Greetings,

Charles Schwab Corp. is in negotiation to acquire TD Ameritrade. The deal would combine two of the largest online brokerages with strong banking capabilities. Shares of both companies were up significantly in the news.

In the last 60 days, Schwab has single-handedly re-shaped the terms of industry competition, offering zero-fee trades (launched a price-war), launching a consumer lending businesses (threatening some FinTechs), and executing big ticket M&A to scale. 

Check out Schwab’s recent CEO/CFO Investor presentation to learn more about the firm’s goal of “pressing their competitive advantage” and “changing the status quo.”

This week, we recommend reading Part I of Matt Harris’ essay titled Fintech: The Fourth Platform – Part One.

Some highlights:

  • The way FinTech will play in the future is going to be even bigger, to the point that we won’t even use the word “FinTech” anymore.
  • The three layers of the “stack” – the internet, cloud, and mobile – has allowed us to handle old school financial services in a digital way. 
  • We’re now at a phase where FinTech is the fourth layer in the stack or the “fourth platform.”

  Source: PeerIQ, Bain Capital Ventures LP

Most FinTechs, from digital lenders to challenger banks, are focused on owning the customer: building defensible brands, capturing wallet share, and having first-class digital experience. 

Here’s the rub – It’s no surprise that big banks and big techs are on the same mission. Citigroup CEO, Michael Corbat, warns banks this week “not to become the dumb utility.” Citi does not want to give away customer ownership. Wired’s Geoff Barber pens Every Tech Company Wants To Be a Bank – Someday, At Least.” The article lays out the ambitions of Big Tech in consumer finance.

The Future of FinTech is Function-as-a-Service?

We read Matt Harris’ thesis as a shift in emphasis on product/customer to a focus on function. Extending on Matt’s piece, the idea is that what we call FinTech in the future is more likely to resemble a company like Stripe (a $35 Bn “dumb utility”).

Stripe enables online businesses to accept payment by copying and pasting a code snippet. Another “utility” example would be Plaid. Plaid is also focused on creating convenience for developers by linking their apps to bank accounts. Both sites feature code on the landing page and have a “for developers, by developers” mantra.

The lens offers a new vector to the classic  “bank bundling and unbundling” or “partner vs disrupt” models.  It’s also a nice road-map for entrepreneurs to avoid slamming face first into incumbent bank competition or Big Tech rivals.

Every step in the consumer bank can be broken down to dozens or hundreds of core functions. 

These range from running a KYC/AML check, testing for sufficient funds, generating an underwriting score, presenting an offer to a customer, customizing a loan on a blockchain, a servicing action, accepting deposits, etc.

[To that end, this partnership between Alchemy and Plaid “to help businesses in account and asset verification for improved lending decisions” caught our attention. Behind-the-scenes, ubiquitous utility-like, toll-gate model? Check, check, check].

Owning a core, albeit dry and boring, is arguably more worthwhile than running sexy Superbowl ads and having one million app downloads.

A Fix to Madden On The Way?

On the regulatory front, the OCC and FDIC both proposed fixes to Madden v. Midland. Their proposals seek to clarify the “valid when made doctrine.” Both agencies agree that interest rates will not be impacted by subsequent assignment, sale or transfer of loans. A big shout-out to Nat Hoopes and the Marketplace Lending Association for leading the charge here in DC.

In financing news, BlueVine, led by CEO Eyal Lifshitz, raised $102.5 million in a new round of equity funding. BlueVine offers small businesses with different forms of financing. BlueVine plans to use the funding to launch and scale their checking account product and as well as other products.

Conferences:

PeerIQ will be at FINNO Summit (Lendit LatAM) on Dec 3rd and Dec 4th. Reach out if you’d like to connect!

PeerIQ Holiday Party:

PeerIQ will be hosting a Holiday Party on December 12, 2019. Please reach out if you are a PeerIQ customer or partner and have not received an invite. 

 

Industry News: 

Lighter Fare:

Bizarre New Quantum Research: Reality Itself May Be Subjective (Futurism, 11/15/2019) “Do not try and bend the spoon, that’s impossible. Instead, only try to realize the truth…there is no spoon.” -The Matrix, Little Buddha