Tearsheet Podcast: Exploring Financial Services Together

Open any news site and you’ll read how the Marketplace Lending sector is ramping. US companies like Lending Club and Prosper are underwriting billions of dollars every quarter now. But when you read stories about the industry, the media frequently focuses on borrowers. Typically, on online lending platforms like these, these are relatively high quality borrowers borrowing money to consolidate their credit card debt, pay for weddings, college for their kids, and to make home improvements. But, because these are marketplaces, for everyone who borrows, there’s a lender. An investor on the other side. Who are the investors on these platforms? A big percentage of the money coming in is from professionals -- hedge funds looking for an investment with an appropriate risk-return profile. But what about the individual investors -- why do they come to these platforms? Why are they investing on marketplace lending platforms vs. other options for their investment dollars? I think that’s a similar question our next guest grappled with and why he co-founded a new lending platform, Income&. Brad Walker’s professional experience was in hard-asset lending and few years back, he saw an opportunity to provide a different type of investment to investors -- a marketplace loan backed by a mortgage. He believes investors, primarily in and entering retirement, require the regularity of a fixed income investment but also the security of the asset backing it and so, he and his partner set out to build a new marketplace lending platform to provide these types of investments. Income& has even productized their investments, these mortgage backed marketplace loans -- they call them PRIMOs and they’re fractional promissory notes like you’d find on the other marketplace lending platforms, except these are backed by prime-rated mortgages. Join us to talk about how as a country, a rising number of retirees require different solutions at a time when saving your money in the bank just doesn’t get you where you need to go. Will we see more flavors of online lending and new products like Income&?

We’ve spent the past couple of weeks of this show talking to leading early-stage investors in financial technologies -- guys like Charles Moldow of Foundation Capital and Caribou Honig of QED Investors. These are the same guys that have invested in some of the biggest names in the financial technology space. Companies like Lending Club, Credit Karma, Motif Investing, OnDeck Capital, Prosper, and Zopa. What makes many of these companies different from their incumbent competitors is that they’re bringing technology solutions to financial problems. That’s not to say incumbent financial institutions don’t use technology -- they certainly do, a whole lot of it. It’s just that this generation of fintech company is exactly that fin - tech -- they’re technology companies at their core and their solutions to financial problems -- whether lending to people without credit history or remitting money more cheaply and quicker across global banking borders -- they’re technological in nature. Some of the most interesting things we’ll see in the future is machine learning applied to the stock market. We know human beings’ biases when it comes to investing and even the world’s best investors fall prey to our own shortcomings, our own humanity. It’s entirely possible machines can do it better. Our next guest, Richard Craib, is working on a machine learning solution to the stock market much in the same way Netflix turned to top external algorithm developers to improve its own recommendation engine -- by offering prizes. Richard’s company, Numerai is an amazingly ambitious undertaking. He’s offering top investing systems developers cash prizes in return for using his firm’s encrypted data set to build alpha-producing strategies. Sitting on top of it all is Numerai with its own big data solution that’s investing its own nostro account, trying to optimize allocating capital between strategies. It’s a black box of black boxes but crowdsourced from some of the world’s smartest data scientists. As I talked with Richard, I kept thinking to myself -- What does this spell for the future of investing? People like Warren Buffett and Peter Lynch -- two of my favorite all-time investors -- seem so, so...antiquated when you start thinking about AI’s potential to participate in investing. Will future episodes on CNBC profile -- not today’s celebrity cowboy stock picker -- but tomorrow’s PhD touting data scientist who builds software for a living? Interesting. You can get this episode and over 120 episodes from the archives on our website, Tradestreaming.com. While you’re there, make sure to sign up for our weekly fintech newsletter that thousands of professionals read every week to stay on top of the business of finance. We’re also available on iTunes and SoundCloud.

Last week, we had Caribou Honig of QED Investors on the podcast and I said that his portfolio is one of the strongest in fintech. If I had to name the top investors in the next generation of finance companies, Charles Moldow of Foundation Capital  would definitely be near the top of the list, as well. Charles joins us this week on the Tradestreaming Podcast to talk about his thesis behind why he likes to invest in a trillion dollar industry that, in his words, “doesn’t do a great job servicing its customer base”. His white paper, A Trillion Dollar Market By the People, For the People is essential reading for anyone who wants to know about the marketplace lending space: its size, structure, and potential. We’ll include a link in the show notes to it. His current portfolio includes auxmoney, BTCJam, Finxera (formerly Bancbox), LendingClub [IPO 12/11/14], Lending Home, Motif Investing, and On Deck Capital [IPO 12/17/14] I think you’ll find my conversation with Charles to be thought-provoking -- pay attention to why he prefers to build standalone B2C finance companies as opposed to firms that partner and sell into incumbent financial institutions. Contrarian and a very interesting point. You can find this episode and all the years of our archives on our website, www.tradestreaming.com ***Thanks for joining us on the Tradestreaming Podcast. If you're listening to this episode on iTunes, please give it a ranking and rating so that others know of the value you're finding in it. Thank you ahead of time.****

Our guest for this episode is Caribou Honig, a founding partner of QED Investors. QED has quietly become one of the top investors in the financial technology space -- their investment portfolio includes early big successes like SoFi and Prosper and also firms like LendUp, borro, Orchard, Avant Credit, blooom, and ApplePie Capital. As part of our conversation, Caribou shares his personal path to how he ended up as part of the founding team of QED after a post-MBA career at Capital One where he developed a passion for data-driven marketing,, including responsibility for a $50 mm marketing budget, management of a 200 person underwriting operation, and cracking the code on digital credit card origination. This experience, along with his co-founders which include the founder of Capital One, provides a differentiator for the investment firm when it comes to deal flow and portfolio building. Caribou shares his views on trends in the fintech space, how incumbent financial institutions view startups in the space and how they’re planning for their futures, and we drill down into his portfolio to discuss his holdings and the investment thesis behind them. Lastly, we’ll talk about where Caribou is looking to make investments in the future. You can find this episode and 4 years of our archives on our website, www.tradestreaming.com ***Thanks for joining us on the Tradestreaming Podcast. If you're listening to this episode on iTunes, please give it a ranking and rating so that others know of the value you're finding in it. Thank you ahead of time.****

If you listen to NPR, you’ll sometimes hear a recording artist, someone like Lyle Lovett, referred to as “an artist’s artist”. Meaning, an artist that other people of the same craft can appreciate and love. Our guest on this episode of the Tradestreaming Podcast is an analyst’s analyst. Ron Shevlin is the Director of Research at Cornerstone Advisors, a consulting firm to the banking and credit union industries, where he specializes in retail banking issues including sales and marketing technologies, customer and marketing analytics, social media, customer experience and consumer behavior. He was previously at Aite and Forrester covering the financial services space. In this episode, we discuss whether financial services is truly becoming uberized and dive deeper into Ron’s vision for the future of financial services which he describes as the industry’s migration from product providers to a platform or ecosystem of financial services much like Amazon’s platform for ecommerce.

Imagine a world where regulation and compliance didn’t rule financial services with an iron fist. Ok, that’s never going to happen but certainly it’s fair to hope for an environment that makes it easier to market investments to high net worth investors. And to some extent, the system is trying to ease up a bit on the regulatory and compliance issues that have rankled the investment industry for decades. New startup fintech companies may be focused on offering broader reach at a lower price point. But according to our next guest, this is somewhat misplaced. Fees in the industry have typically been high precisely because the cost of doing business is high. Peter Hans is the co-founder and CEO of Harvest Exchange -- Peter explains that it’s expensive and long cycle to identify and acquire customers -- especially as trends on the investment side encourage deeper diligence and more access to more information. Harvest enables the conversations institutional investors want to have with their clients and makes them happen by connecting these investors to public and private communities. We’re not talking about Facebook for finance -- we’re talking about 7000 top investors and investment firms (funds like 3rd Point and Highland Capital Partners) who are seeking tools to more efficiently communicate with existing and prospective clients and investors. Peter and I talk about: * why the asset management industry has been slow to adopt change and new technologies * how some of the leading firms are beginning to use best practices, tools and techniques pioneered in other industries to better communicate, market, and ultimately, attract more investors and assets to their funds and products ***Thanks for joining us on the Tradestreaming Podcast. If you're listening to this episode on iTunes, please give it a ranking and rating so that others know of the value you're finding in it. Thank you ahead of time.****

2015 was in many ways a watershed year for fintech. According to Pitchbook, it looks like 2015 will finish with close to $8 billion worth of venture capital invested in financial technology startups. To put that into perspective, there was $4.7 billion worth of fintech investments in 2014. It looks like there will be close to $10 billion of M&A done in 2015, as well. Based on our coverage, here’s what we believe to be the top 10 most important fintech stories of 2015.

What would it take to get a managing director, managing a hundred billion dollars of fixed income assets at BlackRock, to jump ship to a start up asset manager? That’s the question I posed to Brian Weinstein, Chief Investment Officer of Blue Elephant Capital Management. His firm is a quickly growing investor in the peer to peer and direct lending space. In Brian’s investment universe, the world is starved for yield and addicted to liquidity. When looking for his next investment, Brian and his firm pore through loan portfolios that are accompanied by lots of data to stress test performance assumptions. In his world, banks really ARE good at lending, so he’s looking at spaces where the banks aren’t participating as much in his pursuit for returns. Brian joins me to discuss how peer to peer investors like him find opportunities by filling in some of the voids left behind by banks. We’ll hear what types of peer and direct lending he’s looking to invest in and what spaces he’s avoiding. We’ll also talk about boat finance. Yes, I said it, boat finance. *****This week’s episode of the Tradestreaming Podcast was sponsored by Collective2 — automated trading for humans. Choose one of the thousands of automated trading strategies at Collective2, and trade it in your brokerage account. To learn more, go to www.collective2.com/tradestreaming and as a Tradestreaming listener, you will get $55 off the first strategy you publish to Collective2.

Online lending is enjoying its moment. New platforms are launching monthly and raising hundreds of millions of dollars in debt and equity in a race to redefine how we borrow and from whom. And it’s not just a US phenomenon -- Starting 5 years ago, Funding Circle was an early player in this marketplace lending space and has emerged as a leader servicing SMBs. The firm is originating $100 million in SMB loans every month and since inception has lent $1.7 billion to 12,000 businesses. The company was quick to expand internationally -- with strong footholds in Western Europe and the US. The company is exclusively focused on providing finance to small business owners worldwide. Institutional lenders are looking to deploy capital across markets and Funding Circle is enjoying scale advantages from this exposure. Sam Hodges, the co-founder of Funding Circle USA, joins us on the Tradestreaming Podcast to discuss the challenges he and his company successfully navigated in growing the business globally and how he’s planning to continue growing out into the next year. *****This week’s episode of the Tradestreaming Podcast was sponsored by Collective2 — automated trading for humans. Choose one of the thousands of automated trading strategies at Collective2, and trade it in your brokerage account. To learn more, go to www.collective2.com/tradestreaming and as a Tradestreaming listener, you will get $55 off the first strategy you publish to Collective2.

One of the themes we’re tracking here at Tradestreaming is the confluence of incumbent financial institutions with new technologies, platforms, and tools. When you look at some of the largest and oldest financial institutions, some are indeed embracing the future. Western Union is one of those firms. You’re probably familiar with the fact that Western Union provides consumers and businesses with a variety of ways to send and receive money around the world. Through multiple brands , the company, which is 164 years old, has built a combined network of over 500,000 agent locations in 200 countries and territories and over 100,000 ATMs and kiosks, giving it the capability to send money to hundreds of millions of accounts. In 2014, The Western Union Company completed 255 million consumer-to-consumer transactions worldwide, moving $85 billion of principal between consumers, and 484 million business payments. The scale is staggering and what’s interesting is how the firm is embracing some of the same tools its customers are using. Earlier in the fall, WesternUnion launched The WU Connect service which opens Western Union’s internal transaction processing network to companies that want to offer social and text payment capabilities to their own customers. The company created application programming interfaces and a software developer’s kit to let social networks, like Facebook, access the service. And just a couple of weeks ago, the company annoucned that WeChat, the Asian communications platform, is rolling out an integration that would enable its 600M active users to send money to one another over the WU Connect service. David Thompson, Western Union’s Chief Information Officer, joins us today on the Tradestreaming Podcast to discuss how his firm views the convergence of social, technology, and finance and how he’s helped manage the internal processes to ensure Western Union stays competitive and relevant throughout the evolution of today’s technology. *****This week’s episode of the Tradestreaming Podcast was sponsored by Collective2 — automated trading for humans. Choose one of the thousands of automated trading strategies at Collective2, and trade it in your brokerage account. To learn more, go to www.collective2.com/tradestreaming and as a Tradestreaming listener, you will get $55 off the first strategy you publish to Collective2.

Last week’s episode featured Vince Passione from LendKey -- an innovative company turning offline lenders into online ones. In the rush to digital, we’re seeing pureplay fintech startups attempting their best to disrupt the industry. Others take a different tack -- they empower the existing banking, investing, payment providers to compete better with the tools and technologies their current and future clients are asking for. Our guest on this week’s podcast is Stephen Dubois of Xignite. His firm empowers both old and new players with API feeds of financial market data. Most of the online investment platforms, from Wealthfront to Motif to Robinhood, are clients. And so are Blackrock and Charles Schwab. A pioneer in the amazing things happening in fintech today, Stephen joins me on a recent trip to Jerusalem for a conversation about the future of investing, how investing technology and tools have changed over the past 10 years and how he thinks they’ll continue to change in the future. *****Sponsors***** This week's episode of the Tradestreaming Podcast was sponsored by Collective2 -- automated trading for humans. Choose one of the thousands of automated trading strategies at Collective2, and trade it in your brokerage account. To learn more, go to www.collective2.com/tradestreaming and as a Tradestreaming listener, you will get $55 off the first strategy you publish to Collective2.

As the interest in fintech and financial services in general continues to grow, there’s been chatter of an Uber-like disruption by the startups in the space. Our next guest, Vince Passione would beg to differ. He’s the CEO of LendKey which provides the incumbent banking system the digital tools it needs to sufficiently compete in marketplace lending. The issue right now isn’t whether marketplace lending is going to grow, it’s more of who takes the lead in this space. It’s worth listening to Vince because he’s been a major part of the move to digitize financial services, leading Citi’s move online and Ameritrade’s Institutional Client group. This move to online lending started with pure play disrupters like Lending Club and Propser and is moving to a more collaborative environment with traditional institutions following quickly with their own offerings powered by companies like LendKey. The company has 320 clients and has helped originate over $1 billion in loans with its banking clients. In Vince’s opinion, there will never be an Uberization of finance because banks and credit unions do eventually adopt technology. They survive. Same thing happened in Internet banking. There is an entire system of trust and regulatory framework built around banks making them very hard to disintermediate. In this sense, LendKey is providing the shovels and pickaxes for the marketplace lending goldrush and it’s selling them to the big boys. *****Sponsors***** This week's episode of the Tradestreaming Podcast was sponsored by Collective2 -- automated trading for humans. Choose one of the thousands of automated trading strategies at Collective2, and trade it in your brokerage account. To learn more, go to http://www.collective2.com/tradestreaming and as a Tradestreaming listener, you will get $55 off the first strategy you publish to Collective2.

In a world of roboadvisors, index funds, and algo trading, investors have learned to cut costs and simplify their investing. In some markets, over 90% of all trading is done by machines and we know markets are moved by large indices, not retail investors It’s fair to say that we’ve lost that connection between an individual investor and the company behind a stock he or she owns. We may lack the connection but it’s also hard to come by the magic moment when an investor falls in love with a company and goes out to buy the stock to show his allegiance and affiliation. Founder and CEO of Stockpile Avi Lele joins us to talk about what it took to build a fractional share brokerage and how doing the small things right has positioned his company to just close a $15M investment round and launch in a big way. ***Thanks for joining us on Tradestreaming Radio -- I'm very grateful for your time. It's awesome learning about these new tools and technologies together. If you're listening to this episode on iTunes, please give it a ranking and rating so that others know of the value you're finding in it. Thank you ahead of time.****

In the world of investing, there's a lot of excitement around roboadvisors. These automated and cheap investment platforms, like Wealthfront and Betterment, are attracting billions of dollars. But, according to Mike Kane, there's a big problem. Their investment strategies aren't best of breed and investors will get hammered when markets go south. The CEO of Hedgeable joins Tradestreaming host, Zack Miller to talk about his roboadvisor that uses sophisticated tools -- the like employed by hedge funds -- to manage retail investor money. ***Thanks for joining us on Tradestreaming Radio -- I'm very grateful for your time. It's awesome learning about these new tools and technologies together. If you're listening to this episode on iTunes, please give it a ranking and rating so that others know of the value you're finding in it. Thank you ahead of time.****

Don't know about you, but owning or investing in a franchise business has always captivated me. Something about local ownership, the brand, a business in a box. But minimum investments were typically too high and who really wants to run a small restaurant or bagel place? ApplePie Capital enables individual investors to build diversified capital by investing in franchise debt. Co-founder and CEO, Denise Thomas joins Tradestreaming Podcast host, Zack Miller, to talk about how to access this interesting investment and how to invest in a portfolio of top franchises using ApplePie Capital's crowdfunding platform. ***Thanks for joining us on Tradestreaming Radio -- I'm very grateful for your time. It's awesome learning about these new tools and technologies together. If you're listening to this episode on iTunes, please give it a ranking and rating so that others know of the value you're finding in it. Thank you ahead of time.****