Santander will spend $20 Billion to digitize, and 14 other top Fintech developments

Hi fellow futurists --

New layout, new content this week as I take the month of April to regroup for a new start in May. I am trying to simplify the delivery and help focus on what's most important, which feeds the Key Developments section below. Also, I want to be able to write a more in-depth treatment on one topic, rather than three intermediate-length entries. So for now, see the Thought Piece section, which will be more concept heavy and interlinked.

Let me know what you think about the new layout, and how to make it better! Which section should come first?

Thanks for reading, and see you next week,

Lex

Key Developments

• Fidelity, Schwab unseat Vanguard in new phase of fintech (Financial Planning). Shows importance of tech spend by incumbents on digital.
• KeyBank Completes Laurel Road Bank Digital Lending Business Acquisition (Crowdfund Insider). Shows how digital lending is integrated to traditional banks.
• Finleap acquires German challenger bank Penta (Compelo). See how aggregator/venture studio is eating up products, regardless of vertical.
• Goldman Sachs, validates Vestwell by taking a big bite of a new $30 million funding round (RIA Biz). Retirement-focused digital wealth play that adds new product vertical to the bundle. Better play than Ellevest's distribution attempt, I think.

• Former Obama Tech Officer Raises $3.7 Million for Blockchain SaaS Startup (Coindesk). Never-ending journey with new enterprise chains it seems, with claims that are hard to validate.
• Here is the Letter the SEC Sent to Investment Advisors Regarding Custody of Digital Assets (Crowdfund Insider). Interesting that SEC is going to RIAs of all parties to ask questions. Also notable is recent launch of the Advisor Blockchain and Crypto Council, which I've joined with Ric Edelman.
• Crypto exchange Liquid says it is now valued at over $1 billion following new investment (TechCrunch). Bitmain invested as it needs the cashflow; also remember Bakkt's leaked valuation of nearly $750mm.
• Celo Raises $30 Million for Stablecoin-Based Smartphone Payment Plans (CoinTelegraph). Wasn't Basis enough of a lesson?

• Combining AI and wearables to improve insurance loss control (Dig-In). Putting physical devices into meatspace should work, right?
• Bank of America's Erica chatbot wins over customers (Finextra). 6 million user and 35 million client requests determines success.
• Pagaya raises $25 million to manage asset-backed securities with AI (VentureBeat). Manufacturing complex investment products, doing it better with new math.

• Snapchat launches Scan, its AR utility platform (TechCrunch). Large tech company actually doing AR with a real point of view, can impact consumer adoption.
• Daimler steps up pace on self-driving trucks (Dig-In). Truck company is planning to spend $500 million on automation of vehicles, part of strategy to survive.
• Oculus Brings More Lifelike Avatars to Rift & Go in ‘Expressive Avatars’ Update (Road to VR). Read this as Facebook upgrading its physical to digital conversion.

Thought Piece: Entrepreneur View on Incumbent Digitization

Santander is in the news with a plan to spend EUR 20 billion on digitization and technology over the next four years. They are certainly not the first nor only incumbent to make the claim. JP Morgan famously spent $10 billion annually on tech over the last few years,  with companies like Goldman, Schwab, Nasdaq, BBVA and DBS making similarly proportioned commitments. The winners are slowly separating from the losers, as app stores of tech companies get stuffed with bank apps branded like the latest hipster offerings from Silicon Valley, or Eastern Europe, or China. And the backroom dealing is in full play too. Partnerships between the Haves on the financial product manufacturing side and the Haves on the tech consumer audience side (looking at you Apple card) are getting inked without any care about third party disruption.

I love entrepreneurship and the folks pioneering real discoveries. Those pioneers are rarely the ones that get to win the distribution or product-market fit game. But they do the work of showing the rest of us where the treasure is buried. It is easy to point out the repeating cycle, where incumbents adopt and “re-invent” the ideas that start-ups bring to the table. Take how Venmo was treated, before the banks copied it with Zelle. Or how roboadvisors were derided (nobody wants small accounts!) before every online broker launched or bought one. Or what Jamie Dimon said about Bitcoin, before rolling out JPM Coin. Or the premise that neobanks will never work in the US (Chime, meet Marcus), that chatbots are too simple (Finn.ai meet Erica), and so on ad infinitum. Incumbents in finance are the late mover, and when they move, they built up fortifications and starve competition.

So what should an entrepreneur do? Are the walls hopeless and impenetrable? I’ve spent the last few years trying to resolve this question for myself, to clarify what allows for some new entrants to win, relatively speaking, and forces others to wither. A few patterns have begun to emerge, which have been previously shared through Autonomous NEXT, and I plan to use this space to further explore open concepts. For one, incumbents have become much more acquisitive of Fintech companies, and are now more understanding of how such assets are built, priced, traded, and most importantly – integrated into the mothership. Valuations of 10x revenue may seem nuts for a Bank, but this is the bottom end for a valuation of a quickly growing, private company in the right secular space. Therefore, building a company for sale is not unreasonable. See below the increase bank-led acquisitions, though reluctantly, and a rough guide for revenue multiples by sector with some outdated (sorry!) European names.

For this more limited scope, the team usually looks like a deep operator from a particular business unit (e.g., cross border money movement, anti-money laundering, hedge fund infrastructure, risk management quants, alternative real estate investment, etc.) combined with a future thinking technologist. When pursuing this play, you need to have a Peter Thiel type “secret” about how the existing product machine works. Is it slow? Broken? Overcomplicated? Can a new product approach, whether through blockchain or artificial intelligence, make the thing better? If yes, the company should focus on getting to production and then manifesting the cost-advantage of the new machine in as loud way as possible. See OnDeck, Upstart, SigFig, AdvisorEngine, 11FS, Digital Asset and every other mixed enterprise play in the field. Scaled to the incumbent’s size, these cost savings can justify an exit worth the venture money.

Note that in the prior example, there is very little uncertainty about who the customer will be. We do the thing from before, just better. The other direction is to chase a blue ocean where the customer is undefined, unknown and sometimes unknowable. Being first in a growing ecosystem is the real dream, and can make for an enviable rocket ride. I would point to Stripe growing on the back of Uber, Plaid growing on the back of Venmo, Google growing on the back of the Internet, or the iPhone on peer-to-peer music. While in the moment, it can be hard to know if growth is real or imagined – and this fog is exactly where we are with crypto assets and their surrounding infrastructure, with mixed reality and its dearth of killer apps, with voice interfaces and a fear of ever-spying tech companies. Will these things expand and become worth the investment? Are you the first person covering finance on YouTube or Real Player?

It is the entrepreneur’s task to take the risk, and there is no shortage of people now willing to throw a brick through the window of Wall Street. But when you pick that brick up, feel its weight, and toss it back and forth between your palms, think about what you are really trying to accomplish. Whether you are a Fintech startup, a Crypto project, a Big Tech AI division, a Venture investor, an Asian chat app, or a Head of Innovation at an incumbent, try to see each other truthfully, and give credit to the hard work everyone is putting in moving the industry forward. There are cracks in the armor, but we exploit those to help people have a better financial future, not to kill competitors for a brief taste of cruel winning.

Looking for more?

• Subscribe to this series by clicking the button at the top of the article! It will deliver a weekly notification in your LinkedIn feed. Nothing more, nothing less.
• Find me on Twitter here for Fintech and here for Digital Art.
• Want to send me a note? Reach out here anytime.