Fintech Flies High as Banks and Tech Carve Out Services and PartnershipsJun26

Daily Intelligence Briefing

Wednesday, June 26, 2019

Identifying Change-Driven Investment Themes – Five sections, explained here.

Fintech

Safaricom Courts Banks, Credit Unions to Grow Mobile Banking

Safaricom Plc, Kenya’s largest mobile-phone operator, plans to more than triple the number of mobile banking customers in two years. Users of the company’s mobile-phone banking platform will probably reach 15 million from 4 million now, with Safaricom subscribers in banks and credit unions driving the growth, Chief Financial Services Officer Sitoyo Lopokoiyit said Tuesday in an interview in the capital, Nairobi. Safaricom has already entered mobile-banking partnerships with all the nation’s 40 operating commercial banks and is signing up credit unions.

Safaricom has more than 30 million customers using M-Pesa, its payments platform touted for bringing the unbanked into the financial system. The company is now leveraging its M-Pesa experience to grow a mobile phone-based banking platform in collaboration with lenders and credit unions.

The company is looking at how it can provide credit unions a “better technology platform to integrate to us,” Lopokoiyit said. Safaricom sees credit unions — membership saving and lending societies — as a growth driver. Last year, the unions increased their loans 13% to 373 billion shillings ($3.65 billion).

Safaricom’s service revenue grew 7% to 240.3 billion shillings in the year through March, with M-Pesa’s share increasing to 31.2% and edging closer to matching sales contributions from voice.

Read the full article from Bloomberg +

Fintech

Banks Have Thrown $1 Trillion at Digital. Do Shareholders Care?

Since the financial crisis of the last decade, banks have struggled to earn any meaningful market premium as measured by price-to-earnings and price-to-book value. By these measures banking is the least valued of the major sectors, trading at bargain-basement multiples with a P/E of 10 and a P/BV of less than 1, according to data from S&P Capital IQ. Clearly, despite the fact that bank businesses have rebounded to show a decent return-on-equity that hovers around the cost of capital, investors aren’t very enamored with the future prospects for traditional banking.

Part of the reason banks have been investing so much in technology in recent years is to better align themselves with consumers’ increasing focus on digital and mobile. The business cases behind all of these investments were to drive improved economic performance that shareholders would then reward. Despite the weak sector performance, drilling down into individual bank stocks shows that, while some banks are seeing their digital transformation hit the bottom line, others are struggling.

Of the 161 banks around the world, just over half are digital laggards, either with no coherent plans to go digital or just half-hearted efforts. Another nearly 40% (61) are digital active, doing many of the right things but lacking true institutional commitment and a cohesive approach or else they are struggling with execution. At the top of the pile, Accenture found 19 digital-focused banks that are fully committed to transforming themselves into digital-centric institutions.

Read the full article from Barron’s +

Fintech

Goldman Sachs plans to disrupt banking like Amazon did retail, Apple in music

With its startup consumer bank Marcus, Goldman Sachs (GS) wants to disrupt banking the way Amazon (AMZN) disrupted retail and and Apple (APPL) upended music. Specifically, the 150-year old bank’s goal is to transform “the distribution and consumption experience of financial services,” according to Harit Talwar, the head of global consumer business for Goldman Sachs.

Adam Dell, Marcus’ head of product, explained that they want to help customers understand that they are paying their current bank $150 to $200 in fees each year and they’re getting very little in interest on their savings account.

For its savings arm, Marcus offers a 2.25% annual percentage yield (APY) and charges no fees. Customers can open an account for as little as $1. Customers can also get access to fixed-rate, no-fee loans of up to $40,000.

To date, Marcus now has around 4 million customers, and it’s given out north of $4.7 billion in consumer loans, and accumulated close to $50 billion in deposits. More recently, Marcus partnered with Apple for the upcoming Apple Card, a digital and physical credit card that’s expected to launch this summer.

Read the full article from Yahoo Finance +

Fintech

Fintech & Financial Institutions: Friends, Not Foes

Financial technology, or fintech, is one of the fastest-growing industries in the world, forever transforming the way consumers bank. Thanks to the explosion of apps and online solutions these tech firms have pioneered, consumers are demanding their banks keep pace by offering fast, personal, always-available solutions if they want to retain their business. To overcome these challenges, banks must embrace the growing trend of collaborating with fintechs—working together to create a synergy that neither entity can achieve on its own.

As consumers and businesses seek more and more fintech services, banks—at least those that want to outpace their competitors in meeting consumer demands and cementing relationships—must abandon the “us-versus-them” mentality. The answer is to tap into fintech’s strengths, instead of wholesale dismissing these firms as too risky or progressive. The reality is: your customers want the services fintech offers and if your organization is not armed with the technology infrastructure to deliver them, then collaboration is a must.

But the benefit of collaborating with fintech isn’t just a one-way street. Banks can teach a thing or two to fintechs as well. The potential partnership could be likened to a parent-child relationship, where the financial institution mentors the young firm about customer relationships and the regulatory landscape, while providing business experience, know-how about scaling based on brand recognition and trust and an established distribution network.

Read the full article from ABA Banking Journal +

SHORT

Airlines

LONG

CRISPR

LONG

Robotics & Automation

LONG

Video Gaming

LONG

3D Printing

SHORT

Autos

LONG

Electric Utilities

LONG

Solar

LONG

Vietnam

Fed is Insulated from Politics: Powell

The Fed is “insulated from short-term political pressures”, Chair Jerome H. Powell said in a speech at the Council on Foreign Relations in New York, as policymakers face heavy criticism by President Donald Trump for having raised interest rates last year.

Click here to access the data +

US House Prices Rise More than Expected: FHFA

The average prices of single-family houses with mortgages guaranteed by Fannie Mae and Freddie Mac in the United States increased 0.4 percent from a month earlier in April 2019, following a 0.1 percent gain in the previous month and above market expectations of a 0.2 percent rise.

Click here to access the data +

US Home Price Growth Eases to 7-Year Low: Case-Shiller

The S&P CoreLogic Case-Shiller 20-city home price index in the US rose 2.5 percent year-on-year in April 2019, easing from a revised 2.6 percent increase in the previous month and missing market expectations of 2.6 percent. It was the smallest annual gain in house prices since August 2012.

Click here to access the data +

US New Home Sales Fall Unexpectedly to 5-Month Low

Sales of new single-family houses in the United States dropped 7.8 percent from the previous month to a seasonally adjusted annual rate of 626 thousand in May 2019, while markets had forecast a 1.9 percent increase to 680 thousand. That was the lowest level since December despite lower mortgage rates.

Click here to access the data +

Dollar Recovers

After falling to the lowest level in three months in the morning trade, the dollar index surged 0.4 percent after Fed Chairman Powell stressed the central bank’s “independence” in a speech and St. Louis Fed President Bullard said in an interview that lowering interest rates by 50 bps would be overdoing it, even though he voted for a 25 bps rate cut last week.

Click here to access the data +

Markets

FX

Why a weaker dollar is like waving a red flag in front of emerging-market bulls

To hear many analysts tell it, the top is in for the U.S. dollar, clearing the way for a sustained rally by emerging markets. The dollar stumbled last week after the Federal Reserve reinforced expectations the central bank will cut interest rates next month and potentially deliver a further reduction before the end of the year. All else being equal, a weaker dollar is generally favorable for emerging market assets because it makes it easier to service dollar-denominated debt.

“Aside from actually cutting U.S. interest rates, one of the most reflationary stimuli is a decline in the dollar,” said Sean Darby, global equity strategist at Jefferies, in a note. “The fact that so many dollars were borrowed by [emerging-market] sovereigns and foreign companies during the QE (quantitative easing) era meant that when Fed policy shifted to hiking rates and reducing the Fed’s balance sheet, many emerging market countries found themselves raising rates even faster during 2016-18.”

The ICE U.S. Dollar Index a measure of the currency against six major rivals, fell 1.4% last week, its largest weekly decline since February 2018. It was down 0.2% Monday, turning negative for the year and contributing to a 1.8% decline in June. The index rose 4.4% in 2018.

Emerging-market assets, meanwhile, have rallied, with the popular iShares MSCI Emerging Markets ETF up more than 5% since the end of April, contributing to a 9.6% year-to-date gain, bouncing back from a 17.1% fall in 2018. EEM still trails the S&P 500 SPX, -0.95% which is up 7.3% in June and 17.8% in the year to date.

Read the full article from MarketWatch +

Cryptocurrencies

Is There a Big Short in Bitcoin?

Hedge funds and other big traders are betting that bitcoin will fall, even as the digital currency has risen above $11,000 on a new wave of crypto-optimism. That is the picture that emerges from bitcoin futures listed on CME Group Inc., CME -0.05% the biggest U.S. exchange operator. Futures are contracts that let traders bet on whether an asset—in this case, bitcoin—will rise or fall.

Hedge funds and other money managers held about 14% more bearish “short” positions in CME bitcoin futures last week than they did bullish “long” positions, according to a recent Commodity Futures Trading Commission report. Other large traders were even more bearish. “Other reportables”—a loose category of firms that don’t necessarily manage money for outside investors—held more than three times as many short positions in bitcoin futures as long ones, the CFTC report shows.

So who is the optimist? The report shows it is mostly small investors taking the other side of the trade. Among traders with fewer than 25 bitcoin contracts, a category that likely captures many individuals placing bets in bitcoin, long wagers outnumbered short bets by 4 to 1.

Read the full article from The Wall Street Journal +

Finance

Fintech

Safaricom Courts Banks, Credit Unions to Grow Mobile Banking

Safaricom Plc, Kenya’s largest mobile-phone operator, plans to more than triple the number of mobile banking customers in two years. Users of the company’s mobile-phone banking platform will probably reach 15 million from 4 million now, with Safaricom subscribers in banks and credit unions driving the growth, Chief Financial Services Officer Sitoyo Lopokoiyit said Tuesday in an interview in the capital, Nairobi. Safaricom has already entered mobile-banking partnerships with all the nation’s 40 operating commercial banks and is signing up credit unions.

Safaricom has more than 30 million customers using M-Pesa, its payments platform touted for bringing the unbanked into the financial system. The company is now leveraging its M-Pesa experience to grow a mobile phone-based banking platform in collaboration with lenders and credit unions.

The company is looking at how it can provide credit unions a “better technology platform to integrate to us,” Lopokoiyit said. Safaricom sees credit unions — membership saving and lending societies — as a growth driver. Last year, the unions increased their loans 13% to 373 billion shillings ($3.65 billion).

Safaricom’s service revenue grew 7% to 240.3 billion shillings in the year through March, with M-Pesa’s share increasing to 31.2% and edging closer to matching sales contributions from voice.

Read the full article from Bloomberg +

Fintech

Banks Have Thrown $1 Trillion at Digital. Do Shareholders Care?

Since the financial crisis of the last decade, banks have struggled to earn any meaningful market premium as measured by price-to-earnings and price-to-book value. By these measures banking is the least valued of the major sectors, trading at bargain-basement multiples with a P/E of 10 and a P/BV of less than 1, according to data from S&P Capital IQ. Clearly, despite the fact that bank businesses have rebounded to show a decent return-on-equity that hovers around the cost of capital, investors aren’t very enamored with the future prospects for traditional banking.

Part of the reason banks have been investing so much in technology in recent years is to better align themselves with consumers’ increasing focus on digital and mobile. The business cases behind all of these investments were to drive improved economic performance that shareholders would then reward. Despite the weak sector performance, drilling down into individual bank stocks shows that, while some banks are seeing their digital transformation hit the bottom line, others are struggling.

Of the 161 banks around the world, just over half are digital laggards, either with no coherent plans to go digital or just half-hearted efforts. Another nearly 40% (61) are digital active, doing many of the right things but lacking true institutional commitment and a cohesive approach or else they are struggling with execution. At the top of the pile, Accenture found 19 digital-focused banks that are fully committed to transforming themselves into digital-centric institutions.

Read the full article from Barron’s +

Fintech

Goldman Sachs plans to disrupt banking like Amazon did retail, Apple in music

With its startup consumer bank Marcus, Goldman Sachs (GS) wants to disrupt banking the way Amazon (AMZN) disrupted retail and and Apple (APPL) upended music. Specifically, the 150-year old bank’s goal is to transform “the distribution and consumption experience of financial services,” according to Harit Talwar, the head of global consumer business for Goldman Sachs.

Adam Dell, Marcus’ head of product, explained that they want to help customers understand that they are paying their current bank $150 to $200 in fees each year and they’re getting very little in interest on their savings account.

For its savings arm, Marcus offers a 2.25% annual percentage yield (APY) and charges no fees. Customers can open an account for as little as $1. Customers can also get access to fixed-rate, no-fee loans of up to $40,000.

To date, Marcus now has around 4 million customers, and it’s given out north of $4.7 billion in consumer loans, and accumulated close to $50 billion in deposits. More recently, Marcus partnered with Apple for the upcoming Apple Card, a digital and physical credit card that’s expected to launch this summer.

Read the full article from Yahoo Finance +

Fintech

Fintech & Financial Institutions: Friends, Not Foes

Financial technology, or fintech, is one of the fastest-growing industries in the world, forever transforming the way consumers bank. Thanks to the explosion of apps and online solutions these tech firms have pioneered, consumers are demanding their banks keep pace by offering fast, personal, always-available solutions if they want to retain their business. To overcome these challenges, banks must embrace the growing trend of collaborating with fintechs—working together to create a synergy that neither entity can achieve on its own.

As consumers and businesses seek more and more fintech services, banks—at least those that want to outpace their competitors in meeting consumer demands and cementing relationships—must abandon the “us-versus-them” mentality. The answer is to tap into fintech’s strengths, instead of wholesale dismissing these firms as too risky or progressive. The reality is: your customers want the services fintech offers and if your organization is not armed with the technology infrastructure to deliver them, then collaboration is a must.

But the benefit of collaborating with fintech isn’t just a one-way street. Banks can teach a thing or two to fintechs as well. The potential partnership could be likened to a parent-child relationship, where the financial institution mentors the young firm about customer relationships and the regulatory landscape, while providing business experience, know-how about scaling based on brand recognition and trust and an established distribution network.

Read the full article from ABA Banking Journal +

Fintech

Banks are cutting costs with tech – but the real benefit is yet to come

Commercial banks spent around $1 trillion between 2015 and 2018 on efforts to transform their IT, according to a new report from Accenture. Many of these investments were to adopt cloud technology and AI-powered analytics, with 30% of the IT spending used for new investments rather than IT maintenance. Out of 161 banks that were analyzed for the report, 12% were digital-focused, meaning they were fully committed to digital transformation, 38% were digital active, meaning that they’d put many initiatives in place to enable transformation, and the remaining 50% hadn’t made much progress on digital transformation.

Focusing on digital has largely helped banks cut costs, but it’s also resulted in reduced revenue growth. It’ll likely take time for banks to see the true benefit of going digital, and banks that have fallen behind in transforming their businesses should act quickly.

Cutting costs is only the first step in becoming more digital, and banks now need to find new sources of revenue. Banks hoped to achieve faster user and revenue growth by investing in new technologies, according to Alan McIntyre, senior managing director and head of global banking practices at Accenture, cited by Reuters.

While these firms haven’t been able to outperform less digitally mature banks in terms of revenue growth, cutting costs is only the first step in becoming more competitive. Digital-focused banks’ priority should now be to roll out more services and potentially dip into new areas to open up more revenue streams.

Read the full article from Business Insider +

Fintech

Fintech newcomers reshape Japan’s lending landscape

New financial technology companies are transforming Japan’s lending sector, tapping artificial intelligence and other cutting-edge methods to ease a cumbersome loan process that hampers access for many businesses.

“Small and midsize businesses want to be able to apply for small loans conveniently, when they need it,” Kenta Takechi, who is in charge of financial operations at Freee, told reporters here Monday. The company provides cloud-based accounting, human resources and tax reporting platforms. A Freee unit launched a service Monday that automatically suggests loans to clients, in partnership with Aiful unit Lifecard and Sumitomo Mitsui Card.

Internet-based lending services include transaction histories and other data not found in a balance sheet to predict a company’s potential, which they then use to calculate interest rates and other terms. Such services are responsible for over $40 billion in lending in the U.S., but Japan’s market remains in its fledgling stages.

Other accounting platform providers are entering the field as well. Yayoi, a unit of leasing company Orix, began providing loans to clients through a subsidiary in December 2017. It lent about 400 million yen to over 250 businesses in its first year, less than 2% of which have failed to repay on time.

Read the full article from Nikkei Asian Review +

Manufacturing & Logistics

3DP

3D printing platform Carbon raises $260 million at $2.4 billion valuation

Digital manufacturer and 3D printing poster child Carbon has raised $260 million in a growth round of funding co-led by Madrone Capital Partners and Baillie Gifford, with participation from Sequoia Capital, Adidas Ventures, Johnson & Johnson Innovation (JJDC), Fidelity Management & Research Company, JSR Corporation, Temasek, and Arkema.

Reports emerged back in April that the Redwood City, California-based company was seeking to raise up to $300 million, which we now know was in the ballpark. This round takes Carbon’s total raised to $680 million and follows its $200 million series D raise from 2017, when it claimed a $1.7 billion valuation. Pitchbook estimated earlier this year that Carbon could now be valued at up to $2.5 billion, and we’re told the company has in fact reached a valuation of $2.4 billion with this latest round.

Founded in 2013, Carbon is one of a number of startups developing 3D printing technologies to open up digital manufacturing to more creators and companies. It operates at the intersection of “hardware, software, and materials science,” as the company puts it, with specialized “digital light synthesis” technology that meshes light projection with programmable resins to transform the liquids into solid materials. Moreover, it can create complex, intricate constructions not possible with traditional mold injections, while ensuring the final product is both sturdy and lightweight.

Read the full article from Venture Beat +

Transportation

Aviation

Boeing is crowding its employee parking lot with undelivered 737 Max jets, and the company says that’s part of its ‘inventory-management plan’

Boeing has struggled to manage its supply of 737 Max jets months after the fallout from two fatal crashes involving the planes in October and March. And now Boeing has had to crowd its employee parking lots with some undelivered planes, the local Seattle news station KING-TV reported.

“We are using resources across the Boeing enterprise during the pause in 737 Max deliveries, including our facilities in Puget Sound, Boeing San Antonio, and at Moses Lake,” the Boeing spokesperson Paul Bergman told Business Insider. “This is part of our inventory-management plan.”

Faulty software on the Boeing 737 Max has led to two fatal crashes, which together killed 346 people. The 737 Max was grounded worldwide after the March crash, leading Boeing to a first-quarter loss of $1 billion. The embattled plane maker is also shelling out quite a bit of money just to store those undelivered airplanes. Bloomberg reported that Boeing is spending some $2,000 a month to park each of them.

The Bloomberg Intelligence analyst George Ferguson estimated that Boeing’s inventory costs would surge to $12 billion by September.

Read the full article from Business Insider +

Private Space

SpaceX Falcon Heavy Rocket Lofts 24 Satellites in 1st Night Launch

SpaceX marked a milestone today as the company’s Falcon Heavy megarocket successfully lofted two dozen satellites into orbit. The rocket blasted off from Launch Pad 39A at Kennedy Space Center (KSC) here at 2:30 a.m. EDT on June 25 (0630 GMT), three hours into the launch window, marking the Falcon Heavy’s first flight at night and third launch overall. The launch was part of the U.S. Air Force’s Space Test Program and carried payloads for universities, NASA, the National Oceanic and Atmospheric Administration (NOAA), and the nonprofit organization The Planetary Society.

As part of the mission, SpaceX successfully landed two of the megarocket’s three first-stage boosters. The two side boosters touched down at Cape Canaveral Air Force Station, which is next door to KSC, while the central core booster narrowly missed its target — SpaceX’s drone ship Of Course I Still Love You, which was stationed in the Atlantic Ocean, hundreds of miles off the Florida coast.

The core booster’s miss was no big surprise. SpaceX representatives had repeatedly stressed that its touchdown would be the most difficult of the dozens that Falcon 9 and Falcon Heavy first stages have attempted over the past few years, because today’s mission required higher-than-normal speeds. Indeed, Of Course I Still Love You was stationed twice as far from shore this morning as it normally is during sea-landing attempts.

Read the full article from Space.com +