T-Mobile innovates a bank, Binance conquers investing, and SoFi messes up again, plus 13 short takes on top developments

Hi fellow futurists --

Many of you reached to ask "What's next?" in my journey. I am very excited to tell you (because it's awesome!), but have to keep things under wraps for a few more weeks. And then, Pinky, we'll try to take over the world!

The latest short takes on the Fintech bundles, Crypto and Blockchain, Artificial Intelligence, and Augmented and Virtual Reality are below, and a longer take on how to make sense of Telecoms launching banks.

Long Take: T-Mobile, Binance and SoFi show the path of novelty search and what to do once at the top

There are three things I'd like to connect in one coherent story: (1) T-mobile entering banking, (2) Binance launching its own chain for financial offerings and exchange, and (3) SoFi messing up by rebalancing portfolios in their roboadvisor to favor their own ETFs and triggering capital losses for their clients. Let's see if the hat track can be done.

One idea I keep coming back to is novelty search. While many people may think that the shortest distance between two point is a line, that's not always the case in business. If the points are close enough, so that the location of each is known, then incrementally building in a direction is the correct strategy. Or, the end point might be distributed with some known probability, and the correct strategy is then a probability-weighted portfolio approach to take several steps forward (i.e., venture lab). Most interesting of all, we may not know the end point, or we may imagine the end point but be entirely wrong about the probability curves along which it is distributed. In this case, going in unexpected, interesting directions is more fruitful than going in a straight line. Think of this as finding warp gates to a new universe, rather than flying straight into the black nothing of empty space.

So, T-Mobile has launched a bank account, powered by Customers Bank. See -- some bank-as-a-service stuff really does work, with other examples including Green Dot and Goldman Sachs. The account yields 4% per year for up to $3,000 in balances, has no minimum, and comes with a MasterCard. Unlike a Schwab bank account, there could be ATM fees and you do need to have a T-Mobile subscription. So why is this interesting, and why am I talking about novelty search? Well, many people could be surprised that a telecom is offering financial services products. It may be outside of our expectations for what a telecom -- not even a software tech company! -- should do.

But of course, that's just willful blindness. In looking at payments technology over the last two decades, Autonomous found that telecoms, tech companies, governments, and financial services companies are the four potential centralized legs of a functioning value movement system. All the talk of China makes us fear WeChat and Facebook, but did we forget Safaricom and mPesa's massive success in Kenya? From that lens, it is surprising that banking innovation in the US has not come from the Telecoms sooner. And in thinking about where economics to support marginal cost of service provision comes from, telecom subscription fees are a natural contender. Within finance, cash sweep accounts of ETF expense ratios are the hidden money maker. For software companies, it is your attention and commerce. For Fintechs like Chime, it is a piece of the payments economics. For T-Mobile, it's no different than selling an iPhone at a mark-up.

This was a blind-spot that is obvious in hindsight. Another one is Binance Chain. Binance is the top crypto exchange by retail volume, and perhaps the most aligned with the decentralized, techno-anarchist philosophy of the crypto movement. With multiple entities across various jurisdictions and a broad, chaotic investor base, Binance is the hardest Internet capital market to shut down today. Having benefited from the ICO boom a few years back by listing hundreds of pumped-up tokens, Binance is now replicating the entire Ethereum / token-based capital markets concept on its own chain. This benefits their proprietary BNB coin. Binance is also using its investor base as a carrot to incentivize projects to launch "Initial Exchange Offerings", solving for the lack of liquidity and interest in token projects. Instead of hunting for investors by bot-spamming Reddit, the non-security tokens will be pushed at the built-in-audience trading on Binance. Lastly, there is a decentralization play in the cards, which largely allows the founders to step out of the regulatory spotlight.

I don't love it. But I do admire the tight micro-economic design that is looping through their system. What's the relation to novelty search here? Investment banks. The storied investment banks had only themselves to fear, with top bankers spinning out companies like Greenhill or Evercore or Moelis to take deal share. The last people Wall Street would fear are young Asian tech entrepreneurs bumping around the world, claiming they don't raise money for equity investing. And yet, here is arguably the most powerful, globally-credentialed modern fundraising platform in the world, betting its entire business on frontier technology with no legacy overhead.

But it's not enough to do the thing. You can come out from nowhere, take an unguarded position the way T-Mobile and Binance have, and stand apart from the crowd. SoFi and the early digital lenders did this by serving a segment the traditional banks failed thoroughly. But when you do stand on top of that hill, digging your moat and telling the world a new story, don't mess up the basics. No amount of novelty search will fix making mistakes in areas that are well known and controllable. MetroBank shouldn't have pretended to have more capital than it did. Robinhood shouldn't have announced a bank account without a license. Revolut shouldn't have forced job interviewees to sign up their friends for accounts they didn't need. Zenefits shouldn't have sold insurance without brokerage permissions. And SoFi shouldn't have marketed "free ETF portfolios" and then liquidated the Vanguard positions of their clients to swap in these instruments, creating an immediate tax hit to their clients.

There is a great framework for thinking about innovation. Commandos storm and take the beach -- these are your wild innovators. The infantry comes and builds bases, defending the territory -- this is your growth capital and experienced senior management. Then finally, after all the conquering is done, the police make sure everything is orderly and compliant. That, my friends, is the world of finance. The adventurers and explorers are rarely your police. That Fintech companies with $1 billion of venture funding are still acting like punk rockers that are cool for breaking the rules is embarrassing for the rest of us.

Short Takes

• You can now sign up for T-Mobile Money, an exclusive checking account with decent perks. Maybe you skipped the long take, or maybe seeing it twice is the magic number. Fintech bundles from all your favorite sources, people.
• Small businesses turning far more often to online lenders, says the Fed.  When banks discriminate and avoid customer segments, sometimes by being inept, nimble tech players will eat their cake. Then the M&A comes.
• SoFi Fills Out Insurance Offerings Together with Lemonade and Root. Auto and renter's insurance from non-incumbent brands, distributed by one of the smarter customer acquisition players. By Fintechs, for Fintechs.
• Goldman Sachs is Betting Big on Fintech. What's left of the storied firm but aspirations to serve the main street investor?

• CryptoCompare’s March 2019 Exchange Review. Worth checking out. Surprised that OKex and Bitflyer are beating Bitmex on derivatives trading. Not surprised to see Malta and Hong Kong at the top of the jurisdiction listings.
• Fintechs build app for the transfer of digital wealth using blockchain technology. Succession planning as it relates to crypto assets is in its infancy (i.e., does not really exist). Any progress on this vector is interesting.
• PewDiePie is going All In on Blockchain. Top YouTube star forcused on gaming and meme culture, takes foot out of mouth (maybe?) and switches over to a start-up platform that pays him a much larger share of the take. Query as to whether it is YouTube or PewDiePie that holds the value. Twitch and Discord worked out, I remind you.

• Google's AI venture fund leads $3.85m investment in insurtech start-up Flyreel. Underwriting solution for residential and commercial insurance, meet your AI tech overlords.
• A neural network can read scientific papers and render a plain-English summary. Surely one day it can also be used in equity research, regulation, the law, and lots of other financial applications? How about we re-summarize Dodd Frank?
• Building the next level of customer service via Slack app. Integrating AI and human services into one offering is the key to getting people unstuck from bad experiences. I mean, literally integrate your bots into Slack with an API to the support team.

• How AR Is Reshaping Brand Marketing. If you have a physical presence or a physical product, not layering on Augmented Reality is a wasted opportunity. See the visuals.
• Facebook is Working on a Voice Assistant for Oculus Devices, Portal & More. Rendering the world is AR/VR is the manufacturing of products and services. Conversational interfaces on top of that are the distribution side of the industry.
• 4 Questions Retailers Need to Ask About Augmented Reality. Harvard Business Review article teasing some of the questions I've answered in my mixed commerce report. One interesting point is the $300k-$3mm development cost of an app.

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