Fintech Digest from Autonomous ?NEXT -- Apple's Augmented Reality and $1B for HTC; Two-sided Ageism; Crypto-Privacy is for Criminals or Bankers?

Hi fellow futurists -- here are our top 3 favorite thoughts.

Apple's Augmented Reality and $1 Billion for HTC

AR/VR is such a divisive topic. 50% of you will think what we are saying is obvious and inevitable. 50% of you will think that we are crazy and on the moon. In a recent conversation with a portfolio manager of a multi-billion dollar fund, we heard "Maybe in 10 years my kids will shop for things in Augmented Reality". And yet, here we are, today, with Apple's ARkit powering live apps that you can download that deliver the future without much fanfare.

This is a case of show, not tell. See (1) how Ikea is selling furniture in a live AR app on iOS today, (2) how a neural network can be trained to extract a 3D reconstruction of a face from a single photo image, and (3) a virtual reality space built for meetings and social networking by VR Chat, which just raised $4mm from HTC. Can you connect the dots to see that within just a few years the line between the physical world and the rendered one will be gone, and that commerce, payments, bank branches, and virtual assistants will all live in a world access to which will be tolled by Apple, Google, Amazon or Facebook (or Alibaba/Tencent)?

If these data points are not enough, consider that Google is about to spend $1.1 billion on a slice of HTC, the phone manufacturer. Why? To own the capability to make hardware that competes in the Artificial Intelligence / Augmented Reality age. In order to deliver these futuristic capabilities, chips have to be architected in way that optimizes for neural networks (see NVIDIA and Intel) and massive graphic rendering, and cameras need to support volumetric recording and facial recognition. That is a hardware game. One in which financial companies will be price takers, not price setters.

Source: Ikea, ProstheticKnowledge, VR Chat

  Two-sided Ageism in Fintech

Last week we talked about how Fintech (and startup culture in general) has a deep Femtech failing that needs to be addressed. So let's talk about the other diversity problem in the industry -- ageism. In a recent survey, Fintech Circle Institute found that (1) 94% of financial services professionals suspect their colleagues of using buzzwords like “Blockchain” and “Artificial Intelligence” without understanding them, and (2) 84% said colleagues with advanced digital skills and 5 years of financial experience are more deserving of promotion than those with poor digital skills but 10+ years of financial experience. Tearsheet has a great article on framing the problem: Senior executives have to retrain for a Silicon Valley-inspired financial services industry or square off against younger, cheaper Millennials that come digital first. These issues are turning into institutional hiring/firing decisions, which in turn lead to age-discrimination lawsuits against firms like Bank of the West, with ajudgment of ~$1mm awarded to a wrongly terminated 61 year old executive.

On the other hand, take Jamie Dimon's unexamined proclamations on cryptocurrency (Laura Shin of Forbes does a spectacular job of parsing where he goes wrong). The future is built on a different DNA, and yet Jamie is using his global platform to stubbornly perpetrate outdated thinking. Or look at the mind-boggling ease with which former senior bank executives are raising money for startups with minimal traction. Former Barclays CEO Antony Jenkins received ￡34m for his bank-as-a-service infrastructure play, with support from Oliver Wyman and Ping An. Sallie Crawcheck raised $35m for Ellevest, which only has $55m in assets under management, far less traction than what FutureAdvisor, Wealthfront or Betterment had to show for a similar size check. If the firm you led perpetuated the problems in the industry, why should venture capital go to your new company, and not to a Millennial with a moonshot idea?

There are no easy answers, but here is an attempt. Build teams that understand your customer, both where they are today and where they will be in the future. Smart thinking and a desire to innovate have nothing to do with age -- as this 94-year old inventor of the lithium-ion battery teaches us. But the half-life of industry experience and knowledge is getting shorter and shorter, so an open mindset that encourages changes in the status quo is required of us all.

Source: WSJ, CMO

Do Criminals or Bankers want Crypto-Privacy? 

Ask any self-respecting financial incumbent about why public blockchains aren't good enough for enterprise use, and you get roughly the following response on why private chains (e.g., Ripple, Chain, R3, Hyperledger/IBM) are preferred. First, public blockchains don't have privacy, and large financial clients (e.g., hedge funds that do not want to reveal their trading positions) require it by definition. Second, interoperability is a problem -- financial institutions already have large enterprise technology vendors that power their complex workflows. Those workflows are the lifeblood of the middle office. One cannot just "put data on the blockchain" and disconnect the internal glue of the institution. Third, scale and speed are a problem. And last, banks are in the business of being Trusted Counterparties, not some hacker scheme like Bitcoin.

And yet when it comes to those exact same characteristics for the public blockchains, the banks assume that crypto-privacy is for criminal activity. At a recent ICO panel, we discussed whether gray market activity frequency was different on public chains vs banks. CEO of blockchain compliance company Coinfirm and former head of global AML for Royal Bank of Scotland in Europe suggested that the rates of illegal activity are similar inside of crypto and traditional finance. The only exceptions were Zcash and Monero, which are essentially impenetrable to crypto-Regtech firms.

Well, crypto-privacy is about to get another big boost. The Dandelion project could make Bitcoin transactions more anonymous. And the Metropolis upgrade for Ethereum will allow developers to leverage zero knowledge proofs, which are the cryptographic tool that make Zcash tick. Crypto-scalability is also around the corner with several projects -- Lightning, Plasma, Raiden -- and could get Ethereum to be competitive with Visa and Mastercard networks within a few years. On interoperability, consider Chainlink linking external data through APIs to blockchains and raising 32 million, or TenX converting any crypto-asset into purchasing power in the real economy, or the decentralized crypto-transactions that are powered by "atomic swaps". Privacy and scalability are pretty good when everything happens in a global interconnected decentralized mesh. Which leaves us the last point -- who is the Trusted Counterparty? Not banks.

Source: ChainLink

Featured

Check out the Benzinga Fintech Summit in San Francisco September 28. Fintech celebrities include Ron Suber, president emeritus of Prosper Marketplace, Keith Krach, chairman of DocuSign, Gene Munster, former Apple analyst and Loup Ventures Managing Partner, "Shark Tank" star Kevin O'Leary and many more. Full agenda here. 

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