Weekly Briefing No. 53 | Financial Disruptors Have Already Won the Election

By FinRev | Fin Rev | 24 Aug 2020

Image for post

Ah, November. What could be better than the Cubs, Guy Fawkes Night, Thanksgiving and the conclusion of an interminable election season? This week we look at what November 8th means for financial services disruption, as well as noting developments at Bitcoin, Square, Vanguard, Sam Adams, Facebook and Boxed, which is taking market share from the mighty Amazon.


Financial disruptors have already won the election.

“I don’t know about you, but I could listen to Elizabeth go on all day.” That’s a quote from Hillary Clinton at a recent rally, and the Elizabeth she’s referencing isn’t the one in London. It’s Senator Elizabeth Warren, who along with Senators Bernie Sanders (winner of 23 primaries) and Sherrod Brown (the next Senate Banking Committee chair if the Democrats take the Senate), constitute a formidable troika of progressive Democrats. Clinton is more of a centrist, but she is on record as saying that Wall Street should never again be allowed to “threaten Main Street,” and has vowed to “rein in” Wall Street. Donald Trump’s campaign, meanwhile, broke with precedent and supported a return of Glass-Steagall in the GOP platform. Trump also has called Jamie Dimon “the worst banker in the United States” and has said more recently, “I’m not going to let Wall Street get away with murder,” and that Clinton can never reform Wall Street because “she is owned by Wall Street!”

It’s a fact: politicians pander. But when it comes to the incumbent financial services industry, we take the rhetoric coming from both candidates seriously for one reason: whoever wins will be the most unpopular president-elect of all time. It also means the new president will be spending lots of effort in satisfying the nation’s growing ranks of the disaffected, a majority of whom still loathe Wall Street. As such, even though Financial Services interests have spent $1.4 billion on the 2015–2016 election cycle, more regulations, hostile rhetoric, higher taxes on carried interest and greater support for pro-fintech legislation are likely coming from Washington (notwithstanding the OCC’s anti-fintech leanings). So whereas British fintechers were anxiously hoping for its population to reject the populist-fueled Brexit, entrepreneurs seeking to disrupt Wall Street can go to bed early on Tuesday. Your side has already won.

Wealthfront doubles down on an AI future.

In explaining his rationale for deposing CEO Adam Nash and reinserting himself in the top spot, Wealthfront co-founder Andy Rachleff put his faith in artificial intelligence over people: “We understand that many older investors who meet the high minimums of the traditional industry will continue to find more comfort in a personal relationship with a traditional advisor and we respect that.” Rachleff went on to explain that his company is building an AI-powered offering for a new generation of investors who supposedly won’t ever need a human touch. We respect Rachleff and Wealthfront, but disagree fully with this view. We could cite growing competition from deep-pocketed incumbents, but that’s not our main objection. Our view is that bionic advice — where human skill is augmented with technology — is the future of the advisory business. And no matter how clever a Wealthfront bot becomes, it can’t displace the need for human input over time. Or in the words of Phil Kessler, managing partner of independent investment advisor SWS Partners: “Measuring success solely on the basis of AUM from young investors is a short-sighted mistake. Even young investors will move to an empathetic human professional as challenges and complexities increase with age and wealth.”

What Silicon Valley sees in a one-branch New Jersey bank.

Why are heavyweights including Battery Ventures, Andreessen Horowitz and Ribbit Capital pumping $28 million into New Jersey’s tech-powered Cross River Bank? As CBW Bank and WebBank have demonstrated, being the regulated entity that enables fintechs and incumbents to do innovative things can be very lucrative. Cross River Bank is cooking up a millennial-focused bank named Almond, originates loans for many online lenders and works with Stripe, TransferWise and Coinbase. As such, it seems well positioned on multiple fronts. But in commenting on the deal, one of the funders expressed the aspiration to turn the small institution into a giant money center bank and Cross River CEO Gilles Gade spoke of wanting to “re-risk” the banking industry. We’d love to hear more of their thinking because turning a one-branch bank into a behemoth by amping up risk doesn’t seem to fit with its strategy of becoming a behind-the-scenes powerhouse.


Can anonymity return to the Bitcoin world? That’s the question being raised in this opinion piece by Elaine Ou in the wake of Zcash’s and Monero’s rising popularity. In a nutshell, these two companies are trying to combat well funded analytics companies that have gotten adept at exposing the identities of Bitcoin transactors. These services may be partially successful, but we wouldn’t go long on the fully anonymous trade. Sure, a user can employ Zcash, Monero and/or an encrypted network, but not leaving any trail? Not if Bitcoin’s enthusiasts want greater adoption. You can have anonymity (perhaps) and you can have mainstream acceptance, but you can’t have both.

Square: SME lender par excellence. In the company’s Q3 earnings report, Square Capital, Square’s lending arm, continued to post huge growth. The company reported that it crossed the $1 billion threshold of total loans extended, making it a big winner amidst lending peers encountering turbulence. Square’s transaction revenues remain dominant, but as we consider the payments competition (e.g., Venmo, Stripe, Braintree), we’re beginning to think the company’s edge (and one day profit engine) is in using its embedded position with merchants and access to real-time point of sale data to build a durable lending advantage for itself.

Vanguard shows some brotherly love for fintech. In addition to pulling in a record quarter of a trillion dollars (yes, that’s a ‘t’) in new assets in the first ten months of the year, the index fund gigantor announced it is opening an innovation center in Philadelphia. Few firms can top Vanguard’s AUM growth and it will be interesting to see how the new center will be utilized to continue its momentum.

Career inspiration from a brewer. “The big brewers spill more beer than I make all year.” That’s a quote from this podcast featuring Sam Adams founder Jim Koch in describing his 1,400-person beer company that accounts for a mere one percent of the US beer market, but is a giant among aficionados. For Koch, who published a book in April, the journey into craft beer greatness wasn’t a straight path. Despite a family legacy in brewing, Koch needed a stint at The Boston Consulting Group before he was ready to take his shot. For anyone thinking about leaving a prestigious corporate job or for those conflicted over a family business, this podcast is for you.

Facebook wisely kiboshes a British insurer.At the last moment, Facebook came to its senses and blocked British insurer Guardianfrom viewing users’ posts to set car insurance discounts on the basis of posted content and likes. When announcing the program, Guardian tried to insulate itself by emphasizing the voluntary nature of the offering. But that didn’t stop privacy advocates from objecting to the idea of rewarding Facebookers who write in concrete sentences and punishing those who use exclamation points or frequent use of “always” or “never.” See more here.

Company of Note: Boxed.

It’s not everyday you encounter a start-up that is growing rapidly while competing head-to-head with Amazon, Jet, Costco and other big players. But then again, Boxed’s CEO, Chieh Huang, isn’t afraid to be bold. A case in point: the New Jersey company, which specializes in providing bulk items to car-less urbanites, has programs to cover the college tuition and wedding costs of employees and their children. It has also raised over $132 million from investors including BoxGroup, blisce/ and GGV Capital. Clearly, the smart money likes this package. See more here.

Comings and Goings.

Fintech legend Chris Larsen will be stepping down as CEO of Ripple Labs at year- end. Larsen, who also co-founded E-Loan, Prosper and Californians for Privacy Now, will remain the company’s executive chairman. Brad Garlinghouse, the company’s current president, will replace Larsen. Also this week, financial services veteran Robert Caporale has been named the new CEO of Exchangelodge, a Pittsburgh-based provider of workflow and data software for private company investors.

Quote of the week.

“Any attempt to escape the negative, to avoid it or quash it or silence it, only backfires. The avoidance of suffering is a form of suffering. The avoidance of struggle is a struggle. The denial of failure is a failure. Hiding what is shameful is itself a form of shame.”


How do you rate this article?



Fintech, disruption, innovation.

Fin Rev
Fin Rev

FinTech, Financial Innovation, Industry Disruption.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.