Control the Attributes
By Alex Johnson
#1: Wealthfront Zagging
Wealthfront introduced a new service:
Today, we’re thrilled to announce Wealthfront is expanding into stock investing to serve a broader set of our clients’ investing needs. Our Stock Investing Account has all of the features you’d expect from a stock trading app including fractional shares, zero commissions, and a $1 minimum. But it’s not your typical stock investing service.
The timing of this is interesting.
Fractional stock trading was one of the hottest areas in fintech, but that was years ago. Today, all the brokerage apps, your Robinhoods and Publics, are trying to get away from the individual stock-picking game and diversify into more boring and stable areas like retirement accounts and T-bills.
Wealthfront, which cornered the fintech market on boring a while ago, is zagging while everyone else is zigging. Its new service:
- Facilitates the buying and selling of stocks, at a minimum investment of $1, with no commission fees (and no payment for order flow either).
- Is built around a “playlist” concept, allowing customers to discover bundles of different stocks that are arranged around specific themes – streaming, low volatility, robotics, etc.
- Allows customers to weight their investments in specific stocks within these bundles in whatever way they’d like.
None of this is revolutionary (the playlist concept is one that a few different companies in the investing space are building), but it all appears to be very well done and in concert with Wealthfront’s larger goal – to help people build long-term wealth.
#2: Open Up Your Wallets
The Linux Foundation Europe launched a new initiative:
The Linux Foundation‘s European off-shoot has formally launched the OpenWallet Foundation (OWF), a new collaborative effort designed to support interoperability between digital wallets through open source software.
While the likes of PayPal, Google and Apple are among the most recognized digital wallet providers, allowing consumers to conduct financial transactions in-store or online, digital wallets are increasingly being used to store all manner of virtual goods, from student ID to driving licenses. On top of that, burgeoning technologies such as the metaverse and crypto are giving rise to greater use cases for digital wallets.
But one thing all these various environments have in common is that the incumbent digital wallets, for the most part, don’t play nicely with each other: an Apple Pay die-hard can’t send money to their Google Pay brethren. And that is why the OWF is setting out to create an “open source engine” that can power interoperable digital wallets across myriad use cases, including identity, payments and storing personal credentials such as employment and education certification.
Back in January, I asked this question in the newsletter:
What are some good examples of fintech startups building decentralized solutions that don’t leverage blockchain technology?
This is the type of thing I was fishing for. Crypto proponents are right to criticize big tech companies like Apple and Google for creating closed ecosystems. These ecosystems are, by design, anti-competitive, and they lead to worse outcomes for consumers over the long term.
We need decentralized solutions for building the infrastructure necessary to carry out foundational activities like payments and identity verification. I’d just prefer for those solutions to come without the slow databases, grifting, and libertarian bullshit.
Open-source software, in conjunction with the continued development of standards through organizations like W3C, is the way. And Europe is the place to start, as the TechCrunch article notes:
That the OWF has elected to set up shop under the auspices of the Linux Foundation’s European operation is notable. Indeed, Europe is spearheading a broader push against the “walled garden” ethos of big tech, and is currently forging ahead with new rules to enforce interoperability between messaging platforms
Specific to the OWF’s goals, however, Europe is also looking to incorporate digital wallets into its existing eIDAS (electronic identification, authentication and trust services) regulation, effectively giving all EU citizens a single digital identity to carry out transactions and verification across all companies and public administrations. The European Commission also recently set out the specifications required to develop an interoperable Europe-wide Digital Identity Wallet based on common standards.
More of this, please.
#3: Control the Attributes
Spade, a fintech infrastructure company, raised a seed round:
Today, we’re closer than ever to creating a financial future based on accuracy and transparency, having raised $5M in seed funding. Our seed round was led by renowned venture capital firm a16z with participation from YCombinator, Gradient Ventures, and Dash Fund.
Spade is focused on enriching payment card transaction data. Here’s how they describe it:
The U.S. alone processes upwards of 124 billion credit and debit card transactions each year (plus over 26 billion transfers). Most are reported in cryptic strings of letters, numbers, and symbols that don’t offer much in the way of information or insight.
With Spade, transaction data is cleaned and enriched in real time using a proprietary first-party data set. Transactions are matched one-to-one with actual merchant identities, categories, and geolocations, and they’re enhanced with details like logos, business hours, and spending histories that paint the full picture behind a purchase.
Financial innovators from card issuers to anti-fraud platforms to neobanks can use this clear, comprehensive data for high-value use cases like enhancing real-time authorization flows, implementing granular spend controls, fine-tuning fraud prevention models, and more.
This is interesting to me, and I’ll tell you why.
One of the most sneakily-successful banking software products built in the last 20 years is Experian’s Attribute Toolbox. It enables lenders to acquire credit data, summarize it into reusable components (attributes), and then feed those attributes into their proprietary predictive models. Lenders using the toolbox can build their own custom attributes and/or use the extensive library of pre-built attributes from Experian.
From a data science perspective, attributes aren’t the most important ingredient in making high-quality lending decisions. The data and the end model are both arguably more important, which is why lenders spend most of their time evaluating new data sources and building models. However, from an operational perspective, attributes are the critical building blocks for turning raw data (which is, functionally, useless) into high-quality decisions.
What Experian discovered is that when you control the attributes, you control the entire decisioning supply chain.
In fintech, we’ve spent most of our time and energy fighting to control the data (open banking) and the algorithms (machine learning), and we’ve spent comparatively little trying to gain control over the process of enriching that data for use in those algorithms.
Expect this to change.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Eco Said It Was Lending To Fidelity & Goldman (by Jason Mikula, Fintech Business Weekly) 📚
This story, which is based on hundreds of pages of internal company documents and call recordings, paints an unflattering picture of Eco, one of the many crypto neobanks that rose to prominence during the last crypto boom.
It’s worth reading in its entirety.
The most interesting bit to me was the way in which Eco allegedly sold its above-market interest rate to skeptical customers using “the Goldman and Fidelity angle,” which was a tactic in which Eco would say that it generated its returns by lending funds on a short-term basis to “Tier 1 Financial Institutions” like “Fidelity and Goldman.”
Eco’s CEO pushed back on this (and other claims in the story) on Twitter, saying that “Eco did not say explicitly it was lending to Goldman or Fidelity,” which may be true, but when you have to use the word “explicitly” in your defense, you’re already on shaky ground.
#2: How To Print money (by Alan Rappeport, Adam Perez, Megan Lovallo, Marisa Schwartz Taylor, and Rebecca Lieberman, the New York Times) 📚
Did you know that America’s physical currency is created by a team of 1,500 employees and contractors working at facilities in Washington and Fort Worth?
I didn’t until I read this fascinating overview of how our money is printed by the New York Times.
No broader fintech angle here. This is just interesting.
1 QUESTION TO PONDER
What are the most interesting or creative strategies you’ve seen banks (or fintech companies) employ to attract or retain deposits in this rising rate environment?