JP Morgan Chase’s Startup Portfolio with CFSi

JP Morgan Chase is more than halfway through its 5-year $30 million commitment to startup innovation in its partnership with CFSi’s FinLab. Each of the past three years, fintech startups have been invited to apply to the accelerator which is focused on finding financial solutions for low- and moderate-income consumers (for example, this year’s challenge).

So far, CFSi/Chase have invested $250,000 each in 24 for-profit companies for a total of $6.0 million (notes 1, 2). In addition, they’ve made two grants totalling $500,000  The investments (note 3) were made in June 2015, June 2016, and this month, so it’s too early to see how well the venture is at picking winners (official rules here).

We do know that two of last year’s class are already out of business, Bee and Remedy, a surprising result for companies winning a quarter-million investment from the third largest bank in the world just 12 months ago. On the other hand, the class of 2015 already has six early winners from the 9 investments (below), so things look good overall:

  • Digit, the impulse savings app which has raised $36.5 million
  • LendStreet, a marketplace-lending platform which has raised $28.25 million
  • Ascend, the loan management service, which has raised $12.75 million
  • Even, the income smoothing service, which has raised $12.25 million
  • SupportPay, the child-support management app, which has raised $7.1 million
  • Propel, the food-stamp support app, which has raised $5.4 million

Since the average investment is just 12 month’s old, it’s too early to judge CFSi/Chase’s seed-stage investing prowess. And that isn’t even the primary goal of the joint program with CFSI. But it’s always nice to turn a profit while doing good. Based on the excellent performance of its first class, we estimate that the venture is already sitting on a paper gain in excess of $1.5 million (note 3) across the 21 for-profit companies still in business, a 50% total gain on an average of $3 million invested. And they may have had some return of capital with the acquisition of Prism by PayNearMe.

 


Total Return (2015 to 2017)

Total invested: $6.0 million in 24 companies (note 2)

Total grants: $500,000 in 2 non-profits (note 3)

Total returned: 1 exit, unknown valuation

Total market value: $7.5 million+ (note 4)

Paper gain: $1.5 million+ (50% total gain on average of $3 million invested from July 2015 to date)


 

Results by cohort:

2017 Investments


Total invested: $2.0 million

Total market value: $2.0 million

Paper gain/loss: $0


Blueprint Income: Creating the future pension – a simple, pre-determined income stream backed by insurance companies.

Total funding: $250,000

DavePredicts your “7-day low” checking account balance and offers advances on your paycheck at 0% interest to help prevent overdraft.

Total funding: $3.25 million

EverSafeMonitors seniors’ bank and investment accounts, credit cards and credit reports — serving as an extra set of eyes to detect fraud, scams, and identity theft.

Total funding: $250,000 (Finovate alum)

Grove: Personalized, comprehensive financial advice that is accessible and affordable.

Total funding: $250,000

Nova: World’s first cross-border credit reporting agency by building data partnerships across the globe.

Total funding: $250,000

Point: Home-equity platform giving homeowners cash today for a share of their home’s future appreciation.

Total funding: $250,000

Token TransitMobile app to quickly and easily pay for public transportation.

Total funding: $250,000

Tomorrow: Providing long-term financial security to busy millennials and working families.

Total funding: $2.85 million

 

2016 Investments


Total $ invested: $2.0 million + $250,000 non-profit grant

Total $ returned: 2 startups shut down, assume $0 return to investors

Total market value: $1.5 million

Paper gain/loss: ($500,000)


Albert: Mobile app that improves financial health with practical, actionable financial recommendations.

Total funding: $2.85 million

Value to Chase/CFSi: $250,000+

Bee: Mobile banking alternative to the under/un-banked (In process of shutting down)

Total funding: $4.85 million

Value to Chase/CFSi = $0

Earn: Non-profit leveraging technology to solve America’s savings crisis.

Total funding: $250,000

Value to Chase/CFSi: $0 (non-profit grant)

EarnUp: Platform that intelligently automates loan payments and identifies earning opportunities for the 200 million indebted Americans.

Total funding: $3.25 million

Value to Chase/CFSi: $250,000+

CreditHero: eCreditHero helps consumers fix their credit report errors for free.

Total funding: $250,000

Value to Chase/CFSi: TBD

Everlance: App for freelancers to automatically track their business miles and expenses.

Total funding: $250,000

Value to Chase/CFSi: TBD

RemedyProtects people from medical bill errors and overcharges, saving the average family over $1,000 per year (shut down 14 July 2017)

Total funding: $2.15 million

Value to Chase/CFSi: $0

ScratchModern-day loan servicer that delivers a borrower-first experience.

Total funding: $250,000

Value to Chase/CFSi: TBD

WiseBanyan: Free financial advisor.

Total funding: $250,000 (Finovate alum)

Value to Chase/CFSi: TBD

 

2015 Investments


Total invested: $2.0 million + $250,000 non-profit grant

Total returned: 1 exit, unknown valuation

Total market value: $4 million+

Paper gain: $2 million


AscendReduces risk on current loans and rewards the borrower by lowering interest payments for positive financial behaviors.

Total funding: $12.75 million

Value to Chase/CFSi: $500,000+

DigitAutomated savings tool that identifies small amounts of money that can be moved from checking into savings based on spending habits.

Total funding: $36.5 million

Value to Chase/CFSi: $1 million+

EvenTurns the inconsistent income of hourly and part-time workers into a steady salary.

Total funding: $12.25 million

Value to Chase/CFSi: $500,000+

LendStreetMarketplace-lending platform that helps borrowers reduce their debt and rebuild their credit.

Total funding: $28.25 million

Value to Chase/CFSi: $1 million+

PayGoalNon-profit workplace tool that enables financially underserved workers to improve their financial health.

Total funding: $250,000

Value to Chase/CFSi: $0 (non-profit grant)

PrismComprehensive bill payment and management app that helps people better manage their personal finances. In early 2016, Prism was acquired by fintech company PayNearMe.

Total funding: $3.8 million

Value to Chase/CFSi: Exited at unknown price

PropelSimplifies the food stamp application process by streamlining the initial enrollment form.

Total funding: $5.4 million

Value to Chase/CFSi: $500,000+

PuddleReduces risk on current loans and rewards the borrower by lowering interest payments for positive financial behaviors.

Total funding: $250,000

Value to Chase/CFSi: TBD

SupportPayAutomated payment platform that enables parents to share child expenses and exchange child support.

Total funding: $7.1 million

Value to Chase/CFSi: $500,000+


 

Author: Jim Bruene is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 


Notes:

  1. We only know that Chase is a “founding partner” in the $30 million effort. We don’t know if Chase is the sole investor, or merely the lead. And we don’t know what happens with any investment gains, whether they go back into CFSi’s balance sheet or accrue to Chase and any other investors involved.
  2. It appears that the companies are each offered a $250,000 convertible note. But we don’t know the overall terms, how many companies accept the financing, or if they are all $250,000. For the sake of this post, we are assuming everyone takes the full $250,000. We also don’t know if Chase is earmarking part of the $30 million commitment for add-on investments. So far, there are no public record of add-on investments in the 26 companies.
  3. Non-profits receive restricted grants of $250,000.
  4. Since none of the companies have revealed valuations in their subsequent financings, to value Chase’s stake, we are assuming a 2x valuation on A-rounds and a 4x valuation on B-rounds.

WiseBanyan Unveils Tax Protection Premium Package

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Free financial advisory platform WiseBanyan released its first premium package this week, Tax Protection. The new services – WiseHarvesting, Selective Trading, and IRA Conversions – enable investors and savers to manage the way their investments impact their taxes. The WiseHarvesting feature helps balance out investment gains with harvested investment losses. Selective Trading keeps investors from owning the same ETFs in multiple accounts. And IRA Conversions enable investors to switch from traditional to Roth IRAs.

The Tax Protection also comes at a low cost. Investors can take advantage of any one of the services for 0.02% of their average account value, with a maximum charge of $20 a month. WiseHarvesting, the company’s first premium service, is already available to WiseBanyan clients. Those currently using WiseHarvesting will be use to add the new services without additional cost.

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Pictured (left to right): Wise Banyan Co-CEO and Co-Founder Herbert Moore and Chief Science Officer Jennifer Chin during their presentation, “Data as an Advantage: Building a Data Warehouse with Open Source Tools” at FinDEVr Silicon Valley 2016.

In a blog post announcing the new service, WiseBanyan Manager of Content Strategy Aliza Kellerman added that the company has “a ton of other packages in the works, all designed to provide additional value to your WiseBanyan experience,” and credited feedback from its “fantastic, passionate, vocal clients” for inspiring new features like Tax Protection.

Pledging to help investors make their first $100,000, WiseBanyan is a free platform that provides automated, goal-based investing and financial planning. With a $1 minimum, investors can provide their investment time horizon, risk aversion, and amount saved, and WiseBanyan builds a portfolio designed to maximize real investment returns on an after-tax basis.  Customer funds are invested in liquid, equity and bond exchange-traded funds (ETFs), and WiseBanyan monitors the portfolios continuously, reinvesting dividends and tracking progress toward the pre-set goal.

Founded in 2013, WiseBanyan discussed its technology at FinDEVr Silicon Valley 2016 last fall, winning “Best Debut Company.” The company’s presentation, “Data as an Advantage: Building a Data Warehouse with Open Source Tools,” was led by co-CEO and co-founder Herbert Moore and Chief Science Officer Jennifer Chin. In March, WiseBanyan won the Startup Pitch competition at SXSW and was also named “judge’s favorite” – earning a $1,000 prize from LaunchKC. The company was featured in Business Insider’s 2017 roster of the 15 Best Roboadvisors and also earned a spot on Nerdwallet’s Best Robo-Advisors: 2017 Top Picks list.

Top Direct-to-Consumer Wealthtech Plays

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Our wealthtech industry coverage continues this week. We looked at the industry last week and reviewed the top trends earlier this month. Today we’re taking a look at industry players with B2C offerings—in other words, companies that market directly to consumers and not through businesses.

Since wealthtech is broader than just roboadvisers, we’ve divided B2C wealthtech players into seven categories and laid out our top picks for each group. Since category sizes vary, the number of our selections also vary.

Top in-house builds from traditional players
These are offerings from traditional wealth management firms that have been built in-house (or purchased and then white-labeled) and marketed under the firm’s brand.

Fully automated roboadvisers
These are online platforms that provide automated, algorithm-based portfolio management without intervention from human advisers and without personalized, one-on-one conversations with a human adviser.

screen-shot-2016-12-22-at-4-06-40-pmAcorns takes a unique approach by linking a user’s debit card and investing their “spare change”

Hybrid roboadvisers
These are traditional advisory services, including personalized conversations and actively managed portfolios blended with computerized portfolio recommendations. Business Insider reports hybrid roboadvisers will manage 10% of all investable assets by 2025.

screen-shot-2016-12-22-at-4-11-08-pmSigFig has partnered with multiple banks, including Wells Fargo, Pershing, and Citizens Bank

Non-U.S. roboadvisers

Alternative investing platforms
These are platforms that link participants to unconventional investment types, such as private equity, hedge funds, futures, real estate, etc.

screen-shot-2016-12-22-at-4-18-08-pmWith Motif, uses invest in grouped stocks and ETFs that revolve around a common theme

Non-U.S. alternative investing platforms

News and information companies
These are online platforms that help users discover news and market trends before they go mainstream. Some include social networking aspects.

screen-shot-2016-12-22-at-4-23-47-pmTickerTags helps users discover trends even before they become news

Top Trends in Wealthtech: From API-ization to Virtual Engagement

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Wealth management technology provider eMoney Advisor, pictured here at FinovateFall, was acquired by Fidelity Investments in 2015 for $250 million.

With 2017 just around the corner, what trends are likely to drive innovations in wealth management technology, aka wealth tech?

The biggest potential regulatory change is the Department of Labor rule that financial planners must act as fiduciaries. The Trump election victory, accompanied by Republican control over both houses of Congress, may make this rule irrelevant. But most in the wealth management industry are nevertheless making preparations in the event the rule (announced this past spring and to be rolled out next spring) is kept. One concern with regard to the fiduciary rule specifically related to wealth tech is how fiduciary responsibility would work with robo-advisories. Can an automated investment platform determine conflicts of interest between the planner and client? What technological tools will be needed to give robo-advisory platforms this capacity? Maintaining fiduciary responsibility with a robotic investment platform suggests two potential scenarios: increasing use of human advisers in combination with automated technology, and deploying sentiment analysis technologies to better interpret nonverbal communication between planners and clients. Interestingly, both of these solutions are connected to other trends in wealth management, such as virtual meetings/conferences.

Use of virtual meetings

Virtual meetings will help wealth managers respond to a variety of issues, including better engagement and multichannel/channel-of-choice engagement. Virtual meetings could even help managers deal with greater fiduciary responsibilities. The channels can include everything from the use of Skype calls and video conferencing to more elaborate virtual meeting platforms such as those from Finovate alums like SuiteBox (F16) and SaleMove (F16). Both PwC and Deloitte have noticed the trend. “Multichannel delivery will become a strategy for delivering advice to clients in the most convenient, most efficient way possible based on each client’s particular needs at particular moments,” said PwC, in a recent look at wealth management technology trends. Deloitte noted that “new combinations of digital and human-based channels” are not just for millennials, saying that some gen-Xers and boomers “want to engage in new ways” as well.

According to a study conducted by Investment News/Cambridge, only 4% of advisers who responded currently list video conferencing as one of their communication methods, but 32% expect to rely on it more within five years. Douglas Boneparth, partner at Life and Wealth Planning, told Investment News, “I am seeing advisers, especially younger advisers, adapt to a more virtual and technologically savvy way of doing business. Advisers are focused on the level of service we provide and being accessible in more ways … virtual meetings is a great example of that.”

API-driven platform-ization

The ability to integrate financial data using APIs (Application Programming Interfaces) has been a huge boon for finance in general and wealth tech in specific. API use and adoption within wealth tech is especially strong where brokerage services are involved, (e.g., order-management system APIs). At a fundamental level, APIs enable linking multiple apps (portfolio management, document management, pricing systems); eliminate manual data entry; and limit mistakes during data transfer and update.

Marion Asnes of Broadridge Financial Solutions emphasized this last point. “Platforms must aggregate performance data across various institutions, and then, integrate planning, portfolio accounting, trading, reporting, and communications functions,” Asnes wrote for Investment News. “A wealth manager would need to aggregate performance data from all the various accounts in one place and base recommendations on that complete picture.” Writing in Quovo, John Horneff presented APIs also as an opportunity for managers to differentiate themselves, “leveraging new, innovative technology to break away from the pack and provide unique offerings.”

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Stephane Dubois, CEO of Xignite, during his company’s demo at FinovateAsia 2016. Xignite serves more than one one trillion market data API calls a year.

Xignite (F16) founder and CEO Stephane Dubois says the most salient factors of robo-advisory are: “ETFs, Trading APIs, and Market Data APIs.” Dubois’ firm is an acknowledged leader in the latter. With clients that are a who’s who of wealth management innovators—think Betterment (F11); Motif Investing (F14); Personal Capital (F14); and TipRanks (F13)—Xignite launched its FintechRevolution API Ecosystem in 2015 in an effort to make financial APIs more available to startups.

Growing importance of platforms

Both digital storage and ensuring ready accessibility of data are two trends in wealth management that point to the growing importance of advisor platforms to help wealth managers to their work. This is clearly one area where technology is playing a major role, especially for those focusing on the “accessibility of data” issue. Quoted in Investment News, Overplays co-founder Abby Schneiderman said, “Having data all in one place is one more way advisers can serve their clients’ needs … . I think one thing advisers are looking for is singular places to house all of their client’s information: wishes, documents, investment accounts, etc. in one place.”

Innovations in wealth management and financial advice platforms enable better engagement. Innovative platforms can give advisers more “surface area” for conversation and engagement with their clients. A good example is Polly Portfolio (F16) that uses natural language technology to ask customers about their financial goals and economic outlook to personalize and, importantly, explain portfolio construction. Combined with API-delivery and the inclusion of functionality like video, innovations in platform design will be key to help managers and advisors take advantage of industry trends.

HNW clients and robo-advisory

As robo-advisory becomes both more sophisticated and more accepted, an increasing number of high net worth (HNW) individuals are taking the automated investment route for some part of their finances. Betterment’s Jon Stein says their largest customer has $10 million invested with the company. He adds that many HNW people are already investors, but are now upping their investment from 5% two years ago to 20% (Stein defines HNW as having assets above $500,000).

Catering to high net worth clients, according to some, involves both greater technological sophistication on the part of robo-advisors as well as more extensive customer service. Writing in the CBInsights Blog, the analysts noted that one criticism of robo-advisors is that the very wealthy might have “more complex investment needs and higher customer service expectations.”

Specifically, high net worth clients may require access to more complex investment vehicles, including non-equity investments, as well as more advanced rebalancing and tax harvesting than the average investor. Other services, such as helping HNW clients manage sizable amounts of cash a la MaxMyInterest (F14), would also help encourage more wealthy investors to allocate a portion of their assets to robo-advisors.

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Herbert Moore and Jennifer Chin of WiseBanyan during their FinDEVr Silicon Valley debut. WiseBanyan is an independent robo-advisor that caters to millennials.

“Small data”

One large trend wherever clients and customers are involved is the role of small data, the kind of basic client data—demographics, for example—that can be very informative for the financial planner or wealth manager. In terms of increasing engagement, providing more accurate and personalized financial guidance, a little information about a client’s personal circumstances can go a long way.

In addition to providing better service to customers, small data can be the key to making a wealth management or financial planning business more efficient. Knowing which revenues are coming from new versus existing clients, for example, can help managers get the right products and services to the right customers. This is another area where innovators have produced platforms and software to help analyze client data and provide insights, often leveraging visualization technologies.

Robo-advisories: build or buy?

For financial institutions looking to provide wealth management services via robo-advisor, the question is whether to build or buy. While each approach has advantages and disadvantages, many FIs and brokerage firms have already decided:

Examples of firms that have gone the “roll your own” route include Fidelity with its Fidelity Go; Schwab with its Schwab Intelligent Portfolios; Vanguard with its Vanguard Personal Advisors Services; and E-Trade with its E-Trade Adaptive Portfolio.

But acquisitions have been a way for FIs to get up and running with robo-advisory service in a hurry. Some of the more notable recent acquisitions include Legg Mason’s purchase of Financial Guard (F13); Invesco PowerShares acquisition of Jemstep (F13); and Blackrock’s taking on FutureAdvisor (F13).

Other FIs are splitting the difference and instead seek partnerships with robo-advisors. The recent agreement and investment between Citizens Bank and SigFig to help the former build out a robo-advisory platform is an example of this approach.

Changing nature of advice

The growing capacity of robo-advisors to help manage other aspects of personal finance supports a more expansive view of wealth management and financial planning. This includes everything from health care planning, insurance, even real estate, education and leisure. The ability of technology to aggregate financial information is a major catalyst here, giving managers the ability to provide guidance beyond traditional boundaries.

Much of what is driving the changing nature of advice has to do with those being advised. The myriad and interconnected financial concerns affecting millennials—from managing student loan debt to starting a family—mean that financial planning beyond how to invest in a 401(k) is increasingly relevant and necessary. At the other end of the spectrum, active older adults in the “longevity economy” have financial issues that differ from those of seniors a generation ago who often had pensions and other financial support later in life.

This is where companies like iQuantifi (F14)—a self-described “proud robo-advisor” and virtual financial advisor—come in, with a platform that provides planning and guidance over a wide variety of topics, including insurance. Millennials are being catered to by wealth tech firms like WiseBanyan (FD16) while near and recent retirees can look to a company like True Link (F14), which specializes in financial planning for seniors.

FinDEVr Flashbacks: Full Presentation Videos Now Live

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It’s FinDEVr Silicon Valley like you’ve never seen it before—on video! If you missed out on last month’s conference and want to catch the latest in fintech developer trends, or if you just want to re-live the moments from the show, you’re in luck.

All of the presentation videos from the conference are available for free on FinDEVr.com. Not sure where to start? Take a peek at these award-winning companies:

Tuesday crowd favorite: MX


Wednesday crowd favorite: OCR Labs

 


Media favorite: 1787fp

 


Favorite alum: Lleida.net


Favorite debut: WiseBanyan


Favorite established company: IBM


Favorite startup: Alloy

 

We’ll see you next year or at FinDEVr New York on March 21 & 22, 2017!

FinDEVr Silicon Valley: Celebrating the Best of the Builders

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After watching two days of live presentations from fintech innovators from around the world, the attendees at FinDEVr Silicon Valley 2016 have made plain their preferences. So many presenters received enthusiastic praise for the way they are solving problems and developing tools/APIs to make payments more efficient, security more effective, and financial data more accessible. Although all companies impressed the audience, still a few emerged as clear favorites.

So without further ado, let’s take a look at them (all chosen by audience vote, except the press/analyst favorite):

Crowd favorite, day one:

  • MX for its heartfelt message on how it gets the necessary work done, both in fintech and in life

Crowd favorite, day two:

  • OCR Labs for its innovations in optical character recognition (OCR) and facial recognition (FR) technology and their application on web and mobile platforms.

Press/analyst favorite:

  • 1787fp for its mobile app that helps consumers track and manage their finances and investments.

Favorite FinDEVr alum:

  • Lleida.net for its registered email and registered electronic contract technology.

Favorite FinDEVr debut:

  • WiseBanyan for its free, independent, goal-based roboadviser designed to help investors reach their first $100,000.

Favorite established company:

  • IBM for its implementation of the Hyperledger Project and blockchain-as-a-service strategy.

Favorite startup company:

  • Alloy for its software solutions that help financial services companies conduct KYC/AML; develop risk-management strategies; and maintain continuous compliance.

We want to thank everyone who made FinDEVr Silicon Valley 2016 possible. From our presenters to our attendees to all the staff and others who participated in this year’s event, we truly could not do this without you. So give yourselves a pat on the back, raise a toast of something tasty, and mark your calendars as we take our developers conference to the Big Apple next spring for FinDEVr New York 2017, and then across the Atlantic in June for FinDEVr London 2017.