Finovate Alumni News– March 24, 2014

  • TransferWise recognized as “boldest small company” in winning FT’s Boldest in Business award for 2014.
  • BBVA follows Simple acquisition with launch of new digital banking unit.
  • Currency Transfer featured in Wired UK as Startup of the Week.
  • BillGuard invites beta testers to try its new Android app.
  • Mail Tribune highlights the importance of Credit Karma and Credit Sesame.
  • Ping Identity purchases Accells Technologies to make mobile devices into a tool for logging you in to all of your cloud-based services in one shot.
  • BellaDati launches the next level of visual data discovery with new release.
  • Matt Turck examines opportunities for Kensho and Quantopian in a Bloomberg-dominated world.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

BancBox’s New API Ensures Accreditation of Investors So Crowdfunding Platforms Don’t Have To

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Players in the crowdfunding space have a lot of headaches in order to maintain compliance, especially since the SEC requires that parties who invest in offerings on crowdfunding platforms must be fully accredited. That is, they must meet one of the following two requirements:

1) Have earned $200,000/ year in both of the past two years (or $300,000 with spouse) and expect to earn the same next year

2) Have a net worth of $1 million (excluding primary residence)

BancBox, a company known for its money-moving APIs, is seeking to remove this barrier for players in the crowdfunding industry with its new API that will verify the accreditation of investors.

BancBoxInvestHomepage.jpgThe API is a part of the BancBox Invest service. It will enable crowdfunding platforms to determine if their investors are accredited and legally allowed to invest in the platform. In order to comply with the SEC’s 506(c) standard, the new API will:

1) Verify income. This includes a review of the investor’s IRS documents (W-2s, 1099s, K-1s, 1040s) for the past two years and an additional confirmation that they expect to qualify in the current year.

2) Have a third party verify income (releasing in April): Third party verification must be received from a CPA, attorney, broker dealer, SEC-registered investment advisor or an equivalent entity.

3) Verify assets (releasing in May): An investor must have a net worth of at least one million dollars, excluding the value of their primary residence.

Combined with other features that the Invest service offers, the API will give private placement and equity/debt-based crowdfunding platform owners a full suite of solutions.
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SeedInvest, which demoed at FinovateSpring 2013, is among the companies using BancBox’s new API.

Check out BancBox’s demo from FinovateSpring 2012 where it debuted its payments platform.

Payoneer Wins Role as Payments Provider for Google Trusted Stores

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Fresh off its announcement of a $25 million series D, global payments company Payoneer reports that it was chosen by Google to be a payments provider for Google Trusted Stores Program.

Scott Galit, Payoneer CEO, said, “Payoneer provides a seamless, automated payment process that meets Google’s high standards for technology, security and service.”

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The Google Trusted Stores program is designed to help consumers find trustworthy merchants when shopping online. Payoneer’s job will be to provide the bank transfer services, and deliver the program’s purchase protection consumer payments in some of the countries where the program operates.
Said Galit, “This exciting new program increases sales for merchants and builds confidence for consumers when making online purchases.”
Payoneer’s global payout platform is used by companies in more than 200 countries around the world. In addition to enabling seamless, cross-border sending and receiving of funds, Payoneer also features a variety of payout options, ranging from bank transfers to prepaid debit cards.
Founded in 2005 and headquartered in New York, Payoneer demoed its technology last fall as part of FinovateAsia 2013. See the company’s presentation here.

Finovate Alumni News– March 21, 2014

  • Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Finovate-F-Logo.jpgTechCrunch features an interview with App Annie CEO, Bertrand Schmitt.
  • MasterCard announces MasterPass debut in China.
  • Q2 goes public, shares rally early in trading debut as company earns $533 million market cap.
  • miiCard working with eMerchantPay to offer merchants a more secure payment processing platform.
  • PayNearMe partners with self-storage management software E-SoftSys to enable users to accept cash payments online.
  • PayPal to let UK users order food ahead of visiting a restaurant, and use its app to pay for their food with a four-digit code when eating at a restaurant.
  • Venture Beat: Ping Identity acquires Accells Technologies.
  • Payoneer wins role as payments provider for Google Trusted Stores.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

Q2 Holdings Goes Public, Shares Rally Early in Trading Debut

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Here at Finovate Headquarters, we’ve got three reasons for having a little extra skip in our steps today:

  • First day of spring
  • First day of March Madness Basketball Tournament
  • First IPO of a Finovate alum

That alum is Q2, going public as Q2 Holdings this morning through an offering of 7.7 million shares of common stock at a price of $13 per share. The IPO is expected to raise more than $93 million, and Q2 will trade on the NYSE under the ticker symbol, QTWO.

As Q2 CEO Matt Flake said in an interview with CNBC’s Jim Cramer, “we’ve created a platform that allows community banks and regional financial institutions that don’t have the technological wherewithal to do it themselves (to compete).”
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“Our companies are doing very well right now,” he said. “They just need better technology.”
Asked about the interface and user experience, Flake said: 
“It’s a beautiful interface that allows you to get a common look and feel no matter what the device is. So if you’re on a mobile phone, a tablet or a desktop you’re going to have a consistent experience – just like with Netflix or Facebook.”
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The Q2 IPO was the second significant fintech initial public offering of the week, following Paylocity’s successful launch on Wednesday. Offered at $13, the QTWO opened higher at $16.25 and traded as $17.38 before finishing its first day of trading just north of $15. The company now has a market capitalization of $533 million.
 
Q2 demoed as part of the FinovateSpring 2011 show, presenting its risk and fraud analytics technology. The company is based in Austin, Texas. Watch the company in action here.

Lending Club Moves into Small Business Lending Market

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Peer-to-peer lender, Lending Club, announced today that it is expanding into small business lending. The company will provide 1 to 5 year loans of between $15,000 and $100,000, starting at a fixed rate of 5.9%.

Does this make them P2P2B?

In an interview with CNN Money/Fortune, Lending Club CEO Renaud Laplanche said that the move was a matter of meeting a need that had gone unmet in the wake of the 2008 financial crisis. “Over the last couple years, the larger commercial loan market has picked up again,” he said. “If you look at smaller commercial loans, that market has continued to shrink since 2008.”

“It’s not for lack of demand. There are a lot of business owners who don’t have the capital to grow their businesses.”
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Laplanche suggested that the market for lending to small businesses “is not all that crowded.” But the new initiative is a shot across the bow for those currently in the sailing in the small business lending space such as CAN Capital, Kabbage, OnDeck, and even PayPal.
Adding small business loans is part of Lending Club’s larger project to add additional credit products, from auto loans to home mortgages. The company’s new small business loans initially will only be available for investment by institutional investors. Lending Club will consider giving retail investors access to these loans in the future, after reviewing repayment and default rate data.
A few key metrics on Lending Club.
  • Originated more than $3.9 billion in loans
  • Doubled annual loan volume every year
  • Raised more than $200 million in funding
  • Paid more than $300 million in interest to investors
A long time Finovate alum (Startup 2009), Lending Club was founded in October 2006. The San Francisco, California-based company includes Foundation Capital, Google Capital, and Kleiner Perkins Caufield & Byers among its most recent investors, and was ranked #5 on Forbes’ Most Promising Companies list for 2014.

Finovate Alumni News– March 20, 2014

  • Finovate-F-Logo.jpgMore than 25 banks have signed up for Matchi since its launch in November last year. 
  • American Banker looks at how Credit Karma and Credit Sesame provide more than just a credit score.
  • Thomson Reuters launches Know-Your-Customer service.
  • SecondMarket seeks to open Bitcoin fund to ordinary investors.
  • Pymnts features Feedzai’s CEO Nuno Sebastiao.
  • Striata unveils new logo, new website.
  • Fenergo appoints Oliver White to UK Head of Sales.
  • mBank and Orange partner to launch full-service, retail mobile bank in second half of 2014.
  • Narrative Science launches free app to turn data into readable documents.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

Lending, Investing, & More Futurecasts for FinovateSpring 2014

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At FinovateSpring in San Jose this year, we’re excited to showcase brand new innovation from a variety of players in the fintech industry.

This year, we’ll see the newest innovations from large, established players and we’ll also watch never-before-seen startups debut to the world.

This word cloud comprises some of the major themes you can expect to see on stage at City National Civic on April 29 and 30 (click to enlarge):

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Pique your interest? Get your ticket here to be part of the audience and see the lastest in fintech first.


Narrative Science Launches Free App to Turn Data Into Readable Documents

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There is technology that turns reams of data into natural language reports that are virtually indistinguishable from copy produced by human analysts. And I’ve always felt as if it was some of the most underappreciated technology in fintech.

The new free app from Narrative Science may go some way toward helping change that.

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Quill Engage from Narrative Science takes data from Google Analytics and translates it into natural language reports for website owners. The technology is powered by Narrative Science’s Quill platform, which the company demoed at FinovateFall 2013 in New York.
In the words of Narrative Science CEO Stuart Frankel, the technology makes it possible for website users of all kinds to maximize their ability to gather meaningful business intel on their website’s performance. “Quill provides instant analysis in the form of easy-to-read, written reports that empower people to do their jobs better,” he said.
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“(It) is a powerful way for any Google Analytics user to experience the speed, scale, and personalization made possible with artificial intelligence.”

Quill Engage processes a number of key metrics and trends from Google Analytics data. This includes content engagement, web traffic, referrals, results of paid search, and audience segmentation.
Download Quill Engage for free at quillengage.com
Narrative Science’s products have been deployed in a number of industries, including financial services, insurance, and marketing. The company was founded in January 2010, and is headquartered in Chicago, Illinois.

Finovate Alumni News– March 19, 2014

  • Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Finovate-F-Logo.jpgPing Identity announces partnership with Courion.
  • Desert Schools FCU to deploy mobile banking platform from Monitise.
  • Blue Cross and Blue Shield of Kansas City to use virtual agent technology from IntelliResponse to respond to Affordable Care Act queries. See IntelliResponse demo at FinovateSpring in April.
  • ID Analytics launches new versions of its Transaction Protector and Transaction Advanced Intelligence products for eCommerce.
  • Upstart Business Journal looks at how Kathryn Petralia and Kabbage are rewriting the lending rules.
  • BlinkMobile Interactive signs first NZ Council deal.
  • Southern Alpha calls iQuantifi “a budget platform we actually like to use.”
  • Payment Source features Jason Richelson, founder of ShopKeep POS.
  • Bill Harris, Personal Capital CEO & former PayPal CEO discusses the future of PayPal on Bloomberg TV. See Harris demo Personal Capital’s latest development at FinovateSpring next month.
  • TradeKing earns four-stars in Barron’s online broker rankings for eighth consecutive year.
This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

CEO Interview: Shane Hadden of Float Money

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What do you get when you cross an expert in risk structuring for banks with an underserved demand for low-cost unsecured consumer loans?

Throw in a strategy that leverages everyday purchases to help consumers earn interest-free credit and the answer is Float Money.

As Shane Hadden, CEO of Float Money explained, his model resembles the sort of relationship that big banks have with their corporate clients. Financial institutions are willing to provide less expensive loans to businesses, he said, because they know they will get business coming back to them in the form of M&A business, for example. 
“Consumers have the same buying power,” Shane said. “But they can’t get the same benefits.”
Float Money can be used to shop at 1,000 merchants from Amazon.com to Winetasting.com. Money spent shopping through Float Money builds up credit that customers can borrow against, interest-free.

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We talked with Shane Hadden about Float Money’s unique business model, and how he thinks no interest, no fee lending can ultimately provide banks with  a new kind of credit experience to offer to their customers.
Finovate: What has Float Money been up to since presenting your online lending and marketing platform, Float, at FinovateFall 2013?
Shane Hadden: We have been busy developing a new, safer, smarter type of credit experience for consumers.
Finovate: In a world of historically low interest rates at the macro level, consumers can still have to deal with double-digit interest rate charges every day borrowing. How important is it that your innovation forsakes “interest” all together?
Shane: Interest is not the only way to pay for credit. It is the most common way, and unfortunately the most dangerous to the borrower.
When traditional interest is charged, the borrower retains much of the risk of late payment as interest compounds. By not charging interest, Float retains this risk, making our loans safer to the borrower. In lieu of interest, we get paid with consumer loyalty. No commitments. No hidden fees. No risk of escalating interest.
We make very attractive all-in yields by betting that our customers will be loyal and spend through us after the loan is made. By taking this risk, we can offer the safest, best loans on the market.
If we charged interest our loans would not necessarily be more profitable, they would just be less safe for the borrower.
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Finovate: Can you tell us a little bit about the idea of launch Float?
Shane: Yes, June 2006. Reading a NY Times article on Prosper, I thought, yes – that’s it. I need to build a non-bank lending company to offer better loans. I was at CS at the time structuring regulatory capital trades for banks and saw very clearly that banks could not meet the need for low-rate consumer credit.
We didn’t follow the peer-to-peer model like Prosper, but rather set off to build a large, relationship-based, non-bank lender funded opportunistically in the capital markets with the flexibility to meet consumers’ needs for better loans.
Finovate: In what ways does a shopper who uses Float improve their credit score while doing so?
Shane: We report the open line and usage. We report to TransUnion now and will be adding others soon, so a person with a low FICO or no credit history can start to develop positive history with Float.
Finovate: How active to you have to be on the acquisition side, in terms of getting new merchants on board for customers to “Float Shop” through?
Shane: We can offer most stores now using standard gift card and online affiliate networks. Over time we will optimize the benefits to our merchant partners and consumers with tailored merchant relationships. Note that Float is a unique marketing partner for merchants – not only do we have enormous consumer data, we also have very loyal customers with a source of liquidity and a recurring purchasing pattern.
For these reasons, we can offer tremendous value to both merchant and consumer.

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Finovate: What kind of lending/borrowing metrics can you provide us with? Are a purely lending platform, how has Float performed?

Shane: We can’t give performance details yet, but they look good. Let me point out three credit risk mitigates that are unique to Float.
First, Float loans are unequivocally the best unsecured loans available. You can’t beat no interest and no fees. Because of this, we are the lender of “first resort” rather than the lender of “last resort”, which creates positive selection bias.
Second, Float is not easy credit. A borrower has to spend something first in order to get the loan. For this reason, Float is only for people who are planners and serious about improving their financial health.
Third, unlike other lenders, we don’t push our loans since borrowing represents a cost to us. We only promote our loans as a financial health tool to use sparingly as needed to bridge a budget gap or repay high-interest debt. 
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Finovate: Your background is in working with some significant and sizable banks and financial institutions like Credit Suisse. What in your experience most informs the work you do in building Float Money?

Shane:  Many things. My background is in originating and distributing structured risk. At CS I structured many large transactions in which credit was just one of multiple, correlated risk factors. 
Float’s basic model is similar in that the risk we take is a combination of credit risk and consumer loyalty risk. I also have a lot of experience in shifting risk out of banks for regulatory capital relief. This insight into banks’  risk appetite is critical for Float as we seek to partner with banks to offer a new credit experience to their customers and a new asset class in which to invest.
Lastly, in investment banking you often see large corporations borrowing cheaply because the bank expects M&A and capital markets rev
enue, so it is willing to lose money on the loan. Consumers have this same buying power, but can’t get the benefit of it through low rates because traditional lenders don’t sell consumer products. Stores lend at low rates, but not all of them, and those that do don’t make cash loans. To bridge this gap between lenders and stores, we created Float as a new type of company – part lender, part marketing company.
Finovate: In terms of what is happening under the hood what kind of technological innovations are making Float Money happen? What kind of challenge is developing a compelling and easy to navigate UI?
Shane: Float is a financial innovation, enabled by technology. Because we offer the best loans on the market we can create a unique, lifetime credit experience built around a single, integrated platform of planning, saving, spending, borrowing and paying. Yes, the primary challenge is in creating a compelling UI so that our customers can get the most out of this new experience and so that we can effectively communicate our new value proposition. The market is crowded with lenders spending up to $500 or more per new customer acquisition, so a smart UI is critical. An improved UI and shopping functionality is our top priority this year.
Finovate: What can we expect to see from Float Money over the next 3-6 months?
Shane: The launch of a transformative new credit product for consumers. We are developing a platform to “wrap” consumers with safe, interest-free credit. Imagine never having to worry about overdraft fees, late fees, or high-interest short-term loans.

Sales & Marketing: Preparing for a Future without Bank Branches

It’s been almost a year since my last branch rant (here), so I feel I’m due. As I’ve said before, as founder of a business tied to the success of digital channels, I’m totally biased, so proceed with caution.

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During lunch at the Bank Innovations conference here, I engaged in a spirited debate about the value of branches. And later that week, I enjoyed Optirate’s rebuttal to The Financial Brand’s defense of bank branches. It’s one of the more highly charged, and important, issues of the day.

Here’s what it boils down to:

Branches have value…

         …but not enough to pay the rent

Since customers won’t pay directly for branches (see note 1), banks must cover their costs with low deposit rates, penalty fees and other charges. That has worked for a while, but eventually leaner competitors will figure out how to cherry pick the profitable customers/services. We saw ING Direct siphon off a few billion in deposits during the high-rate years and now we are finally starting to see alt-lenders making a small dent on the loan side ($1 billion or more each being originated this year by Lending Club, Sofi, and OnDeck Capital).

The writing is on the wall. The branch, as we know it, is on the way out (note 2).

But most banks have built their franchises by opening new accounts at branches. So what are the alternatives? There is no right answer as it depends on your strategies and customers, but here are some general ideas (note 3):

  • Provide state-of-the art online/mobile applications and onboarding (note 4)
  • Go after the kids of your current customers, then take care of them through major life stages so they never leave (note 5)
  • Increase your branded-ATM presence in your geographic footprint (apartment lobbies, large employers, etc.)
  • “Power the POS” with free card processing for your cards (if merchants steer customers to your card)
  • Partner with employers to provide banking as an “employee benefit” including a schedule of bank employee “office hours” for advice, help and limited transaction support
  • Focus on small and mid-sized businesses (including startups), and take staff directly to the business location
  • Drive traffic (foot and digital) to your merchant customers with relevant offers
  • Consider roving “mobile banks” that operate like food trucks, moving about the community and parking in high-profile locations (might as well sell cheese and bacon sandwiches too)
  • Participate in crowdfunding/P2P loan platforms to gather new assets (note 6)
  • Provide in-store/dealer financing (real-world and digital)
  • Co-locate with compatible service businesses (insurance, tax prep, real estate, etc.)
  • Have a presence at local events, festivals and street markets (portable ATM, water stations, bathrooms, etc.)
  • Get very involved in local real estate

I am not saying that all branches should be closed. Schwab proved that it pays to have at least one physical location in every major city. But branch costs need to be reduced fast.

It won’t be easy. Change is hard. Layoffs are VERY hard. And unproven digital strategies supplanting longstanding branch-based sales are risky. But I’m not sure there is any realistic alternative for the majority of financial institutions.

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Embedded image used with permission of Getty Images.

Notes:
1. It’s true that the same could be said about online or mobile channels. But, for the most part, the digital alternatives operate at a fraction of the per-user cost of branches.  
2. It’s a 40-year process, however (see OBR 128, April 2006, subscription).
3. For 500+ ideas, see our annual planning report (Sep 2013, subscription).     
4. See: Online Account Opening, OBR 168/169 (June 2009, subscription).     
5. See: Youth Banking, OBR 194/195 (July 2011, subscription).     
6. See: Crowdfunding, OBR 216/217 (May 2013, subscription).