Stripe

2016 Predictions

2016

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 man In 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.

xignite

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.

Stephane_Dubois

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.

2016

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.

FinTech’s Zeitgeist

Recent conversations have led me to think that some of the zeitgeist of fintech is changing.

I think the focus on the hype and funding levels is shifting as both startups and mid-stage firms are pivoting from aspirational, even naive plans, to more strategic conversations.

For me, the decision of FutureAdvisor and its investors to fold its cards is but one data point. It’s arguably been both a case of capitulation on both sides, recognizing the challenges to achieve scale, and the difficulty of innovation at incumbents.

honest dollar

More than ever, it’s a card game, and playing your cards right can mean holding them close to your vest. The CEO of Honest Dollar, for example, spoke candidly on the gap between what people think they’re building versus what they’re actually building.

There’s smart and right out of Steve Jobs playbook. There’s a time and place for putting it all on the table – and it’s best not to do so too early.

Finovate

I wasn’t able to attend the recent Finovate event in New York due to a last-minute conflict, but was able to see themes from afar and through conversations with those in New York.

finovate

Mobile continues to be the key driver of the conversation. As Karen Webster, one of the most compelling voices on payments today, says: “More than any other, mobile is the ecosystem that has given rise to the sea change taking place in payments today.”

As she wrote on the @PYMNTS blog: “You can’t talk FinTech without talking payments, and you can’t talk payments without talking FinTech. They’re an inseparable marriage.”

I thought it was interesting that we both had seen Sprint Money’s partnership with Urban FT was one piece of news from the event.

sprint

As mobile gurus like Benedict Evans point out, although we in the US don’t often grok it, outside the US, telco companies operate more like banks or have a closer relationship with them.

In developing markets, phones can serve as the de facto means of payment. It will be interesting to see if the model will come to the US.

I think it will be a challenge given the Sprint brand and other options in the US, but demographic changes and aversion to banks might make it work in certain segments.

Payments News

Outside the marketplace lending space, other big news was the huge growth in payments processed by PayPal‘s Braintree unit. Just two years after its acquisition by PayPay this week it announced its authorized payment volume will be $50B this year.

braintree

Impressive, but with that growth factored in, the stock is still trading broadly flat to down from its IPO in July. The open question is whether the Dan Schulman can get PayPal to a place where it can compete with Stripe.

It’s interesting that Dan’s professional career includes little time in financial services (with time at AT&T, Sprint and Virgin Mobile vastly exceeding his time at American Express). I wonder what Dan thinks of Sprint Money? I suspect his attention is elsewhere.

Only about 1.6% of retail purchases are made online, though a majority research prices online or with our phones before making a purchase decision. That behavior may be changing….

Recently Stripe announced Stripe Relay, which reduces friction for in-app purchases. It’s big news, and could usher in more online and in-app purchases over time.

stripe relay

The New Zeitgeist

Today’s zeitgeist is shifting from how big the opportunities are to being smart and strategic. (For that reason, there was a wariness about many startups at Finovate this week.)

Honest Dollar’s whurley going beyond what many think are its modest plans is one example. Being ambitious and holding your cards close is the mark of a company you want to work for – and a startup that the best venture firms want to back.

I like the story he tells of an employee at Honest Dollar being asked what he’d done to achieve a big win for the startup, replying: “My job,” and walking away.

So here’s my advice to startups: don’t get caught up in the hype; focus on the job; and don’t show your hand too early.

It’s a smart strategy that will work better than raising too much, too soon and tilting at windmills. Remember, it’s business – you’ll need to think a few moves ahead.

IPO’s: I’ve Got Five on It

As I wrote last week in my first story on TheStreet.com, I’m bullish on the prospects of FinTech and wider tech industry’s recent and upcoming IPO’s, so I’ll shift focus my this week from marketplace lending to marketplaces for equity markets.

Last week, well known New York startup – and yet another success story from Fred Wilson‘s Flatiron Ventures – Etsy, went public. Although not a FinTech company, my interest in Etsy’s IPO is due to equity crowdfunding aspect of its IPO.

You may think it was just another IPO – just as OnDeck, the fintech company, went public in Dec. 2015. But, while my former colleagues at investment bank Morgan Stanley took Etsy public, what was unusual was a portion of the offering was reserved for crowdfunding – in keeping with the company’s focus on individuals, and it’s story of empowering individual artists and designers.

Beyond the company’s desire to do something with its public offering to reinforce its brand, it was pretty surprising to me that Morgan Stanley allowed individual investors without a relationship with Morgan Stanley to get shares.

In my experience, high profile anticipated IPO’s, such as last year’s Nimble Storage, are very hard to get access to as a regular retail investor. In fact, this is often touted as one of the benefits of doing business with a full-service broker.

Marketplace for IPO’s

What’s going on? Why would a very traditional investment bank, especially Morgan Stanley – with its core strategic wealth management business – be open to equity crowdfunding that in some ways undermines its business model?

As part of broader development of crowdfunding – from new products (e.g. Kickstarter), stakes in startups (e.g. CircleUp, AngelList), loans (e.g. Prosper, Lending Club) – equity crowdfunding is finally growing in acceptance and importance.

In fact, the biggest FinTech IPO of 2014 offered an equity crowdfunding component: While underwritten by Morgan Stanley, LendingClub offered crowdfunding using Fidelity Investments (where I began my career).

In the case of Etsy, last week, however, Morgan Stanley used not the market leader, LOYAL3, nor Fidelity, but rather its own in-house global stock plan services (GSPS) capabilities, along with its platform partner, IPREO.

(Morgan Stanley is a leader in stock plan services from when Citi’s contributed GSPS to MSSB joint venture; Colbert Narcisse, the long-time leader of the unit is a well-known innovator).

Bottom line: From the conversations I’ve had with those who in this industry, what’s driving this change is increasing market validation of the role and value of equity crowdfunding.

Another recent success in the context of the IPO market is this month’s underwriting of GoDaddy, where LOYAL3 played the role of partner to enable retail investors to participate in IPO.

LOYAL3 is a great company that’s a “marketplace” for direct investing and getting access to IPO’s. Like many leaders in FinTech, it’s based here in San Francisco at border of the Financial District and SoMa, near Prosper and Lending Club. It’s the industry leader in its space.

LOYAL3 signs up companies – from tech companies like Amazon, Twitter, Yahoo, Facebook and Apple, to others ranging from Mattel, Hasbro, and McDonalds – so that individuals can buy their stock directly at low cost.

Direct investing in companies has been around for a while, however LOYAL3 brings innovations from its technology to make it easier to focusing on the “brand building” and relationship aspect of “investing in what you love,” its earlier tag line. It makes sense – an example of investor Peter Lynch’s rule to invest in what you know.

I expect to see LOYAL3 and others riding the wave of giving individuals access to low-cost investing and access to IPO’s in 2015 and beyond. Strategically, they might expand into the pre-IPO crowdfunding market (where CircleUp competes).

Regulation: Watch This Space

For those interested in this area, watch for the continued word on the final regulations and clarifications of rules for equity crowdfunding arising from the JOBS Act. Recently, in fact, I tweeted a link to California’s draft crowdfunding framework:

FinTech IPO’s to Watch in 2015

Although it’s really anyone’s guess as to which companies will go public, the legendary Morgan Stanley IPO team I saw at 2725 Sand Hill Road – including Andy Kearns, Dave Chen, Paul Kwan – will offer VC-backed tech firms advice on timing.

But based on public information I’ve read in the press, several of the big FinTech names are all considered strong contenders to go public in the next year, including Oportun (formerly Progresso Financiero), PayPal, Square and Stripe.

oportun

Others, such as Ant Financial (Alibaba’s finance arm) and Avalara, a cloud-based solution for taxes may follow: the pipeline for FinTech IPO’s will be interesting to watch.

Since today is 4/20, I’ll wrap up by saying when it comes to IPO’s: I’ve Got Five on It. It’s not a lot of money, but the individual investor should be able to participate in this asset class, and hats off to those who make it happen.

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Payments Players In S.F.

Electronic Transactions Association (ETA), the global trade association for the payments industry, is holding its annual event here in San Francisco this week.

For many, the move from Las Vegas, the traditional location of the event, to S.F. represents a shift that emphasizes the growing role of technology, and in particular the impact of local FinTech startups such as Stripe and Square.

Below is a table of the Top 25 Companies in FinTech, ranked by employees in greater S.F. Bay area. Note how many are involved in payments (Visa, PayPal, Square, BlackHawk, Yapstone, Verifone, Stripe, Bill.com, Taulia, Revel & Boku).

Although ~ 5,000 people are in S.F. for this event, a small fraction of Dreamforce (annual Salesforce customer event), the key changes underway in payments landscape from Apple Pay to Samsung Pay give this event outsized importance.

The San Francisco Business Journal even has a cover story on payments this week, reinforcing that fact, and calling out interesting startups like PayNearMe (a panelist at last week’s SF FinTech Meetup run by PlanWise‘s Vincent Turner).

Although I’ve worked as a consultant with clients like MBNA (prior to its acquisition by Bank of America), launched co-branded cards and even worked on an ACH initiative, I am not a payments guru like Karen Webster of PYMNTS.com. But I follow FinTech and have a passion for innovation and the space, so will make a few observations.

First, legacy payments companies – and by this I refer to the broadest set of banks, merchant acquirers, aggregators/gateways, and payment networks – are not standing still, and should be watched just as carefully as startups.

Ben Horowitz, in talking about A16Z’s investment in TransferWise, said that “there’s not a lot of innovation coming from the banks.” Likewise, Foundation Capital predicted last week that banks will be disrupted by the new players in FinTech.

stripe

I admire TransferWise and am a huge fan of Stripe, having had the opportunity to sit down with its COO, Billy Alvarado, and see its CTO, Greg Brock, speak at several FinTech events – but feel that A16Z and Foundation Capital may be overstating the case.

The fact is that not all the value added is not coming solely from the startups. Just look at a less cool, big legacy player in payments: Heartland Payments Systems.

The stock has doubled in the last few years, as its executed well and managed its costs while revenue continues to grow:

I would look to startups for their ability to be super fast, be focused on great products and use the latest tech stack, but don’t forget about value created elsewhere, e.g. among big corporates.

Beyond value, I’d also say innovation is not the sole domain of venture-backed startups. They are important, but I think the differences between venture funding and private equity are starting to narrow.

In today’s Wall Street Journal, Andy Kessler argues “The Glory Days of Private Equity Are Over”. I disagree since companies like Betterment (see my recent interview with its co-founder) are receiving funding from both VC’s and private equity firms. Peter Christodoulo, a partner at Francisco Partners, sits on board of Betterment, Paylease and Paymetric.

Or consider First Data. It went private in a deal led by KKR. While it may seem to be a cost-cutting driven deal, consider that in recent years it began sharing ownership with employee-partners (like a VC funded business). And in terms of innovation, First Data is expected to make major new announcement here at TRANSACT 15. (I don’t know its president, Guy Chiarello, but met him when I was hired into his organization at Morgan Stanley where he’s still widely admired an an innovator, not a cost-cutter).

Likewise, Vantiv, one of the major sponsors of TRANSACT 15, went private several years ago in a deal with Boston-based Advent International, and continues to win awards and do well in terms of market share.

So, I think it’s clear startups and corporate players, plus VC’s and private equity all can create value and innovation. I look forward to announcements here at TRANSACT 15 in San Francisco, and will be sharing details on Twitter.

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FinTech in Ireland

With a name like Michael Halloran, I thought it only fitting to give Ireland its due on St. Patrick’s Day by pointing out a few of the more exciting startups and established fintech companies in Ireland.

Irish Startups

Penny Owl is a modern, fintech startup founded in Ireland but with support from US as a graduate of the commerce.innovated startup accelerator from MasterCard and Silicon Valley Bank. A winner of Best Android App with partners like SF-based Common Sense media, I think Penney Owl will be a fintech success story.

Datahug is a cool company, whose cofounder, Connor Murphy (no longer directly involved in the business) I had the chance to meet at Morgan Stanley’s London CTO Summit in 2013 and at a New York Enterprise Technology Meetup. It’s a CRM solution used by VC’s and other financial services firms.

Once hailed as Dublin’s most promising startup, its product enables ways to measure the strength of personal relationships within and across companies using email, phone and other data. Datahug is expected to grow as a result of its partnership with Salesforce, which bought a stake in the company.

Another exciting startup is Blackhawk Analytics that provides a cloud-based solution to enable firms to increase the efficiency of their banking costs and discover trapped cash.

Information Mosaic is a third up-and-coming leader, focused on post-trade technology. It was just profiled in Banking Technology magazine in Jan. 2015.

FinTech – Enterprise Software

Barracuda FX is based at the International Financial Services Centre (IFSC) in Dublin and provides a next generation Order Management and Execution platform for FX, with a truly open platform. They compete with Broadridge, which just acquired Two Four’s FX platform (for which I negotiated a license for Morgan Stanley years ago).

Fenergo is a Dublin-based award-winning provider of client lifecycle management, used primarily by large banks like BMO, State Street and Bank Leumi, although it can be used by other institutions. It’s raised $5m+ in funding to date.

FINEOS is a private Dublin-based software firm, founded in 1993, with over 350 employees that serves the life, accident and health insurance industry across group and individual markets, with major market share in the US, and a global presence.

Rockall Technologies is another Dublin software company, with a market leading position in collateral management (across wealth management, trade and wholesale banking). Its software is used by banks around the world, as well as by both Wells Fargo and First Republic Bank, here in San Francisco.

FinTech – Payments

Monex is a Killarney-headquartered data processing business that handles over €20bn worth of credit card transactions, and provides dynamic currency conversion for near real-time processing of card transactions.

Galway-based Fintrax is another processor that was sold to private equity group Exponent last year for €170m. Fintrax processes credit card transactions and handles VAT refunds for a variety of businesses and has over 600 employees.

Realex Payments is one of Europe’s largest and fastest growing online payment gateways, processing payments valued in excess of €28 billion per year for 12,000+ retailers across Europe. Based in Dublin, the company has 150+ employees.

FinTech Ecosystem

With my previous exposure to the FinTech Innovation Lab in New York and London, I was glad to see the establishment of a FinTech Innovation in Dublin in 2014 year, bringing Accenture and a consortium of banks to help foster fintech startups.

There’s also an active FinTech Ireland Meetup for those that want to read up (or drop in if you’re in Dublin) on the latest.

SF Connection

With so many Irish coming to San Francisco in the 19^th century, it’s no surprise how many street names are Irish surnames, like O’Farrell, Geary and Kearny.

Today, Irish-Americans like “super angel” Ron Conway, KPCB Partner Matt Murphy, and Bracket Computing CEO Tom Gillis are here in SF / Silicon Valley, along with Patrick and John Collison, the Irish brothers who co-founded Stripe.

(I find it a striking Stripe’s HQ in the Mission is just blocks from John O’Connell High School, named for a businessman born to Irish parents living in S.F. in 1873. The Collison brothers moved from Ireland to S.F. nearly 150 years later.)

So the tradition of the Irish working in business and technology seems to continue to this day. Sláinte ague táinte!

Happy Saint Patrick’s Day

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I’d like to thank Deirdre Moran of the IDA and Edel Coen of Enterprise Ireland for their help with this post.

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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FinTech: Who’s In vs. Out?

I think I speak for many when I point out that some of the lists of FinTech companies, such as the American Banker’s Top 100, well, just aren’t especially good examples of FinTech (see list).

Maybe I’m reflecting my SF/tech-centric view, but I’m not alone saying if you did a word association test with FinTech, most are more likely to mention companies like Square or Lending Club – and not IBM or TCS.

Yes – I know, IBM and TCS sell technology to banks. In fact, I negotiated the first core banking system license from TCS for use in U.S. at Morgan Stanley, and used to work as a strategy consultant at CapGemini, so I know that category well. I’ve also worked in Product Management teams launching online services, and new products. Partners are often pivotal to success.

But by saying FinTech is anyone who sells products or services to financial services companies — and including retailers and card/payments and Bitcoin – you may be technically correct, but it’s just too broad a category.

Those selling to banks, especially start up’s in New York and London, such as those helped by the accelerators like the FinTech Innovation Lab, do matter. I’ve attended the NY FinTech Lab’s final presentation, and Maria Gotsch does a superb job. In the UK, Ian Ellis of the London Enterprise Tech Meet Up, and leaders like Silicon Valley Bank and Level 37, are helping to create new technology jobs ithrough their engagement.

But selling services and products to banks is not my focus, which is leading technology-enabled apps, services or digital channel leaders for consumers and businesses. Money 20/20 says FinTech is “enabling payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology.”

I believe strongly that, by being too inclusive (e.g. including retail), you can define FinTech to the point of it being meaningless. In fact, as I tweeted, magazines like Forbes got it wrong: Pitney Bowes is not one of the FinTech leaders. But a big company, like Wells Fargo can still very much be a leader in FinTech. As I noted, Wells Fargo is actually one of the world leaders from a UX and digital channels perspective.

But I intend to be a little exclusive with the FinTech definition and my scope. I think we are also right to give an bigger voice to the likes of Patrick Collison of Stripe, who spoke last week at the Technomy event on the future of payments and innovation, and maybe a little less to the likes of IBM, BCG and Fiserv.

There’s a lot to learn from start up’s – like Betterment, Personal Capital and Credit Karma – and big company disruptors, like Apple with Apple Pay, than speaking to the average executive at your typical bank or payment company.

I think it’s no coincidence that one of the bigger laughs at Money 20/20 came from a speaker who noted that while Apple Pay dominated a lot of the debates — and American Express and First Data sent their CEO’s to speak — no one senior had come to the FinTech conference from Apple.

The speaker went on say that Apple had apparently sent a couple of product managers to the event, although few had actually seen them, and boasted in jest that he’d in fact been lucky enough to shake one of their hands, telling the audience, “I still haven’t washed that hand.”

Looking ahead, in early December I’ll be reporting live from Future of Money in San Francisco, and will be guest blogging on Yodlee’s blog as well as profiling them in light of their recent successful IPO, and recent positive analyst coverage.

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Monday Recap: Money 20/20 in Las Vegas

The day started early at 8am with an outstanding session on FinTech – Venture Capital: Insider Perspectives, featuring Tom Stafford of DST, Dana Stalder of Matrix, Tricia Kemp of Oak HC/FT Partners, and Ravi Visawanthan of NEA.

Key take away was agreement no one really knows if we’re in a bubble for FinTech companies; the number of new entrants is truly staggering (well over 1,400 payments plays on Angelist for example) but while some are getting Series A from the likes of Matrix, and some continue to attract growth funding to delay their IPO, from the likes of DST or Oak, “frothy” is about as far as most would go in terms of describing the market.

Although not stated often enough, it seems one driver is the emergence of mobile commerce solutions – a decade after they were heralded during the dot com bust, when I was still working at Scient. Tom spoke with clarity how FinTech is going through a transformation like enterprise software providers saw with the cloud, which can now sell into SMB’s (acquiring them more like a consumer play might, i.e. without a salesperson) and at lesser cost, due to the rise of services like AWS.

But I think he went too far to say that larger Financial Services companies don’t do customer acquisition, service or loyalty right, and will be relegated to arcane asset-liability, risk management and back-office tasks in ten years (Wells Fargo, American Express and Capital One are excellent at what he thinks of the domain of start-up’s; user experience at Wells Fargo is top notch, for instance, and AMEX wrote the book on loyalty). But VC’s will have their inbuilt bias towards new startup’s…

For all the talk of Apple Pay, it still seems no one is covering Apple Pay as well as A16Z’s Benedict Evans. I recommend checking out his late October post on his blog on Apple Pay (and listening to the podcast the day iPhone 6 was unveiled).

Stripe’s CTO Greg Brockman was terrific on payments and technology, and importance of continuous change. You can see why Stripe is at table, alongside much larger and more established companies, enabling mobile payments for Apple Pay.

I had a chat with with Arunan Sri, from Pivotal Labs, who talked about the importance of large companies learning to be more agile from both a business and development perspective, to become more like Stripe in continuously improving their products.

Key surprises — Ryan McInerney spoke convincingly on how Visa fits into the future, again by not resting on its laurels, but innovating around payment Security (giving a great example of how tokenization is more than just a buzz word and technology, it’s taking away the consumer’s fear around using their card for online purchases), and the need to be Intuitive (e.g. in today’s world, to move past old models, e.g. 7-10 days to get a new card, but issue cards in real time) and Instinctive (with Visa now creating a new digital payments platform that’s platform and device agnostic).

Kudos to Osama Bedier – clearly a crowd favorite – for a great talk on what he and Poynt are doing with their new product, which seeks to do for merchants what smart phones did for consumers. Beyond NFC, EMV, the Poynt team are offering up a cool device that merchants will want, consumers will love, and just keeps going with great partnerships and integrations with Vend for POS, Bigcommerce (e-commerce features, e.g. pick up in store) and Boom (traffic/conversion analytics).

Hill Ferguson from PayPal did a good job telling the crowd why he’s glad that the world is just now discovering payments are interesting after all, but key take-away was the 15-year vet of the firm sees us just as at the beginning of the FinTech change.

Next, a straight-forward talk on Citi’s Consumer Bank CEO, Jane Fraser who spoke on Citi’s shift to focus on urban markets, and leveraging its best practices gained in mobile-centric Asia. Good article on strategy was published in today’s WSG.

A great day overall but went out with a whimper: a bit stilted interview with CEO of Western Union on how he feels about all the start up’s trying to eat his lunch, but most surprisingly a terrible presentation on “what is banking” by the Winklevoss brothers, causing amusing tweets, e.g. “Winklevoss Brothers teaching 7,500 payments experts banking 101.”

Overall, though, Jonathan Weiner and team put together a top-notch day here at the Aria in Las Vegas.

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