to achieve the 25% IRR goal for its investment class, you’ll need that 1 of 10 in your portfolio to achieve a 30x return.

Rose noted that angels are in it more for just the money – it’s also about keeping up with changes in the world, and making a difference. But he cautioned about being naïve about investing in startups, noting that the “J” curve where you invest in a money-losing venture, as most are, is not for the faint of heart.

Mike Sigal, CEO and founder of Cashflower, a FinTech startup based in S.F., led a similarly clear-eyed assessment of what corporate venture investment teams look for in FinTech. He noted that corporate VC is now 20% of FinTech investing.

Pete Casella spoke about how his team at JPMorgan Chase looks to make strategic investments of $5m+ in startups that can positively impact the Chase business, and the Bank requires a desk or P&L center sponsor the investment. While he said Chase seeks to “build its own” in key areas like mobile, UX and core business areas, Jaidev Shergill of Capital One ventures spoke about how the Bank seeks to learn, and learn where to invest in its infrastructure, by investing in non-strategic areas as well.

Casella also made a pointed comment that while he’s seen maybe 50 mobile wallet seeking financing in the last year, he sees the market for these services as maybe two or three providers at most.

Shergill cited the case of working with SnapLogic, a company founded by Gaurav Dhillon and backed by A16Z, as such a company, while Citi Ventures Ramneek Gupta gave example of Silvertail. He noted they helped foster a pilot, guide them to a commercial relationship, and how the firm was later acquired by RSA.

Overall the corporate VC’s came across as helpful, but cautious, not looking for a big return on their money, so probably easier to negotiate terms with vs. some other venture firms, but probably less motivated to help you win in the market, since they don’t need a 3-4x (let alone a 30X) return on their investment.

But all the VC’s mentioned, at least to some extent, how they brought value to the portfolio companies by providing startups with connectivity into the large financial services enterprise.

At Morgan Stanley, one role I held was precisely this kind of “navigation” role, helping to connect the Firm innovation (whether in the form of new business models, like Hired.com or approaches to data center virtualization, like Bracket Computing) so I can say first-hand that these kinds of assistance do matter.

What are key lessons for FinTech entrepreneurs? I would call out the panelists advice to “Do your due diligence” with any corporate VC. Avoid term sheets with ROFA’s. Ask good questions about what they will do for you, and be clear about what type of help you need in growing your business.

One comment from Casella was to stay away from mobile payments, saying he’s looked at 50 companies targeting this space, and sees the need for at most two that will be successful – although I think on a global basis, this will be a higher number.

And, as one VC said, stay clear of anyone who makes a lot of demands of your time, especially for PowerPoint presentations 😉

2014 Future of Money Startup Competition

Powered by the startup competition platform, younoodle, The Future of Money & Technology event announced several winners of its startup competition.

The winners were:

Linqto Personal Banker: a software development company specializing in Enterprise solutions for banking and educational verticals.
CrowdCurity: a marketplace for web security solutions
TrustingSocial: an innovator in credit scoring with social, web and telco data, to make lending faster, cheaper and friendlier.
Xignite: a provider of market data cloud solutions.
CUneXus: specialized sales & marketing systems to help lenders maximize the value of customer relationships.

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Despite Apple Pay Buzz, Don’t Forget Venmo

After hearing more than enough chatter about ApplePay, not to mention bitcoin (and the crucial distinction between Bitcoin and bit coin) at Money 20/20 last week, it may be time to shift gears to more of focus on the consumer.

I’m not targeting the same topics covered by magazines on the payments industry or banking technology. I’m inspired by sites, such as Jason Clampett’s Skift.com that covers travel in a unique way by blends an insiders view (i.e. what people who work in travel biz) with what consumers want to know.

OK, so what’s interesting to consumers? Well, although most of the press has covered more recent entrants (ok, one especially big new entrant based in Cupertino) to payments, I think there’s a lot to say about consumers and Venmo.

The service launched in 2009, and went live to the public about two and a half years later after shaking out in beta, seems to be tracking its projected growth rate. As reported by Business Insider this summer, Venmo is picking up traction:

So, what started with students in their early 20’s is shifting to other demographics and usage is evolving from peer-to-peer (“I owe you $20”) to wider retail use in places like Starbucks (see above).

Helen Jewitt, who looks at in trends in financial services for Wolf Ollins, a leading brand consultancy, says that “everyone is using Venmo in San Francisco” and making paying by check look like whipping out your BlackBerry 9900.

As San Francisco sometimes goes, so goes the Nation? Square and Google Wallet are in many ways ahead from a brand and reach perspective, but Venmo is social and has clearly established itself as one of the services to watch in mobile payments.

This isn’t the place to find the latest product reviews, but I recommend the excellent this year’s WSJ review of the category. Note: Square has been catching up this fall with features (such as pay by text, evolving last year’s payment innovation, where you could simply email someone and cc request@square.com to transfer money).

What’s telling is after PayPal acquired Braintree last year, instead of rebranding Braintree (or its Venmo product), PayPal continued to use the more credible Braintree brand – especially on billboards targeting developers in the Bay Area.

Venmo has been called the ‘killer app’ and has certainly given new life to PayPal, and that’s significant.

And for those who don’t follow FinTech closely, PayPal’s been adrift for years. In 2014, of course, PayPal announced its spin out from eBay – after years of saying it was strategic – which led to rumors of acquisition by everyone from Apple to Alibaba, although Reid Hoffman said at the Technonomy event this week that any Alibaba/PayPal tie up is unlikely.

From me it said a lot that on day the spin out, Stripe tweeted eBay now had an opportunity to improve its payments…..

There’s much to learn from the likes of Venmo and Stripe – a company I’ll cover in a separate post – but it’s worth listening to Stripe’s co-founder Patrick Collison’s predictions on the future of payments at Techonomy this week.

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Tuesday Recap: Money 20/20

Money 20/20 continued today, starting with a keynote by Ken Chenault, longtime CEO of American Express. What was interesting was both how much Ken embraced disruption, and versed he seemed in technology and his views on prospects that many conference attendees would be seeking to take market share from American Express. Beyond noting he welcomes competition, he stressed that he was not at all afraid to cannibalize his own business in order to reinvent AMEX.

Chenault said he “could care less” if plastic eventually goes away – eliciting a strong response from the audience, and sees AMEX as poised to continue to succeed in today’s more digital world. He also said he was disappointed to see Dan Schulman leave American Express to run PayPal, but expressed confidence he had a deep bench on his management team.

Chenault was excited that American Express was part of launch of ApplePay, and dismissed a question asking whether Apple could eventually disintermediate them, saying he doubts Apple sees that as their core business and seemed fairly unconcerned about MCX and CurrentC. I think that both sentiments are correct, although it is early stages of the game.

Next up was Tom Taylor, VP of Amazon Payment Services, extremely compelling speaker, and lot of the session was dedicated to a case study of a UK retailer, AllSaints, that essentially does everything (design, make & sell its own clothes; design, build and operate all its stores and web site using its own people) except for its strong partnership with Amazon.

Another good session was on payments for affiliate networks, marketplaces and direct sellers. Bill Clerico, CEO of WePay made good points about how handling marketplaces are very different from traditional e-commerce, with the need to manage the risk of buyers and sellers.

Another session — wittily called Planet of the API’s: Making Banking & Payments Programmable — explored how API’s can change how consumers will interact with their banks. Zach Perret of Plaid spoke on how creating an ecosystem of bank API’s could lead to all kind of new end-to-end experiences with online services that would not necessarily come from your bank.

While Yodlee CEO Anil Arora said he doesn’t see the need for every bank to publish its own API’s — it’s just a technology he said, and doesn’t solve anything in itself (and of course, his company has built out integrations with over 10k financial institutions, a source of competitive advantage for Yodlee). But Perret of Plaid took an alternative view, saying that Plaid expects to see at least 10,000 new start up’s / apps leveraging bank API’s over the next couple of years.

There were a couple of other good sessions today: Turning the topic to lending and the changing world of credit, there was an good discussion of alternative credit markets, with a roundtable featuring Ken Lin, CEO of Credit Karma, Aaron Vermut, CEO of Prosper Marketplace, Mike Cagney CEO of SoFi and others.

Key take away is that these companies are all solving for different issues in the current credit marketplace, where some find it difficult to obtain credit, or overpay due to market inefficiencies. Most agreed peer-to-peer term is overused, and emphasized use of risk models, data, and fact they acquire customers in new and traditional (direct mail!) models, just with a different mix.

The last session of the day was a debate on ApplePay, featuring Jim McCarthy, Global Head of Innovation and Strategic Partnerships at Visa, and Jim Smith, EVP and Head of Digital & Direct Channels at Wells Fargo, among others.

Jack Stephenson, SVP of First Data, commented on the “reality distortion field” attributed to Steve Jobs, being a factor, on some level, in that he’s never seen anything as big and complex come together until this effort to work with Apple.

Jim Smith said his team had been looking “for some time” for the right model for mobile payments, and were excited to be involved in the launch of Apple Pay, which will bring together banks, card networks, merchants and the right security model.

But many said it’s still early in the game, and Google Wallet will continue to evolve, with some noting that partnerships with biometric firms and other changes leveling the playing field, while adding the media were “missing the point” with MCX vs. Apple Pay story, a view supported by the team at Paydiant, the Boston-based software platform behind MCX.

A fitting end to the recap for today’s events at Money 20/20 – an event that some said might as well be called ApplePay 20/20 – with the day’s chatter commenting on the fact that Money 20/20 had just been bought by a European company (no word on whether the payment would be made in Bitcoin).

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Day One: Money 20/20

Well, the number of attendees at Money 20/20 is astonishing, as a first timer this year. From speaking to fellow attendees such as Tom Groenfeldt, who writes for Forbes.com, consensus seems to be Benjamin Lawsky, the regulator from New York State, who spoke about his work on developing frameworks for virtual currencies like Bitcoin, was the most interesting talk so far.

His views on the potential importance of Bitcoin match that of others in the Silicon Valley. In fact, one of the more interesting talks on Bitcoin recently was at Dreamforce when Marc Andreessen spoke with Emily Chang from Bloomberg West, saying to “short Apple Pay” and go long on Bitcoin — he’s a well-known investor in the Bitcoin ecosystem, in players like Coinbase.

Strikingly absent from Money 20/20 sponsorship list is Apple, or much in the form of direct reference to Apple Pay in agenda or keynotes, however as Bloomberg’s coverage of Money 20/20 stated aptly, this year the event might as well be called Apple Pay 20/20. Although the story in Bloomberg indicated Apple wasn’t present at the conference, and Apple declined comment, there are several attendees from Apple here in Las Vegas at the event, according to the the list of attendees from the organizer.

Although Apple may be less visible as an overt presence at Money 20/20, more striking is the absence of Square, at least from a key sponsorship perspective and in terms of the major keynotes and fireside chats.

We’ll be hearing from other players, such as Google Wallet (which is well represented at the event, and is a sponsor), of course.

And while mainstream media ran stories of Apple Pay being blocked (at least effectively, by disabling NFC on card readers) by retailers like CVS and Rite Aid, there were reports Apple Pay signed up 1m users in the first 27 hours, 3m in the first week. Lots of ink spilled over MCX and whether they are behind the payment wars. Sure to be a topic discussed this week.

Also, former head of Google Wallet, Osame Bedier, was added as a last minute keynote speaker for Monday’s session, to presumably speak about the launch of Poynt. Should be interesting, and looking forward to hearing reaction from the Google team on the ground here in Las Vegas, as well as other presenters at here at Money 20/20.

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