Big Banks Shift to a New Fintech Strategy

Provided by CNBC

Big banks’ fintech investing strategies are shifting at a crucial time in the nascent industry’s development.

This year, big banks seem more eager to partner with or buyout startups challenging crucial lines of business in the financial services industry. It comes after years of banks’ simply being willing to buy in as minority stakeholders in startups. Fintech, or financial technology, is used to make financial services more efficient.

More recently, banks are committing big bucks to buyouts. It comes after a year in which fintech funding hit new highs. Ally Financial (ALLY) bought online brokerage TradeKing Group, the firm announced earlier this month, in a $275 million deal. BlackRock (BLK) also decided to tap into fintech, last August, with the $150 million acquisition of online investment firm FutureAdvisor.

Banks aren’t always spending to buy startups with big-name investors — or big price tags. When Goldman Sachs (GS) last month bought Honest Dollar, the Texas-based online retirement planning service, the startup had raised just $3 million in venture funding, according to Crunchbase. The bank didn’t disclose its purchase price and didn’t comment on the deal. TradeKing, as well, raised less than $10 million in venture funding, according to Crunchbase.

It isn’t just U.S. banks eager to beat back the rising tide of disruption. Spanish bank BBVA bought out Finnish banking startup Holvi last month, and didn’t disclose terms — it also wasn’t BBVA’s first deal in that sub-sector. BNP Paribas earlier this month announced a partnership with SmartAngels, a direct investing platform for crowdfunding deals, as well.

“Banks are partnering to keep in the game and keep relevant,” said Alvarez & Marsal managing director David Gibbons. “I think they’ve caught up fairly well.”

Finding partners, rather than M&A targets, is especially helpful to banks that have been squeezed out of some financial services businesses like small business lending. One investor, who asked to not be quoted, said many banks have a difficult time profitably originating small loans. JPMorgan Chase (JPM)partnered with On Deck Capital (ONDK), an online lender that has struggled since its late 2014 IPO, to generate loans to the bank’s customer base.

“Banks are already well down the road to partnering with marketplace platforms for unsecured lending,” said PricewaterhouseCoopers fintech co-lead Haskell Garfinkel. “The biggest challenge right now is to consume it, integrate it and monetize it.”

And while big banks are trying to integrate partners and investments, some may shut other startups out of customer accounts and financial data. In his annual letter to shareholders this month, JPMorgan Chase CEO Jamie Dimon noted unnamed third-party apps take more data than they need, and said they are “doing it for their own economic benefit.”

If banks again starts throttling apps they believe are abusing access, reverberations might have a lasting impact in Silicon Valley, where mobile banking and finance management apps are often dependent on real-time access to customers’ bank accounts. As banks sift out which businesses they must buy, which they may partner with and which they can duplicate independently, various segments of the fintech ecosystem are likely to encounter different treatment.

While financial services investors have put money into startups like MobiKwik and Square (SQ), M&A for payments-focused companies has been rare. Considering that a number of big banks banded together in February to establish the clearXchange network, which allows consumers to process transactions between smartphones without a third-party app, payments is one sub-sector of fintech that could see continuing competition from legacy players.

“It’s a race to the bottom,” said Mariano Belinky, managing partner of Santander InnoVentures, a $100 million fund operated by the Spanish bank of the same name. “We’re going to end up with payments as a free service.”

Written by Jon Marino of CNBC

(Source: MSN)

3 Tips to Sink or Swim in the Startup World

CNBC's Maneet Ahuja interviews Shai Agassi, Nikita Fahrenholz and Lisa Falzone at the Forbes Under 30 Summit in Tel Aviv
CNBC

renholz and Lisa Falzone at the Forbes Under 3…CNBC’s Maneet Ahuja interviews Shai Agassi, Nikita Fahrenholz and Lisa Falzone at the Forbes Under 30…

How do you survive the world of startups? There’s no clear answer, but three entrepreneurs–Revel System CEO Lisa Falzone, Delivery Hero’s Nikita Fahrenholtz and Better Place founder Shai Agassi–took the stage of the FORBES Under 30 Summit, just off the beaches of Tel Aviv, to share some tips they’ve picked up during their adventures in startup land.

How to push passed the fear of failure?

Nikita Fahrenholtz: You have to get comfortable with it. I’ve failed so many times–it’s part of what makes you human. You change your mindset–I never thought about the negative consequences of an experiment but instead the positive outcome. You push through it and you ignore others’ opinions. You have to trust your intuition.

Shai Agassi: If you’re not willing to fail you won’t succeed. The difference between failure and successes is so minuscule you wont’ be able to tell the difference. Fail early, fail big and fail gracefully. And then you take the next step and you’ll invariably succeed.

Lisa Falzone: I was not good at failure. I had to study to overcome that fear to start a company. It’s about being OK with failure and know you’ll make mistakes. But it’s also about how fast you recover. We’re growing at 200% each year, so there will be pain but it’s about how agile we can be. I always look back to this quote from Theodore Roosevelt which basically says I’d rather stand in the arena and fail than be one of those cold timid souls that know neither victory or defeat.

How did you get your start in the business?

Nikita Fahrenholtz : I went into consulting because it seemed like a safe option after university. It was a great company but it wasn’t for me. I didn’t want to spend 16 hours a day in a windowless room talking about operation strategies. I quit after 7 months and talked with my friend (and future co-founder) about starting a company that ordered pizza online. My mom started to cry when I told her. I think she’s happy now.

Lisa Falzone: Point of sale is huge problem for retailers. There’s a joke in the business that the acronym POS really stands for piece of shit. That was a problem that I could solve. The iPad had just came out and we thought, let’s use this new technology and interface to create a good point of sale product. When you create something out of nothing, everything is hard. No one had printed a receipts from an iPad before, no one had found way to connect the iPad to the platforms. Now we’re doing all the check outs for Cinnabon and the Superbowl.

What are your plans for the future?

Nikita Fahrenholtz: Being based in Germany, we have to expanded rapidly because the home market is so small. We had to move quickly to France and Spain and Italy. With Delivery Hero we mapped out countires that were interesting for us and we found most attraive open spots. I’m not so much worried about US comapnies like GrubHub because they are so content with the U.S.–and if they get fancy they go to Canada. That means the rest of the world is ours.

Lisa Falzone: We’re working toward an IPO, I don’t think I could ever work for a large corp. We never built Revel to get sold and always wanted to remain independent – and going public is the best option.

And a final thought from Shai Agassi: “Bits, atoms, and cells are the three major upcoming shifts, but the biggest challenge will be finding the moral compass to steer them.”

Written by Steven Bertoni of Forbes

(Source: MSN)

 

How Big Food Brands are Trying to Blunt Start-Ups

Provided by CNBC

Historically large brand name products in the supermarket have commanded more demand and higher costs. Those days, however, may be numbered.

Analysts say that as more upstarts get into the game, major food conglomerates are reacting in ways that suggest their hold on the public is slipping. That means big established food brands are being forced to innovate in new and unusual ways — and must look outside their own company in order to boost growth.

For example, Campbell’s Soup  (CPB)recently announced a $125 million venture capital (VC) fund that the company wants to invest in the “disruption” in food trends. At a recent analyst’s conference, Campbell president and CEO Denise Morrison pointed out that 400 food start-ups have absorbed more than $6 billion in funding, which raises the stakes for big consumer brands who want to remain relevant.

Observers cite several trends are at work. Consumer tastes are shifting in ways that are putting big brands on the defensive, they say.

“Consumers are becoming very distrusting of the food brands they grew up with, rejecting the artificial ingredients those foods contain,” Vani Hari, author and activist at FoodBabe.com, explained to CNBC recently. “They’re now opting for new start-ups that are putting organic, non-GMO [genetically modified] foods on the market.”

Hari said it’s easier for certain companies to buy or partner with start-ups, rather than re-engineering their products. However, although buying out smaller competitors is the time-honored way to boost market share and lure in new customers, that strategy may not always pan out if smaller companies don’t want to play along.

Last month, yogurt maker Chobani recently rejected PepsiCo’s  (PEP)offer for a stake in the company. Chobani said its independence remained a key asset to the company and brand.

From Amy’s Soup to Justin’s Peanut Butter, increasingly health-conscious consumers are eyeing upstarts that may have little to do with branding, and more to do with trust. Health conscious companies, such as Jessica Alba’s The Honest Company, have been rewarded with consumer loyalty and stratospheric valuations. After only a few years in existence, The Honest Company is already valued at nearly $2 billion.

According to Hari, organic and non-GMO food is one of the food market’s segments that continues to increase in a straight line, and big brands are taking notice. Within the last year, companies such as Tyson Food  (TSN), McDonald’s  (MCD), General Mills  (GIS), Panera Bread  (PNRA) and Campbell’s, among others, “have announced major changes to the ingredients in their food,” she said.

Yet Darren Seifer, a food and beverage industry analyst for NPD Group, said it will take time for some legacy consumer brands to regain trust. “They’ve had a reputation for so long, for being a certain way, so it will take time for them to rebrand themselves,” he said.

“For marketers, it’s not that consumers are rejecting [their] brands, it just might take five to 10 years,” he added.

In the meantime, consumers are flocking to alternative brands that embody both health and trust, such as Aloha. The company is a wellness brand that creates and sells products — like green juice powder, plant-based protein, trail mix, and protein bars — that make eating healthy affordable.

“I’d repeatedly found that it was way too complicated to figure out what was or wasn’t healthy,” Constanin Bisanz, the founder and CEO of Aloha, told CNBC. “We’re exposed to too many false claims, conflicting health advice, and misleading advertising, and so many products get called ‘healthy,’ when on a true wellness level they’re actually bad for us.”

Bisanz says the idea for his business came as a result of trying to make a healthy lifestyle more accessible to everyone.

“I knew that there had to be a better and more trustworthy solution to leaving a long-lasting and positive impact on people’s bodies and minds,” he added.

Written by Uptin Saiidi of CNBC

(Source: CNBC)

Many Big Companies Live in Fear for their Future in Digital Age

© REUTERS/Fabrizio Bensch
© REUTERS/Fabrizio Bensch

The top executives of many a corporate giant must feel like the fictional character Gulliver, waking up to find themselves under attack from modern-day Lilliputians, small start-up companies which overwhelm their established rivals with new technologies.

The old powers of market incumbents – massive scale, control over distribution, brand power, millions of customer relationships – are no longer seen as the obstacles they once were to agile rivals with innovative business models.

A new survey finds business leaders believe four out of 10 top-ranked companies in their industries worldwide won’t survive the next five years.

They blame the accelerating change in technology, shifting business models and a need to merge to cut costs in order to ensure they don’t become footnotes in someone else’s corporate history.

“Not just lone companies, but entire industries are being side-swiped by these effects,” said James Macaulay, co-author of the study, which polled 941 business leaders from a dozen industries in the world’s 13 biggest economies.

“Digital disruption now has the potential to overturn incumbents and reshape markets faster than perhaps any force in history,” the survey states. The report can be found at http://bit.ly/1IyV1cK

The survey was conducted by a research center at top-ranked Swiss business school IMD, the International Institute for Management Development, with backing from Internet equipment maker Cisco, where Macaulay works as a consultant.

INDUSTRIES AT RISK

Industries with the highest number of top-rated companies at risk were hospitality/travel, media and entertainment, retail, financial services and consumer goods/manufacturing, in that order, the survey showed.

Meanwhile, industries which still largely deliver physical products or services such as pharmaceuticals, utilities and the oil and gas sectors were rated the least likely to be disrupted.

Michael Wade, another co-author of the survey, said there were some things software could not replace. “Consumers are still unlikely to take an app if they get a headache,” joked Wade, a professor of strategy at the Lausanne-based IMD business school.

But even for industries such as pharmaceuticals, where regulatory protections, high capital costs and complex production processes still rule, Wade said new threats are coming from start-ups analyzing “big data” to offer a personalized approach to medicine, for example.

Meanwhile in travel e-commerce aggregators have taken millions of customers from direct bookings with hotels and airlines already struggling with a decade of decline in business travel amid the economic and structural challenges.

“Disruptive players are coming from out of nowhere,” says Macaulay. “Now it’s individuals who want to rent their homes and vehicles,” he said, referring to home rental service Airbnb, office-sharing firm LiquidSpace and similar “sharing economy” start-ups.

Karl Ulrich Garnadt, chief executive of the German Airlines division of Deutsche Lufthansa AG, told venture investors in Berlin this month that his industry still spends too much time worrying about direct competitors in Asia or the Mideast.

He noted how the industry missed the rise of mobile travel apps, the top dozen of which now collectively have a valuation around 88 billion euros ($99 billion), while the market capitalization of Lufthansa, Europe’s largest airline group, has shrunk to 5.5 billion euros from double that a decade ago.

“Today we are too limited in our thinking. We need to widen our horizon, we need to think like the customer,” the airline industry veteran said.

Toward that end, Lufthansa is seeking ways to woo back customers who expect them to deliver more than boarding passes to their mobile phones. With free on-board Wi-Fi soon to be available on every plane, he wants flight attendants to use new apps to help frequent travelers make new travel bookings in mid-air.

In banking big lenders are now all at giving board-level attention to the rapid growth of “fintech” start-ups in markets from mortgage-lending to wealth management to small business loans.

In an era of cloud computing and services delivered to smartphones, fintech start-ups have no need to duplicate the retail branch networks that tied customers to banks. And new players aren’t saddled with making heavy investments in creaky, decades-old back-office banking systems.

“Lending remains pretty much an archaic process for banks, largely based on paper forms that are designed to give customers a poor experience,” said Martin McPhee, a senior vice president at Cisco who heads the company’s consulting arm.

“Research shows that four out of five banking customers will happily leave their banks for a better customer experience,” he said.

HUNT OR BE HUNTED

In corporate circles, the most common sobriquet for these digital threats is Google or, less frequently, Amazon.

But, depending on the industry, the big threat goes by different names: for automakers and transport companies, it is Tesla, the luxury electric car company, or Uber, the online taxi service. For hotels and airlines, it’s Airbnb or Trivago, now majority owned by Expedia.

Tesla has also hit the radar of utilities with its announcement in April on its “energy storage” business, which aims to produce batteries capable of solving the elusive problem of storing electrical energy produced at optimum times for use at other times.

“Everyone thought (Tesla founder) Elon Musk was building a car company, but now we find he is building an alternative energy company,” McPhee said.

There is also mounting wave of digitally inspired, cross-border mergers, stepped-up corporate venture funding and a willingness to place bigger bets on risky business models that can undermine a company’s existing activities.

BMW-owned British carmaker Mini said this week customers would in the future be able to offer their private vehicles for car-sharing, mindful of a trend amongst younger drivers to not have their own cars.

The challengers offer massive improvements in how customers use the products or services of established businesses. They combine that with finding ways to slash costs and enter markets without investing heavily to own physical assets or distribution infrastructure, says McPhee.

Uber, the online taxi-hailing service is now applying similar strategies to sign up drivers to deliver everything from groceries to heavy equipment, in a challenge to logistics giants like FedEx and UPS.

McPhee notes the historical parallel to what occurred after the advent of the Web in the mid 1990s: Just 25 percent of the Fortune 100 top U.S. companies were still in existence 15 years later.

Written by Eric Auchard of Reuters

(Source: Reuters)