Over the past few years that I’ve been following the FinTech space, no other source of information has been more valuable to me than CB Insights. I can safely say that the level of coverage and insight that it produces has helped me land my internship last summer with Blockchain (which just raised a $40M Series B round, congratulations guys! Much love.) and have productive conversations with venture capitalists I’ve interviewed with.
Some interesting thoughts:
The wealth tech scene has been transformed by players such as Robinhood, Betterment, and Wealthfront to name a few. Over next 10 years, over $36 trillion dollars is going to be transferred from the baby boomer generation to millennials. That’s an astounding amount.
How do they incumbents fight off this trend? Acquire. Partner. Build.
There have been 29 exits in the space over the last 4 years. We’ve seen: Blackrock acquire FutureAdvisor, Northwestern Mutual acquire Learnvest, ally financial acquire TradeKing, TD Ameritrade acquire Scottrade to name a few. Some have gone the “build” route such as Merrill Lynch with ML Edge.
Another interesting thing that came up in one of the panels on wealth tech: 97% of Acorns’ users are logging in with their mobile phones, while that statistic drops to about 60–70% for Betterment. Lastly, something is in the works a PayPal-Acorns partnership, the former being the later’s biggest funder.
FinTech in China
There’s a lot to be said about the FinTech sector in China. What’s made the sector successful in the country? A few things.
- Platform distribution — the country’s biggest platforms (Alibaba, Baidu, Tencent etc.) are actively pushing their own product offerings. Imagine if a Google or Facebook started offering something like consumer loans?
- LOTS of Data — Tom Stafford from DST Global quoted a research study that said the Chinese are more trusting and willing to share their data. Big population + lots of data points = lots of potential for look for unmet need.
- Supportive regulators — It’s worth noting that the most Chinese financial institutions are state-owned and backed, so they must be playing nice?
A lot of VC money from China is fueling investment here in the United States. Giants such as Ant Financial and Tencent are participating in funding rounds, pumping up valuations for FinTech players in the United States.
On the Future of FinTech
The CB Insights team have some interesting predictions (this is not a comprehensive list) for the next 5–10 years:
- Amazon as a Bank — The everything store literally is getting into everything. It’s started in the payments sector with Amazon Pay. The IP stuff they’re filing gives an indication that this is the direction they’re pursuing.
- Instant Mortgages — Taking out a mortgage is a crappy process. Too much paper involved. A lot of startups working on solving this problem, Rocket Mortgage is leading the trend. Will the Uber-fication of lending happen soon?
- Robo-Regulator —The SEC has almost 5000 employees. With machine learning algorithms that can detect fraud patterns on the horizon, what does the SEC look like in 5–10 years?
- Insurance Using Genetic Testing — People are gaming the insurance system, they use test kits such as 23andme to see if they’re predisposed with certain genetic diseases. Genetic testing cost $100k in 2001, today $100. We’re starting to see big insurance companies such as Mass Mutual partner with genetic testing firms to better understand underwriting risk. What could this mean in the future? Wider distribution of premiums.
- Human IPOs — One day we might be able to sell equity in ourselves instead of taking on debt to hit certain milestones in life such as education? The student loan market hit $1.31 trillion in 2016. Platforms such as Fantex exist today that you can invest in professional athletes and “claim” part of their income streams. Can this be done to the normal person someday?
Last but not the least, everyone’s favorite: Everything Blockchain
This topic is close my heart having worked at the premier Bitcoin wallet in the industry, no other than Blockchain. So here goes…
Digital currencies have undeniably been thrust into the limelight in 2017 because of the skyrocketing prices of mainstream currencies such as Bitcoin and Ether. Two years ago, the combined market capitalization of all digital currencies topped out at $3.5 billion, fast forward to today that number is closer to $100 billion (with major daily fluctuations). Unlike before, today’s conversation about Blockchain is no longer only about the currencies involved but the actual technology that powers them — the blockchain. Immutable, distributed, and consensus-driven — three things that make the blockchain so special. Blockchain-based startups raised close to $560 million in 2016, that number doesn’t even consider the capital raised from Initial Coin Offerings (ICOs), which surpassed VC investments for the first time in the 2Q of 2017.
Ex-GS banker and billionaire Mike Novogratz, who revealed in an interview that 10% of his net worth was in digital currencies (this was prior to 2017 so you can imagine he’s even worth more now) says the blockchain revolution is happening whether you like or not, but it could probably take another 10–20 years before this becomes “mainstream”. His advice: buy more Bitcoin at the $1600 price level and Ether at the $150–200 price levels. Caveat emptor.
To Anand and the rest of the CB Insights team, it was an awesome conference. ’Til next year.