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FinovateFall 2017: Industry Fears and Data Science Take Center Stage

On this year’s FinovateFall stage, over 70 firms gave a seven-minute demo, of which over 15 firms touted data security tools and some 14 firms boasted data science expertise within banking or capital markets settings. After the JPMorgan and Equifax hacks, it seems that no client data is impregnable and that future data breaches are limited by the appetite of hackers. Financial institutions’ hope for fool-proof data security is as dim as that of consumers retaining ownership of their own digital identity. And yet, some Finovate presenters gave an attentive audience a measure of hope. Passwords, Social Security numbers, and two-step authentications can’t guarantee that the individual pushing them through bank or broker digital channels is the person to whom this data belongs. The FinovateFall pitches challenged financial institutions to boost security differently, such as by tracking an end client’s smartphone presence (Averon), retina and voice (Sensory), or physical presence captured via digital sensors (Fiserv).

Another sign of the times at FinovateFall 2017 was the frequent mention of artificial intelligence (AI) and machine learning (ML) technology to achieve real-time, operational, and client-engaging insights.

Were there any wealth management-centric offerings? Of course, there was an interesting mix to be sure:

  • Robo-firms: The surprise was that there were no robo-firms at FinovateFall 2017, though startup Stash quacked and walked like one. Stash lets users do their own asset allocation from a pool of ETFs it offers, yet it expects them to pay 25 basis points per year, as if the allocation comes from the firm.
  • Collaborative investing firms: Despite a good number of now defunct or near-dead firms in the collaborative investing space (e.g., Nvestly, Stockr, Roboinvest, tiptoff), two new proponents were present at the show—Voleo and Nvstr. Ignoring the lackluster performance of firms such as Wall Street Survivor and Kapitall, Voleo’s appeal hinges on an apparent unmet need for investment clubs trading stocks in the United States. The firm’s bet that club members will support a model requiring them to split US$12 per trade is a tall order considering lower trade costs by online broker incumbents and zero cost by Robinhood. Nvstr was the clear choice for investors who hate vowels. Nvstr’s main value prop that investors do better working together is not new, but I give it props for using ML on its pitch. Sadly, the interface and website language strikes me as naive and as a “solution looking for a problem” kind of startup.
  • Mildly interesting: I’d place startup Divy in our thematic investing category. It lets investors browse and learn about stocks and brands they know and trust, while the end user gradually builds a stock portfolio and gains knowledge and confidence in self-directed investing. The firm is giving its own spin to stock-specific news aggregation and grouping through its app, even if that tech has been around for years. If it play its cards well, the real interest in its technology might be on the business-to-business arena, rather than the business-to-customer arena, as it is currently positioned. Another firm adding value but with an uncertain future is Overbond, a fixed income trading platform. The fundamentals supporting the need of firms such as Overbond are solid. Today’s fixed income market is large, fragmented, and very much voice-driven (nonelectronic). It’s a tall order for any firm to pull a feat of unifying a business with entrenched interests held by banks and interdealer brokers, let alone by a firm that seems small and touts a web 1.0 kind of trading front end.
  • Wealth management firms we didn’t see as naive investing attempts: Unison and United Income were firms that left me wanting to learn more. One house at a time, Unison is amassing a fairly large pool of real estate investments. The firm invests alongside homeowners, letting homeowners tap some of their equity while assuming a proportional downside risk. Unison’s strategy requires the patience to wait, if necessary, for years to collect its 35% share of equity when one of its co-invested houses sell. United Income is a Washington D.C.-based firm, with high-profile names with public service experience on its advisory board and an impressive US$5.7 million in seed funding (most seed funding is below US$1 million). United Income’s wealth management offering responds to investors’ need to navigate their retirement years knowing what retirement account to tap first and how to reinvest fresh funds that come their way in a tax-efficient manner. The firm’s freemium pricing starts with no-cost for financial-plan and Social Security advice and gradually rises to 80 basis points for a full-service offering—a minimum US$300,000 investment is required for the latter.