David’s column

Lowering the Barriers to Alternative Investments with Alto’s Scott Harrigan

Lowering the Barriers to Alternative Investments with Alto’s Scott Harrigan
By David Penn Posted on
Categories: Alto Solutions, David's column, Interview

With markets near all-time highs and Bitcoin teasing the $100,000 mark, investors have become increasingly interested in new opportunities to diversify their investments, reduce risk, and grow their wealth. Unfortunately, there are many assets — from cryptocurrencies to real estate to art — that can be difficult for investors to access and incorporate in their overall investment plan.

In this month’s column, I caught up with Scott Harrigan, President of Alto and CEO of Alto Securities. Alto provides a self-directed investment platform that empowers investors to build their wealth by investing not just in stocks, but also in alternative investments, including cryptocurrencies. The platform supports more than 27,000 investors and has more than $1.4 billion in assets under custody.

Alto has three primary divisions: Alto Solutions, a self-directed IRA administrator; Alto Securities, a wholly-owned registered broker-dealer; and Alto Capital, an exempt reporting advisor that provides alternative investment opportunities to accredited investors. Alto Solutions made its Finovate debut at FinovateFall 2023 in New York with founder and CEO Eric Satz leading a demo of the company’s Alto IRA offering.

In this conversation, Harrigan talks about the pain points investors have when trying to integrate alternative investments into their portfolios and what Alto does to help resolve these issues. We also talked about the opportunities a growing number of investors are seeing in crypto and the challenge of making historically difficult-to-access private investments available to a broader community of investors.

Headquartered in Nashville, Tennessee, Alto was founded in 2015.

What problem does Alto solve and who does it solve it for?

Scott Harrigan: Alto aims to lower the barrier to entry for alternative investments, making alternatives available within an IRA so investors can diversify their retirement savings, reap the benefits of reduced volatility, and have the potential to increase returns. Alto IRA account users can benefit from tax-advantaged investment options in a wide range of alternative assets, including private equity, venture capital, real estate, art, crypto and more, providing them with the opportunity to diversify their investment portfolio while planning for retirement.

How does Alto solve this problem better than other companies or solutions?

Harrigan: With the goal of lowering the barrier to entry, Alto addresses these two pain points: investors want to understand their various alternative investment options and they want easy access to these types of investments in a streamlined platform.

Alto is the only digitally native self-directed IRA provider with multiple alternative investment options. This is unique because many legacy IRA providers have been around for decades and continue to operate in the same fashion they always have, showing no urgency to grow or evolve. They are overlooking the importance of the digitally-oriented experiences that individuals demand these days. Alto understands the importance of being digital-first and bringing a seamless and enjoyable experience to investors.

As for providing multiple alternative investment options, we are forging diverse opportunities in how and where individuals invest their retirement dollars. Alto offers Traditional, Roth, and SEP IRAs so investors can select the right vehicle for their money based on their unique goals, and individuals have the option to put their retirement funds toward anything from biotech to bitcoin, wine to whiskey, and farmland to fine art.

Who are Alto’s primary customers and how do you reach them?

Harrigan: Our goal is to bring alternative investments to everyday investors, and we do this by removing the hurdles that have long prevented them from investing in this sector. There are three areas key to our success in expanding access and awareness. The first is expanding the number and type of investment opportunities offered, so that individuals have freedom of choice and can identify what options are right for them. The second is creating a user-friendly digital experience that makes investing in alternatives more approachable. Last, but certainly not least, is providing education, and disseminating more information and resources to help investors make confident investment decisions.

In addition to expanding our reach more broadly, we also curate opportunities for accredited investors. This past year, we launched Alto Marketplace, a new part of the Alto platform dedicated to curating private alternative investment opportunities for accredited investors. The platform allows eligible investors to invest in historically difficult-to-access private investments which are curated specifically by Alto. Investors now have access to private equity, venture capital, real estate, fine wine, art, and more, all in one platform.

Can you tell us about a favorite implementation or deployment of your technology?

Harrigan: Our technology provides investors access to unique investment opportunities in the alternatives space within an IRA. We provide opportunities for investors to build wealth beyond the stock market and diversify their retirement portfolio with alternative investments.

As part of our commitment to enabling individuals to invest in a wider variety of alternative assets, we were proud to go live with the Alto Marketplace this past year. Marketplace enables Alto’s users to enjoy a streamlined, consolidated investing experience as they explore offerings that range across a variety of different asset classes. Accredited investors can benefit from alternative assets that may offer portfolio diversification and a chance of achieving long-term financial stability in today’s volatile market.

What in your background gave you the confidence to tackle this challenge?

Harrigan: My experiences have helped me become deeply familiar with SEC and FINRA guidelines, critical to bringing fair, transparent and compliant opportunities to the everyday investor. Having worked in private markets for the past seven years, I gained a much deeper understanding of how alternative asset investment structures work and how we could work within regulatory guidelines to provide the access that we have today. Creating special purpose vehicles is complex, but we do it because we want to bring a modernized and simplified experience for investing in alternatives.

You recently announced a partnership with SignalRank? Why team up with SignalRank? What will this partnership accomplish?

Harrigan: As mentioned, we launched Alto Marketplace to curate exciting private alternative investment opportunities for investors. Partnering with SignalRank, the first private markets index made up of preferred Series B shares in high growth venture-backed companies, is in line with our commitment to provide investors with wider access to investment opportunities that, by nature, were formerly more exclusive.

We have had prior venture capital opportunities through our Marketplace, but SignalRank is unique in that its algorithm has successfully predicted successful transitions of Series B startups to billion dollar companies. This partnership will help us accomplish our goal to bring unique strategies that aren’t more widely publicly available, and have been largely limited to ultra-high-net-worth individuals and institutional investors, to more investors. Alto’s special purpose vehicles bring investors these opportunities at lower thresholds, for example by lowering the minimum investment to $25,000 whereas typically it might be closer to $500,000 or even higher.

What excites you about the growth of the alternative asset market? Is there an education gap to be covered in order to get more eligible individual investors interested in alternative assets?

Harrigan: I am excited about how we’re in the early days for the alternatives space. The industry is just starting to recognize how big alternative investments will become in the next five years. If you don’t know what this business is about, you’re going to need to, because this is where wealth management is headed in the next five years.

Because we are in the early days, there is absolutely an education gap. Our original study found that a lack of familiarity with alternative investments was the most significant barrier to investing in these assets as part of a diversified retirement portfolio. One common misconception is that the long-term nature required of some alternative assets is a drawback. However, there is a definite advantage in combining the tax efficiency of self-directed IRAs with the extended investment horizons of alternatives. This long-term alignment allows investments to compound and realize strong returns.

As alternatives are poised on this incredible growth trajectory, we’re excited to be ahead of the curve in providing education on how Alto IRA account users can benefit from tax-advantaged portfolios and outsized returns.

What are your goals for Alto? What can we expect to hear from you in the months to come?

Harrigan: In 2025, we expect to bring a much larger variety of alternative investments to our platform. In 2024, we launched 15 deals, so we expect to continue on this momentum and bring investors even more optionality and choice.

We’re also keeping an eye on the preferences of Gen Z and Millennials, two groups that research shows are engaging with investments differently than the generations before them. Notably, those aged 21 to 43 are currently more likely to choose alternatives over stocks.

Last, we will continue to advance our proficiency in how we educate investors. We feel a significant obligation to provide investors with as much information as possible so that they can make informed, confident decisions about their retirement savings. In line with this strategy, we plan to focus on scaling information about and access to Alto CryptoIRA. Crypto presents an immense opportunity for investors to diversify their portfolios and realize greater returns. We want to make more individuals aware of the opportunity they have to invest in crypto as part of an IRA.

Photo by Kelly

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Donald Trump, Kamala Harris, and the Future of Fintech

Donald Trump, Kamala Harris, and the Future of Fintech
By David Penn Posted on
Categories: David's column, Thought Leadership

Which presidential candidate will be better for fintech over the next four years?

Of all the issues roiling the presidential campaign in 2024, it is safe to say that the future of fintech is not among the top two or three. Nevertheless, it is also safe to say that the fintech industry under a Trump administration will face different challenges and opportunities than it would under a Harris administration.

Let’s first look at how the policies of Republican candidate Donald Trump might impact fintech and financial services more broadly.

“The Crypto President”

Whether or not “they” are calling Donald Trump “The Crypto President,” the man who once called Bitcoin “a scam” has since had a change of heart when it comes to cryptocurrencies.

The now-famous quote — “You know, they call me the crypto President …” — comes from an ad the former president ran in August marketing his fourth series of non-fungible token (NFT) digital trading cards. Earlier this year, Trump suggested creating a “strategic national bitcoin stockpile” with the goal of ensuring that America is the “crypto capital of the planet.”

While not prominently noted on the Trump campaign’s website, the Republican party platform with regards to digital assets includes a reference to the opposing party’s “unlawful and unAmerican Crypto crackdown” on the one hand and opposition to “the creation of a Central Bank Digital Currency” on the other. The party, whose positions are likely identical to those of the former commander-in-chief, also pledges to defend the right of American citizens to mine Bitcoin and to self-custody of their digital assets.

Republican re-deregulation

The idea of a Republican president embracing deregulation in general has been baked into voter perceptions of the party since the 1980s, at least. And as Jamie Dimon, Chair and CEO of JPMorgan Chase, rails against regulators (“if you’re in a knife fight you better damn well bring a knife,” he recently told attendees at the American Bankers Association Convention), the question is whether the Trump administration is likely to supply Mr. Dimon with the silverware he seeks.

Looking again to the RNC platform, the most specific reference to deregulation is a pledge to “reinstate President Trump’s Deregulation Policies” as part of the former president’s plan to “Cut Costly and Burdensome Regulations.” If past is prologue, then Trump’s signing of the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018 could provide some clues. Here, we find initiatives to expand access to mortgage credit, incentivize capital formation, and provide additional protections for student borrowers.

Do tax cuts + tariffs = inflation?

Aside from tax cuts, the most noteworthy element of Trump’s economic plan is his embrace of tariffs on goods manufactured outside of the United States. In fact, the former president has gone so far as to suggest that the income tax be eliminated in favor of his new, tariff-based approach to funding government operations.

And while this is extremely unlikely, the combination of Trump’s tax cut proposals and his enthusiastic attitude toward tariffs could ironically pave the way for an economy that is more vulnerable to inflation. This could lead, ultimately, to higher interest rates and tighter monetary policy compared to where the American economy is at the end of 2024.

You don’t have to be a long-time, fintech veteran to remember the devastating impact that higher borrowing costs can have on the startup community — or its financiers. And it is hard not to fear that a “double-dip” resumption of these conditions could leave startups and their backers in an even more constrained and risk-averse position than they have been this year.

Now let’s look at how the policies of Democratic candidate Kamala Harris and how they might impact the fintech industry.

From big banks to junk fees

A story in today’s Washington Post highlights Vice President Kamala Harris’s tenure as California attorney general and her role in strengthening a “multibillion dollar mortgage settlement” with major banks in the wake of the Great Financial Crisis. Not only is this a significant component of Harris’s resume, it is also a tale she eagerly tells while on the campaign trail.

It is worth noting that, for all the fighting words, most observers expect the Vice President to be more business-friendly than the notoriously pro-labor current President. Nevertheless, it is easy to see a Democratic administration looking to fortify and even extend a range of consumer protections in financial services.

That said, the emphasis from the campaign is less about bashing the big banks and more about addressing the smaller annoyances of everyday consumer life. Under the banner of ‘Lower costs by protecting consumers from fees and fraud,’ for example, the Harris campaign pledges to ban junk fees across the board and make it easier to cancel unwanted subscriptions.

Economies of opportunity

The Harris campaign has touted its concept of an “Opportunity Economy,” in which the federal government plays an active role in helping individuals, families, small businesses, and communities maximize their ability to thrive in a capitalist economy. This includes launching a small business expansion fund that leverages low- or zero-interest loans to help entrepreneurs grow their businesses and create jobs. This “Opportunity Economy” also mandates that the federal government commit to allocating a third of its contracts to small businesses, reducing the number of excessive occupational licensing requirements, and helping small businesses cut bureaucratic red tape and file taxes more easily.”

The Vice President’s plan does target startups specifically, setting a goal of 25 million new business applications over the next four years, and a tenfold expansion of the startup expense deduction from $5,000 to $50,000. Additionally, Harris’s campaign calls for an “America Forward” tax credit designed to incentivize investment and job creation in “key strategic industries” as well as “scaling up and making permanent” the National Artificial Intelligence Research Resource. The latter is a shared research infrastructure that provides startups and researchers with access to computing power, data, and analytics tools to support innovation in AI.

Housing and the “sandwich generation”

Two areas of the Vice President’s agenda — the pledge to build more housing and the goal of making both day care and elder care easier and more affordable for caregivers — could have interesting impacts on financial services and fintech. The former, which includes a plan to build three million additional homes and provide $25,000 in down payment assistance, could send a jolt through the financial services industry that would impact bankers, lenders, and mortgagetechs alike. The campaign is also championing tax credits to encourage homebuilders to build affordable homes and a Neighborhood Homes Tax Credit, which supports “investment in homes that would otherwise be too costly or difficult to develop or rehabilitate.”

The latter proposal — to ease the financial burden of Americans who are caring for both young children and elder parents — does not make a prominent appearance in the Harris campaign’s website. But those who have heard the Vice President speak in recent weeks are familiar with the challenge, which she describes as the fate of the “sandwich generation.” The Harris campaign has suggested a number of remedies — from Medicare expansion to boosting the pay of homecare workers. What is interesting from a fintech perspective is the idea that resources devoted to eldercare in particular could draw attention to the work of fintech innovators from Golden, to Eversafe, to Bereev that specialize in providing financial services to seniors and those who are caring for them.

Many of these plans from the Harris campaign will require the approval of a Congress that could easily remain split between the two parties. While that may limit the scope of even the successful initiatives, it would provide the kind of balance (or, if you prefer, gridlock) that has often accompanied strong economies. And that, in itself, would be a good thing not a bad thing for fintech and financial services.

Photo by Element5 Digital

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Wealth Management and the Fight over Fees, Annuities, and Fiduciary Responsibility

Wealth Management and the Fight over Fees, Annuities, and Fiduciary Responsibility
By David Penn Posted on
Categories: David's column

Should more financial advisers be treated as fiduciaries? Even for one-time financial recommendations like a 401(k) rollover?

The Washington Post recently published an article looking at the battle over the needs of recent retirees on one side and what critics have called “lucrative broker commissions” on the other. At issue is an effort by the Biden administration to force brokers to act as fiduciaries, which means that they must place client needs above all else, including their own paychecks. The administration is especially concerned about what happens when millions of Americans retire or roll over their retirement savings in favor of tax-advantaged accounts such as IRAs. This is a huge market; the federal government estimates that these transactions are valued at more than $770 billion in 2022.

In many, if not most instances, these transfers from 401(k)s and similar products into IRAs is unremarkable. But the administration is looking closely at some transfers, in which investors’ retirement money is invested in instruments such as annuities. Annuity products, in which retirees give funds to an insurance company that provides them with a fixed, annual payout, not only often have costly restrictions – such as big penalties for early withdrawals and caps on returns – but also can be more lucrative products for insurance agents to sell compared to other investments. This – from the Biden administration’s perspective, and that of some consumer advocates – creates a conflict of interest that can lead to savers being steered toward investments that are not optimal for them.

As such, Biden’s Department of Labor extended fiduciary duties under the Employee Retirement Income Security Act to cover one-time recommendations issued to retirement investors. This puts a number of activities traditionally not covered by the fiduciary rule, including those rollovers noted above, under the rule. The policy was finalized in April and was set to take effect next month.

For their part, critics of the administration’s policy see the attempt to change regulations as a “costly, illegal federal mandate.” In an unsigned statement (ahem!) one of the organizations that sued to stop the Biden’s administration, the American Council of Life Insurers, warned that new fiduciary requirements could “deprive millions of consumers of access to much needed retirement financial guidance and protected lifetime income products.”

So far, the courts – and Congress – have agreed with the critics. Congress made initial moves toward invalidating the new rules in July, with a congressional committee passing a resolution to overturn the rule. Additionally, two federal judges have separately blocked the Biden administration from implementing the rule in September. And industry groups, sensing a major change to their business model, have geared up to persuade politicians that an expansion of the fiduciary rule “would be potentially devastating for the insurance industry,” according to one such group, the Federation of Americans for Consumer Choice.

Indeed, impact would be felt. Morningstar reported that investors in annuities could save more than $32 billion over the next ten years – with insurance agents enduring major restrictions in their commissions.

Could an extension of fiduciary responsibility become as significant a campaign topic as the debate over taxing tips? It’s hard to say. But I’ll be on the lookout to see whether or not the Trump or Harris campaigns decide there’s advantage to be had by backing fewer regulations – or retiree rights – when it comes to the role of fiduciary responsibility.

Interested in wealthtech? Check out our feature on the six key ways fintechs drive innovation in wealth management. And be sure to read our primer on wealthtech at FinovateFall next month, Client Centricity and the Rise of Alternative Assets.

Photo by Birmingham Museums Trust on Unsplash

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CrowdStrike, AT&T, and the Role of Resiliency in Banking

CrowdStrike, AT&T, and the Role of Resiliency in Banking
By David Penn Posted on
Categories: Daily news, David's column, Thought Leadership

This morning CrowdStrike CEO George Kurtz reported that 97% of the Windows sensors knocked out during CrowdStrike’s botched software update a little over a week ago are back online. That’s great news for those companies still reeling from one of the biggest IT outages in history.

When it comes to cybersecurity companies, CrowdStrike is widely considered to be a belle of the ball. Here’s wealth manager Josh Brown, a shareholder in the company since 2020, bringing the roses less than a year ago:

You can talk as much about cloud and mobile and social and machine learning and distributed computing and generative AI as you’d like, if you can’t secure your data and provide safe access to users, you have nothing. Literally ….

Spending on top-of-the-line security solutions has now been enshrined into securities law, in addition to all the other reasons to take this stuff seriously, such as not getting sued into the stone age by your customers or forced to make Bitcoin ransom payments to international cyber terrorists ….

As a business manager, you would cut IT spending on literally anything else first. A small handful of publicly traded companies have what I consider to be a massive runway ahead of them. CrowdStrike is aiming to become the Salesforce of the industry.

To recap: Friday morning, July 19, a bug in a CrowdStrike software update resulted in major IT outages that grounded flights and brought chaos to banks and other businesses around the world.

“CrowdStrike is actively working with customers impacted by a defect found in a single content update for Windows hosts,” CrowdStrike’s Kurtz wrote on the social media platform X the morning afterward. “Mac and Linux hosts are not impacted. This is not a security incident or cyberattack. The issue has been identified, isolated, and a fix has been deployed.”

As we learn more about exactly what happened, is there a particular insight here for banks, fintechs and financial services companies? At a time of heightened concern over third-party risk in our industry, the CrowdStrike outage is yet another reminder of the importance of not only choosing technology partners carefully, but also of ensuring resiliency in the event of an issue with a partner.

The latter is especially pertinent here. Many of the challenges and controversies with regard to third-party risk management in financial services involve the latter, vetting issue, primarily. A signature example is the case of Synapse, the fintech whose allegedly improper handling of customer funds led to more than 200,000 users losing access to their money and numerous disputes with banking partners. CrowdStrike is being accused of no such malfeasance and will, in all likelihood, remain a major player in the cybersecurity industry, with its reputation scratched perhaps but probably not scarred.

That leaves us with resiliency. In banking, the definition of resiliency has expanded significantly in recent years. From the failures of the banking crisis to the strains of the COVID-19 pandemic and accompanying economic slowdown a little over a decade later, banks have dealt with major challenges to both financial and operational resiliency.

The CrowdStrike outage represented a different type of disruption, and one that may be less amenable to the solutions that have ensured bank resiliency in the past (i.e., leadership, talent, and technology). Given many of the common complaints when technology disappoints, it’s worth wondering if we should look at ourselves, not just our institutions, for greater “resiliency.”

To this end, compare the CrowdStrike outage to the AT&T breach this spring. Unlike with CrowdStrike, AT&T reported that “AT&T data-specific fields were contained in a data set released on the dark web.” The breach did not allegedly have “a material impact on AT&T operations.” But it did represent the kind of security challenge that cybersecurity companies are built to prevent, and that banks and financial services companies need to be prepared for. When I read “released on the dark web,” I thought of Finovate Best of Show winner SpyCloud, the Austin, Texas-based cybersecurity company that specializes in retrieving stolen credentials from the dark web.

And it appears as if more and more banks and financial institutions are getting the message. In the past few years, companies like Corsound AI (FinovateEurope 2024 Best of Show winner) to 1Kosmos (FinovateSpring 2023 Best of Show winner) have stood out among fellow fintechs for their innovations in everything from deepfake detection to passwordless authentication. As FinovateFall 2024 draws near, it will be interesting to see what innovations the current crop of cybersecurity specialists bring to the current challenges faced by banks and financial services companies alike.

For more insights on the CrowdStrike outage and its potential implications for financial services, check out 4 Implications of CrowdStrike’s Faulty Software Update by Finovate Senior Research Analyst Julie Muhn.

Photo by Pixabay

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Peru Pursues Real-Time Payments via India’s UPI Technology

Peru Pursues Real-Time Payments via India’s UPI Technology
By David Penn Posted on
Categories: Daily news, David's column

Earlier this year, we looked at how the drive for real-time payments in the West could benefit from studying the successes of India’s real-time payments network, UPI. Last week, we learned that there is at least one country in the Western hemisphere that’s taking us up on our suggestion and that country isn’t the United States, it’s Peru.

Launched in 2016, the National Payments Corporation of India’s United Payments Interface was built to support both peer-to-peer payments and transactions with merchants via mobile phone. The initiative has been hugely successful; in 2023, the number of UPI transactions exceeded 100 billion. The Indian government boasts that more digital transactions are completed in India than in any other country in the world.

Now, it looks like Peru is getting into the act. The Central Reserve Bank of Peru (BCRP) and India’s NPCI International Payments Limited (NIPL) have signed a deal to deploy a real-time payments system in Peru based on India’s UPI. This partnership makes Peru the first country in South America to adopt the technology. The development is a major feather in the cap of India’s fintech industry and another great example of how countries in Latin America are embracing fintech innovation to promote financial inclusion.

“This will undoubtedly offer new and accessible payment services to everyone, especially the unbanked population of Peru, complementing the existing payments industry,” BCRP governor Julio Velarde said. He referred to the partnership as a “significant step in strengthening and modernizing our payments system, aiming to expand access to digital payments in Peru.”

NIPL was launched in 2020 as the international arm of NCPI. Earlier this year, NIPL teamed up with French payments company Lyra Network to bring UPI payments to France. Outside of India, the UPI system is currently supported in Sri Lanka, Mauritius, the UAE, Singapore, Bhutan, and Nepal. Last month, NIPL announced that it was working to bring a UPI-type payment system to Namibia.

The arrival of UPI-based real-time payments in Peru will also bring innovations including QR code payments, biometric authentication, and AI-powered fraud detection. Alleviating the reliance on cash and enhancing financial inclusion and digital financial literacy are among the goals of the initiative.

It’s worth noting that Peru has made significant strides in helping move its citizens from the ranks of the un- and underbanked to full participants in the country’s financial system. In 2015, the number of adults with at least one financial product was approximately 35%. By 2020, this number had increased to more than 43% – and this was before the government’s pandemic-era decision that created millions of bank accounts for unbanked Peruvians to help facilitate aid payments.

Nevertheless, Peruvians remain relatively unbanked compared to those in neighboring countries. The unbanked constitute only 30% of the Brazilian population and only 26% of Chile’s. With a population of more than 32 million, Peru has its work cut out for it. But now, courtesy of NPCI, the third-largest nation in South America has help.

“We will be working together to address our common objective of promoting digital payments, financial inclusion, cost optimization, and transparency in the payment landscape, with scope for further scalability and adaptability, to embrace future technological advancements and market demands,” NPCI International CEO Ritesh Shukla said. “Once live, Peruvian citizens will gain access to an unparalleled level of convenience, security, and efficiency in financial transactions.”

For more on fintech news from around the world, be sure to check out our Finovate Global column, published every Friday afternoon.

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AI, Digital Disruption, and Climate Change: Challenges and Opportunities in Insurtech

AI, Digital Disruption, and Climate Change: Challenges and Opportunities in Insurtech
By David Penn Posted on
Categories: David's column, Report series

The week begins with a few research-related announcements in the fintech and financial services space. CB Insights announced the availability of its State of Insurtech report for the first quarter of 2024, and the Federal Reserve Board issued a summary of climate risk resiliences exercises conducted recently by a handful of big banks. While the focus on this column in on the former, the publication of the latter shines some light on potential answers to the problems raised in CB Insights’ report.

With regards to the state of insurtech, there is still a great deal of hesitation among investors. CB Insights noted that quarterly funding for Q1 of this year was only $0.9 billion, the lowest level since 2018. Property & casualty insurtech suffered the most, with a quarter-over-quarter decline of 25%. Q1 2024 was also the first time since 2018 that there were no “mega-round deals” – investments of $100 million or more. There was some good news in Europe, as the number of deals increased slightly, as did the median insurtech deal size. But the overall message continues to be caution when it comes to investor attitudes about investech.

What Ails Insurtech?

Digital disruption: The challenge of digital disruption is one that the insurtechs share with the broader fintech community. The rise of enabling technologies such as AI will both steepen customer expectations as well as accelerate competition between companies to effectively deploy new, innovative solutions.

The insurance business is ripe for innovation. From the massive volume of manual processes and the document-intensive nature of the business to the challenges of underwriting and refining statistical models, the idea that AI will be a powerful ally in the insurance business is a no-brainer. One firm, Zippia, has predicted that as much as 25% of the insurance industry could be automated via AI by 2025.

There are obstacles. The disposition of regulators toward change in the industry is a major concern as new technologies are introduced to enhance operations like underwriting and statistical modeling. A regulatory authority that is indifferent, or hostile, to new technologies or their application in certain use cases can send a powerful signal that innovators are better off deploying their solutions in other industries or other geographies. Looking at the U.S., if the behavior of regulators toward innovators in the crypto space and the Banking-as-a-Service space is any indication, then we can expect to see insurtech and their investors to tread cautiously.

There are also challenges with regard to talent. Now that almost every company in every industry is looking to up their AI game, the fight over top talent in AI and automation has become all the more competitive.

Nevertheless, there is no doubt that AI promises to revolutionize many key processes that insurers rely on. And as those processes become more efficient – and as those companies best exploiting those AI-enhanced processes take greater market share – it is easy to see investment dollars returning to insurtech as investors begin making their bets on winners and losers in the space.

Climate change: The impact of climate change is another instance in which challenge and opportunity go hand-in-hand for insurtechs. The growing incidents of extreme weather – from temperature extremes to increasingly powerful hurricanes, floods, and other phenomena – have put a major strain on both property and casualty (P&C) insurers as well as those homeowners and individuals who rely on their protection. Note that CB Insights reported the biggest quarterly drop in funding this year was among P&C insurtechs. And of the top 10 P&C insurtech deals of Q1 2024, only three were U.S. based companies.

While many fintechs involved in climate change and sustainability have focused on helping businesses and institutions measure and better manage their carbon footprints, there is a need for technology companies in the insurance space that can help these firms build the models they need to better anticipate climate change-related risk. I mentioned the Federal Reserve report on climate resiliency earlier. The Fed’s report was a summary of an exploratory pilot Climate Scenario Analysis (CSA) exercise held by six U.S. banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. Among the conclusions that are especially relevant to this conversation were these two:

The role of insurance in mitigating climate change risks for consumers, businesses, and banks was emphasized, with a call to monitor changes in insurance costs and their impacts on specific markets and segments.

and

Participants expressed the high uncertainty and difficulty in measuring climate-related risks, making it challenging to incorporate them into risk management frameworks on a routine basis.

Insurtechs – and fintechs, for that matter – who are able to help financial institutions resolve these two issues, will find their services in demand as companies seek ways to quantify their own exposure to climate change risk. It is easy to envision other enabling technologies, such as quantum computing, also playing a part. Together, they could provide the kind of powerful modeling that would accurately gauge the risks of climate change and its potential impact on markets, communities, businesses, and families alike.

Photo by Vlad Deep on Unsplash

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More Than $113 Million Raised by Nine Alums in Q1 2024

More Than $113 Million Raised by Nine Alums in Q1 2024
By David Penn Posted on
Categories: Allied Payment Network, Altro, Amplify Life Insurance, Argyle, David's column, Debbie, Digital Onboarding, Funding, Fundings, NayaOne, Quarterly Funding, Stratyfy, Trust & Will

Nine Finovate alums raised more than $113 million in Q1 of 2024. The relatively low fundraising results for the first three months of the year do reflect larger trends in fintech funding. But the fact that nearly half of the alums that raised funds in Q1 did not disclose the amounts raised tells us that the quarterly funding haul for Finovate alums was higher than the $113 million we have been able to confirm.

Previous quarterly comparisons

  • Q1 2023: $453 million raised by 13 alums
  • Q1 2022: $365 million raised by 11 alums
  • Q1 2021: $3.3 billion raised by 26 alums
  • Q1 2020: $1.3 billion raised by 14 alums

The biggest fundraising month of Q1 was likely January, which featured the $58 million investment secured by Digital Onboarding. Again, the high number of “amount undisclosed” investments makes comparison difficult.

Top Equity Investments from Q1 2024

  • Digital Onboarding: $58 million
  • Argyle: $30 million
  • Amplify Life Insurance: $16.3 million
  • Altro: $4 million

As noted above, Digital Onboarding pulled in the biggest investment of any Finovate alum in the first three months of the year. Also noteworthy was the $30 million raised by Argyle, a real-time income data platform that made its Finovate debut at FinovateSpring in 2022.

Here is our detail alum funding report for Q1 2024.

January: More than $58 million raised by three alums

February: More than $21 million raised by three alums

March: More than $34 million raised by three alums

If you are a Finovate alum that raised money in the first quarter of 2024 and do not see your company listed, please drop us a note at research@finovate.com. We would love to share the good news! Funding received prior to becoming an alum not included.

Photo by Matthias Groeneveld

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Embedded Banking and Generative AI: Two Top Trends in Banking and Insurance Technology

Embedded Banking and Generative AI: Two Top Trends in Banking and Insurance Technology
By David Penn Posted on
Categories: David's column, Interview, Streamly

Last month at FinovateEurope, I had the pleasure of conducting interviews with 14 professionals, entrepreneurs, and authors from the world of fintech and financial services. A few days ago, I shared videos of my conversations with Moneyhub’s Samantha Seaton and Finthropology’s Anette Broløs.

Today, I’m unveiling another pair of interviews from FinovateEurope. First, I sit down with Edwin Van Bommel, Head of Strategy and Innovation with ABN AMRO Bank. In his role with the bank, van Bommel is responsible for introducing new products and services to clients in the areas of artificial intelligence and distributed ledger technology.

In our conversation, van Bommel and I talk about the different ways ABN AMRO Bank is leveraging enabling technologies like embedded banking, generative AI, and distributed ledger. We also talk about the challenge of legacy systems and why they will still “play an important role in the future” of financial services.

In our second video interview, Indrek Vainu, Head of Conversational AI at Zurich Insurance Group, and I talk about the challenge and opportunity of artificial intelligence in financial services. We discussed ways that generative AI, for example, is bringing innovation to both the front and back office. Vainu also shared what he believes are the next steps in AI adoption in fintech and financial services.


In his role as Head of Conversational AI at Zurich Insurance Company, Vainu leads activities globally that are related to Generative AI and chatbots. He co-founded AlphaChat, a chatbot startup that was acquired by Zurich Insurance Group in 2021.

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Tales from the Crypto: Bitcoin ETFs, Circle’s IPO, and Why Jamie Dimon Still Hates the Space

Tales from the Crypto: Bitcoin ETFs, Circle’s IPO, and Why Jamie Dimon Still Hates the Space
By David Penn Posted on
Categories: Cryptocurrency, David's column, List series

With apologies to Dr. Dre … the spot Bitcoin ETFs are here and everybody’s celebratin’!

This week on Tales from the Crypto we’re taking a look at the launch and reception of the long-awaited spot bitcoin ETFs. We’ll also learn a little more about stablecoin issuer Circle’s IPO plans, and the latest – and maybe last – from JPM Morgan Chase CEO and perennial crypto critic Jamie Dimon on what he hates – and likes – about crypto.

Spot Bitcoin ETFs Have Arrived!

Last week, the U.S. Securities and Exchange Commission approved eleven, count ’em eleven, spot bitcoin exchange-traded funds (ETFs). Digital asset manager CoinShares reported new inflows of more than $870 million into the new ETFs in the first three days. According to investment research firm CFRA, investors traded $4.6 billion worth of shares in these new funds on the first day.

While bitcoin ETFs have existed before 2024, the current spot bitcoin ETF fixes at least one major problem of the earlier bitcoin ETFs. In the past, bitcoin ETFs tracked bitcoin prices by holding bitcoin derivative products. Managers of these funds bought and sold bitcoin futures in order to try and copy the asset’s changes in value. This inefficient process often meant that earlier bitcoin ETFs did not always accurately reflect the actual changes in digital asset’s price.

By contrast, the current incarnation of bitcoin ETFs actually own bitcoin. This means that the newer funds are likely provide a truer exposure to the cryptocurrency.

The new bitcoin ETFs and their ticker symbols are below. Expense ratios for these funds range broadly from a low of 0.20% for the Bitwise Bitcoin ETF to a high of 1.5% for the Grayscale Bitcoin Trust. Compare these to expense ratios for other popular ETFs such as the SPDR S&P 500 ETF Trust or SPY, which has a fee of 0.09%, and the Invesco QQQ ETF, which has an expense ratio of 0.20%.

  • Bitwise Bitcoin ETF (BITB)
  • ARK 21Shares Bitcoin ETF (ARKB)
  • Fidelity Wise Origin Bitcoin Fund (FBTC)
  • BlackRock iShares Bitcoin Trust (IBIT)
  • Valkyrie Bitcoin Fund (BRRR)
  • Vaneck Bitcoin Trust (HODL)
  • Franklin Bitcoin ETF (EZBC)
  • WisdomTree Bitcoin Fund (BTCW)
  • Invesco Galaxy Bitcoin ETF (BTCO)
  • Hasdex Bitcoin ETF (DEFI)
  • Grayscale Bitcoin Trust (GBTC)

The statement announcing the SEC’s approval of the spot bitcoin ETF (the SEC uses the term “exchange-traded product” – ETP) more than reflects the agency’s ambivalence toward the new offering. “I have often said that the Commission acts within the law and how the courts interpret the law,” SEC chair Gary Gensler writes early on in a statement that details the agency’s efforts to regulate digital assets. His overall message – with its bitcoin-only caveats and his reminder that the current filings are “similar to those we have disapproved in the past”? “The Court of Appeals made us do it.”

The statement actually concludes with a quip about how bitcoin ETFs compare unfavorably, in Chair Gensler’s opinion, with metals ETFs. After asserting that “we’re merit neutral,” Gensler observes dryly: “Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.”

You almost can hear the sound of the dinner plate crashing against the table as the aggrieved server finally delivers your meal and sulks away, muttering under their breath.

Circling the IPO Wagons

The arrival of the new bitcoin ETFs is not the only big news in crypto this month. Circle Internet Financial, the issuer of the USDC stablecoin known colloquially as Circle, has filed a draft registration statement for a proposed initial public offering with the U.S. Securities and Exchange Commission.

Neither the number of shares to be offered nor the price range for the proposed offering were noted.

This week’s announcement represents Circle’s second bite at the “going public” apple. The company had planned to go public via a special purpose acquisition company (SPAC) transaction in 2021. That deal would have given the company a valuation of about $9 billion. Unfortunately, the transaction did not take place. Circle CEO Jeremy Allaire said that the company simply failed to meet the SEC’s requirements in a timely fashion.

“We are disappointed the proposed transaction timed out,” Allaire said when the deal fell through. “However, becoming a public company remains part of Circle’s core strategy to enhance trust and transparency, which has never been more important.”

Founded in 2013, Circle is the principal operator of the U.S. stablecoin USDC. The company is licensed as a Money Transmitter by the New York State Department of Financial Institutions. USDC offers instant settlement compared to legacy payments, near-zero costs, open and global access, as well as ready availability on popular exchanges and protocols, and broad and growing use in the developer community. Circle also offers products such as programmable wallets and its smart contract platform, currently in beta.

Hula Hoops, Pet Rocks, and Bitcoin?

You have to wonder if all this good news for bitcoin is getting under the skin of the digital asset’s biggest bête noire, JPMorgan Chase CEO Jamie Dimon.

Dimon was recently interviewed on CNBC when he announced that this would be the last time he would publicly offer an opinion on bitcoin. That said, Dimon left us with plenty of anti-crypto quips to keep us company for some time to come.

Crypto use cases? “AML, fraud, sex trafficking and tax avoidance,” Dimon suggested. At the same time, he said, cryptocurrency is a “pet rock” that “does nothing.” Dimon is indifferent to what others such as Fidelity and Blackrock that have shown interest in bitcoin ETFs, saying that “I don’t want to tell you what to do. My personal advice is don’t get involved.”

Then again, there are some caveats to Dimon’s disinterest in cryptocurrencies. For one, Dimon does say that there are potentially interesting innovations with regard to non-bitcoin crypto, particularly the tokenization of real-world assets. Second, while Dimon himself may not be a fan of crypto, his firm is apparently playing a significant role in BlackRock’s iShares Bitcoin ETF (IBIT) as an authorized participant.

Photo by Miguel Acosta

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All In On AI? An New EY Study Reveals Eagerness Among Leaders in Financial Services

All In On AI? An New EY Study Reveals Eagerness Among Leaders in Financial Services
By David Penn Posted on
Categories: David's column, Report series

“Fired up and ready to go” is not just for political campaigns any more. According to a new survey from Ernst & Young, that sentiment aptly describes the attitude of a growing number of leaders in financial services when it comes to their eagerness to deploy artificial intelligence (AI), particularly generative AI (GenAI).

How eager? According to Ernst & Young’s 2023 Financial Services GenAI Survey, “nearly all (99%) of the financial services leaders surveyed reported that their organizations were deploying artificial intelligence (AI) in some manner. All respondents said they are either already using, or planning to use, generative AI (GenAI) specifically within their organization.”

Given the popularity of AI and GenAI, overwhelmingly positive responses like these may not be surprising. The FOMO in this field is reminiscent of the dot-com gold rush of more than two decades ago. After all, are many of the companies appending “ai” to their names that much different from their predecessors who donned “.com” back in 1999? Today’s eagerness has a similarly fearlessness. In the EY survey, expressions of anxiety and skepticism about the potential impact of GenAI on their business were few at just over one in five. For what it’s worth, insurers were the most nervous; bankers the least.

Other color pops in the EY Survey included “feeling supportive and optimistic about using AI in their organization” (55%), seeing GenAI “as an overall benefit to financial services within 5 to 10 years” (77%), and believing AI will improve the customer and client experience (87%).

The survey did reveals discontents. And within these discontents are potential opportunities for fintechs, especially those involved in the “picks and shovels” of the AI gold rush. Respondents to the tune of 40% reported that there was a lack of proper data infrastructure for successful deployment of AI solutions. And with regards to technology infrastructure, the survey noted that 35% of respondents believed there were still significant barriers. EY Americas Financial Services Organization Advanced Analytics Leader Sameer Gupta spoke to this problem, noting that while “generative AI holds the potential to revolutionize a broad array of business functions … with each new wave of AI and analytic innovation, it becomes increasingly clear how important it is to have a tech stack with a solid foundation.” Gupta added that it is critical for legacy data and technology to be “unimpeachable” before introducing AI.

Another challenge is talent. The mainstream conversation on AI still orbits concerns about AI-induced job losses. But the real job challenge with regards to AI right now is finding enough people qualified to implement AI-based solutions. “Our data showed that 44% of leaders cited access to skilled resources as a barrier to AI implementation,” EY Americas Financial Services Accounts Managing Partner Michael Fox said, “but there’s only so many already skilled professionals in existence.”

Fortunately, leaders seem to be embracing an AI-enabled future, making it that much more likely that these challenges will be met and overcome. In our own informal surveys with financial professionals, we have learned that buy-in from leadership is seen as key – for everything from DEI initiatives to digital transformation. And it is no surprise that EY has a role to play in making sure this is clear to its financial institution partners. “We like to take an ‘innovation intelligence’ approach to putting artificial intelligence to work,” EY Americas Financial Services Innovation Leader David Kadio-Morokro explained. “Planning, education, and an agile test and learn strategy for implementation are imperative for those looking to make the most of AI’s potential benefits.”

Conducted in August, the 2023 Financial Services GenAI Survey queried 300 financial professionals at the level of Executive or Managing Director or higher. All respondents worked at financial institutions with more than $2 billion in revenue. Organizations in banking, capital markets, insurance, wealth management, and asset management were surveyed, with 100 responses per sector collected.

Photo by Tara Winstead

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Time for Fintech to Take a Second Look at Sustainability?

Time for Fintech to Take a Second Look at Sustainability?
By David Penn Posted on
Categories: David's column

Social investing platform eToro announced this week that it is offering a new portfolio to give investors exposure to companies dealing with the challenge of extreme weather events. Environmental and social insights company Clarity AI recently announced that it is partnering with AWS to scale its sustainability insights platform.

While not as headline-grabbing as the AI craze, the speed with fintechs, banks, and financial services companies have embraced environmental sustainability may be one of the underrated stories of 2023. This is true for both “green financing” which supports the funding of climate-supporting initiatives as well as “green fintech” which involves the development of products that enable sustainable finance and eco-investing.

In 2023 alone, we have seen companies like ClimateTrade, Cloverly, Connect Earth, and GreenPortfolio demo their climate-conscious technologies on the Finovate stage. These companies shared innovations such as blockchain-based climate and carbon credit marketplaces, carbon tracking API technology, and climate impact scoring for investments. And before these companies were firms like Energy Shares in 2022 and ecolytiq in 2021 that introduced equity crowdfunding for utility-scale renewable energy projects and environmental impact data for payment transactions to Finovate audiences.

But are we making the most out of the current moment? A recent blog post by fintech observer and author Chris Skinner references a relevant column by James Vaccaro, Director of Corporate Strategy at Triodos Bank. Vaccaro took a critical look at present-day efforts by banks and other financial institutions to adopt more climate-friendly policies. His conclusion was that current efforts such as decarbonization are laudable, but often suffer from poor management.

Yes, there is some subterfuge and greenwashing going on, but many initiatives do have authentic intentions – they’re just not working optimally and need to be redesigned and upgraded.

Also, the recurrent phenomenon of there not being enough finance for green projects, but finance not having enough green projects to invest in, suggests that we’re not just dealing with a funding gap. There are systemic barriers at play and these need to be addressed with innovative solutions to unblock flows of finance.

Vaccaro notes that some solutions, such as carbon tracking calculators, have not turned out to be the killer sustainability apps that many hoped they would be. Nevertheless, he clearly sees a need for further investment in both green fintech and green-friendly finance – to use our previous taxonomy. He cites approvingly offerings like social impact bonds. He also is helping the Climate Safe Lending Network launch its Climate Finance Catalyst Contest to develop financial solutions to support the decarbonization of the financial industry.

Regulators are paying attention to the problem. In their report on environmentally sustainable finance, the International Money Fund, the World Bank, and the OECD “highlight(ed) the need for scaling up private finance to support the transition to net zero.” That aside, the report noted two, potentially related, challenges that are worth noting. These were the lack of frameworks and scoring methodologies (particularly in developing economies) and market fragmentation.

These issues are not new to financial services. And while there is much work to be done, these kinds of challenges are being effectively tackled in many areas of fintech and financial services – from payments to credit risk and lending. Often, as is the case with sustainable finance, enabling technologies such as blockchain, machine learning, and AI are driving factors enabling us to leverage data in new ways. This bodes well for the potential to make sustainable finance possible, and especially where it is needed most.

Photo by Markus Spiske

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Eight Alums Raised More Than $293 Million in Q3 2023

Eight Alums Raised More Than $293 Million in Q3 2023
By David Penn Posted on
Categories: David's column, Funding, Fundings, Quarterly Funding

A few months ago we opined here on the Finovate blog that the funding woes that had plagued fintech in the first half of 2023 might abate in the second half.

If Q3 is any indication, then it will have to be the fourth quarter of the year when that happens.

Eight Finovate alums raised more than $293 million in Q3 of 2023. The number of alums raising funding was consistent with last year’s total. But the overall level of funding for Finovate alums was down from previous third quarters. In fact, the last time Q3 alum funding was less than $1 billion was in 2018, when 19 alums raised $400 million.

Admittedly, two of the eight alums to report funding in the third quarter of 2023 did not disclose funding amounts. This means that the total investment for Finovate alums in Q3 could be significantly higher than what is known today. And it was interesting to note how many fintechs that did secure investment over the summer months were headquartered in developing markets. But that aside, for markets in the U.S., the U.K., and Europe, in particular, the fintech funding drought continues to define the terrain.

Previous Quarterly Comparisons

  • Q3 2022: More than $1 billion raised by eight alums
  • Q3 2021: More than $1.1 billion raised by 14 alums
  • Q3 2020: More than $1.2 billion raised by 14 alums
  • Q3 2019: More than $1 billion raised by 21 alums

Top Equity Investments for Q3 2023

The top equity investment of the quarter among Finovate alums was clearly the $110 million raised by SpyCloud. The company, which won Best of Show in its Finovate debut at FinovateFall in 2017, specializes in helping businesses fight account takeover fraud, as well as other types of cybercrime.

Headquartered in Austin, Texas, and founded in 2016, SpyCloud gives organizations visibility into exposed credentials actively traded on the dark web. In response, SpyCloud’s platform not only uncovers these stolen credentials, but also leads to the capture of 40 million exposed assets every week. The company’s Q3 investment takes its total equity funding to more than $168 million.

Also noteworthy in the third quarter were the investments secured by Tradeshift ($70 million), ThetaRay ($57 million), and Splitit ($50 million).

Here is our detailed alum funding report for Q3 2023.

July 2023: More than $4.5 million raised by three alums

August 2023: More than $232 million raised by four alums

September 2023: $57 million raised by one alum

If you are a Finovate alum that raised money in the third quarter of 2023 and do not see your company listed, please drop us a note at research@finovate.com. We would love to share the good news! Funding received prior to becoming an alum not included.

Photo by Karolina Grabowska

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