Category Archives: Fintech Opinions

Why AI-driven financial advice is getting regulators’ attention

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The Globe and Mail | | May 22, 2020

AI and fintech models - Why AI-driven financial advice is getting regulators’ attentionThe emerging use of artificial intelligence (AI) to support or even replace human financial advisors is attracting the attention of regulators – mainly in Britain but also in Canada. While they’re broadly supportive of AI as a cost-efficient tool to broaden the reach of financial advice, they’re also monitoring the potential risks and challenges, trying to ensure that this advice remains both suitable and transparent for clients.

The current crisis is certainly putting the usefulness of the new technology to the test. Tony Vail, chief advice officer at Wealth Wizards, a fwell-known provider of AI-assisted financial advice in Britain, says: “We’re finding increasing demand for our technology solutions [as a result of the crisis]. For example, our digital financial advisor, MyEva, had an unprecedented response to an [online] nudge offering help and guidance with finances related to the impacts of COVID-19.”

See:  WealthBar rebrands as CI Direct Investing

Given the increased attention on AI-assisted advice, Britain’s Financial Conduct Authority (FCA) is taking a proactive approach on the matter. Last autumn, the FCA and the Bank of England conducted a survey of more than 100 financial services firms on their experience using AI, resulting in a report published in October 2019. That was to be followed by a forum this spring to solicit more industry feedback, which has been postponed as a result of COVID-19.

Some key areas of concern, FCA documents state, are the practical challenges and barriers to deployment of AI and its potential risks. Industry suggestions for regulatory principles are also being solicited.

In Canada, the use of AI in financial services is beginning to emerge, but at a slower pace. For example, Bank of Montreal introduced BMO Insights in late 2019, which it says “leverages artificial intelligence to deliver personalized, automated, and actionable insights for everyday banking customers.” On the regulatory side, the Ontario Securities Commission says in an e-mail that the topic of AI and financial advice is “an area of interest” and that OSC LaunchPad has worked with “novel” businesses in this area.

Mr. Vail welcomes the regulatory attention this topic is receiving in Britain – especially given the importance of the decisions that clients could be making using the new technology. For example, the firm’s MyEva platform is designed to offer customized, AI-powered, online advice to the employees of large firms such as Unilever PLC.

The platform uses machine learning to offer advice tailored to individual users on matters such as company pensions, saving and borrowing and making the transition to retirement, at no cost to employees. Those who wish to follow up with a human advisor may pay a fee. On average, about 20 per cent of them choose to do so.

See:  The research frontier: where next for AI and collective intelligence?

Mr. Vail says the FCA has encouraged his firm’s AI-driven innovation. Among other advantages, it has the potential to fill the so-called advice gap that has emerged in Britain after a decade of tighter regulation resulted in a sharp decline in the number of advisors. But he acknowledges that, as its use increases, more regulatory review is expected.

“Totally reasonably, [regulators have] to feel uncomfortable about something that is perceived to be, and is actually, a black box,” he says.

Cary List, president and chief executive officer of FP Canada, says there are many potential advantages of using AI to support financial planning. However, he notes that “every individual is different,” and that the quality of advice must be maintained, regardless of how it’s delivered.

Furthermore, the fact that AI is still a very new technology gives reason to be cautious, he says.

“Until there’s a sufficient repository of data in these systems, we are going to see a lot of room for error – and that causes a lot of challenges.”

Indeed, the quality of data collection and its application to individual situations should be a key concern for regulators, says Giulia Lupato, a lawyer and senior policy advisor with the Personal Investment Management & Financial Advice Association (PIMFA) in London, which represents most of Britain’s retail investment management firms.

See:  Top 12 AI Use Cases: Artificial Intelligence in FinTech

One of the most concerning issues, she says, is data bias – problems that arise when huge amounts of data are drawn from many different sources and, over time, are applied without sufficient customization.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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4 Digital Transformation Lessons that Banks Need to Learn from Covid-19

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Finextra | Leon Gauhman | May 20, 2020

post covid lessons for banks - Why AI-driven financial advice is getting regulators’ attentionWhen COVID-19 is finally brought under control, several key sectors will be remembered for the way they stepped up and took responsibility during the crisis. Healthcare is the most obvious, but supermarkets, corner shops, logistics companies and postal delivery networks have also played a critical role in preventing the country sliding into meltdown.

By contrast, British banks have done little to merit a spontaneous round of rainbows and applause. Branches up and down the country have been closed and banks were slow and seemingly reluctant to process SME loan applications under the government’s Coronavirus Business Interruption Loan scheme (CBILS). It’s a brutal indictment of the sector that the government has had to intervene with its 100% ‘bounce back’ loan guarantees to try and salvage the UK economy.

The key question now is whether traditional banks can learn lessons from Covid-19 that will help them establish any kind of status as a part of the SME life support system. In my opinion, they can – but only if they take their lead from the increasingly influential fintech sector. Here are four areas of digital innovation I believe banks should embrace in the post-pandemic era:

1. Greater openness to digital collaboration

Just as problematic as banks’ resistance to lending to SMEs has been the speed at which legacy lenders are processing applications. Weeks after the government’s Coronavirus Business Interruption Loan scheme (CBILS) opened – only 13% of companies which tried to access a loan had been successful. High volumes of enquiries go some way towards excusing this, but the problem also lies with the shortcomings in banks' internal digital processes.

See:  NCFA Open Letter: Government should collaborate with Fintechs

Getting these digital processes right is not the equivalent of investing millions in R&D to find a Covid-19 vaccine. A skilled and well-resourced team could swiftly connect the software, algorithms, data and servers required to build a robust and secure digital platform. Companies like Onfido and Validis, and solutions such as Google Big Table and AWS EC2 are all waiting in the wings to help with various elements of this process.

The reason many banks haven’t done this is because they are not sufficiently agile to innovate at speed. Post Covid-19, a key challenge for banks will be to really collaborate with fintechs and third party vendors and allow their internal capabilities and culture to be challenged and improved so they can respond more quickly to emergencies like Covid-19.  The partnership between Starling Bank and Funding Circle to offer an additional £300m of loans to SMEs under the CBILS scheme is a good example of the collaboration established banks need to embrace going forward.

2. Prioritising customer experience

Bank advertising talks a lot about being there ‘for the journey’, or ‘listening’, or ‘making it happen’. But that certainly hasn't been the experience for many SMEs facing collapse because of Covid-19. The reality is that part of the banks’ failure to react to the virus effectively is because they have not attempted to create a customer-centric model. When it comes to SME customer experience, banks fall down in a number of areas – including lack of personalisation, relevance and ongoing dialogue in their products and services.

See:  How to create high-value customer interactions and win in the Low Touch Economy

Once again, it has been left to fintechs to fill the gaps. It is the fintechs, for example, that have devised products that most closely match the needs of businesses at specific moments in time. Good examples include invoice financing, provided by the likes of US fintech Bluevine, or loans that link directly to business performance (think PayPal Working Capital). It’s also the fintechs that have led the charge in providing added value to customers beyond lending. New players such as Coconut (which is just for sole traders) and German bank Penta have developed innovative solutions helping SMEs with the day-to-day business activities such as cash flow, tax management and incorporation, based on the nature of the individual business, rather than purely on turnover.

3. Smarter use of customer data

High street banks no longer resemble Gringotts in JK Rowling’s Harry Potter universe. But their inability to embrace data-powered banking solutions means they seem just as outdated. Fortunately, the introduction of Open Banking legislation changed the rules of the game, making it possible for fintechs to secure access to data and provide SMEs with support.

A key area of innovation has been faster and better credit scoring solutions. By accessing a wider range of data points than traditional banks, fintechs have found ways to lend to viable SMEs that are deemed uncreditworthy by legacy lenders including customer feedback and transaction history from online marketplaces.

See:  With $73 million CAD, Symend closes one of the largest Series B rounds in recent Alberta history

While broadening the pool of data used to assess SME creditworthiness is important, the emergence of AI and Open Banking means there is a unique opportunity to build predictive elements into the SMEs customer experience. By taking a holistic view of a company’s business, it becomes possible to alert customers when there is a potential problem on the horizon – perhaps the order book in June is down 20% on the previous year. Take a lender like Kabbage as an example. By working with real-time banking and accounting data, the platform can spot when clients are at risk of default and offer solutions before trouble hits.

Imagine a world where this data is linked to wider developments in the SME sector – so these can also be factored into financial planning (for example, a fall in the price of a commodity, strike action affecting a key supply chain).

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Tech has an ageism problem: 3 things to do if you’re over 40 and want to stay relevant

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FastCompany | Lisa Smith | May 14, 020

Over 40 years old in tech - Why AI-driven financial advice is getting regulators’ attentionZapier’s engineering manager points out that unless you’re Gen Z, you’re closer than you think to being old—or you’re already there—and you need to have a plan.

I’m Lisa Smith, I’m an engineering manager for Zapier’s developer platform, and I’m an Old. I’ve been working in tech since before there was a Google. In a previous life, I was a librarian. The kind that touches actual hard-copy books.

I’ve been working on inclusion and diversity issues in tech for nearly as long as I’ve been working in tech, and—as an Old—I recognize that tech has an ageism problem. Much like sexism and racism in the workplace, ageism affects not only the person being discriminated against but also the larger company culture. It deprives the company of needed perspective and the tools and staff they need to innovate.

Before we go on, the sobering news: Old in tech is 41. A survey from Indeed indicates that 82% of the tech workforce is 40 and under. Nearly half (46%) is 35 and under.

See:  Why Older Entrepreneurs Have the Edge

This means that, unless you’re Gen Z, you’re closer than you think to being old—or you’re already there—and you need to have a plan. While you can’t automate your future, I do have a three-step process to help you stay relevant and get all the jobs.

Learn things

The older you get, the more you might feel like you’ve learned everything you’re going to learn. Old horse, new tricks, all that. But especially in tech, a field is constantly changing, there’s always something more to learn.

So figure out what you want to learn, and there’s absolutely a way to learn it.

What should you learn? I’d ask you: What do you want to learn? What’s fun? And what can you learn while still doing your current job? Try asking a teammate what they’re working on and if you can shadow them a bit. Use any professional development funds you have for classes, books, and conferences. Out of budget? Apply for conference grants. Volunteer to be a TA or to help run a conference or mentor at a hackathon. Helping others learn is a great way to pick up new skills and reinforce skills you already have.

Meet people

Of course, you can’t do everything in a silo, or the skills you learn won’t add any value to your career. You have to meet people. You can do this in person or online—whatever is feasible for you. And the communities you join don’t have to be tech-focused: Just find a group that shares common interests and join them for events.

See:  AI Will Transform 500 Million White-Collar Jobs In 5 Years; Silicon Valley Must Help

Yes, I’m describing networking. But wait! I know that networking gets a bad rap as a buzzword, but, really, it’s just meeting people and talking to them. If you’re introverted or don’t like talking to people, here’s a handy tip: Ask them a question about their work. They’ll do all the talking, and you can pick up lots of tips. Networking boils down to making connections—between people, between people and ideas, and between people and opportunities.

It might sound like random chance, and it sort of is: You happen to be in the right place at the right time. But as with all games of chance, you improve your odds by doing it a lot. So do everything you can to meet a lot of people.

Apply for jobs

If you’re old and in tech, you might be counting your blessings, thinking, “I’d never be able to get a job in tech if I applied today.” You look at job descriptions and think you’re missing loads of the skills that are listed. Now, I’m not saying to ignore job postings, but we all know that plenty of job descriptions are ridiculous laundry lists—nobody has 100% of the items in a job description. Those lists are aspirational. You can learn on the job. I’m working on getting companies to stop writing those kinds of postings, but in the meantime, I encourage you to apply to anything that looks interesting and/or challenging.

Example: I got a PHP job with no PHP experience because I built the sample app and crushed it. I got a React job without having written any React professionally because their requirement of three to five years experience wasn’t realistic—those folx would still be at Facebook and probably not interested in moving to North Carolina. After I showed them a JavaScript framework adoption and abandonment chart that looked like the Himalayas and leaned into the fact that I had a proven track record of language acquisition, they hired me.

See:  The Trillion-Dollar Opportunity in Supporting Female Entrepreneurs

I’m a self-taught coder with a nonlinear career path. I started out at library school (yes, that’s a thing), and came out as a catalog librarian. I had always loved code and computers, so I taught myself HTML and landed my first job hand-coding HTML using tables without CSS (yes, that’s also a thing). I worked at a newspaper as the overnight news converter: I cut up production PDFs into JPEGs and made an online version of the newspaper. Then I became their online coordinator. I had a weekly column, I edited stories, and I managed the online community, where I picked up Drupal. When the paper folded, I worked as a UX developer for a cursed government project. And then I was a webmaster at a hospital, a full-stack LAMP developer, a front-end developer theming content management systems, a front-end engineer for a custom digital printing company, and now, here I am engineering manager.

Basically, I’ve had a thousand jobs. And that’s a feature—not a bug.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Crowdfunding Is Revolutionizing The Cannabis Industry. Here’s Why.

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Green Entrepreneur | Chidike Samuelson | May 13, 2020

green money - Why AI-driven financial advice is getting regulators’ attentionThe cannabis industry has seen two major upward surges in the last 5 years, the first came with the national legalization of cannabis in Canada which was subsequently followed up by many states in the United States and the second has come during this COVID-19 pandemic.

While this time has been a hard time for the U.S. and all other countries currently impacted by it, cannabis has helped ease anxiety and stress for many people. The consistent affirmation of cannabis businesses as essential services during this era has done wonders for the industry.

The cannabis industry is not just enjoying the upsurge caused by the epidemic, it is also experiencing the proliferation of crowdfunding or crowdsourcing platforms internationally.

Here are 4 reasons why crowdsourcing has been and will continue to be great for the industry.

1. Crowdfunding is rapidly reducing the shortfall in supply

In the U.S. and most of Europe, the demand for cannabis products especially of medical cannabis is still way higher than the supply and the Covid-19 crisis has upped it even more. Even if demand were to fall post-COVID-19 (Which is highly unlikely) there will still be excess demand and a shortfall of supply.

See:  How To Navigate Regulation Crowdfunding With Crypto And Blockchain

The typical way to tackle this is to grow more cannabis, but not every business green-agribusiness can grow more than their present capacities. The limits on a budget make it quite difficult for some to increase production significantly.

However, crowdsourcing is doing a great job of encouraging cultivators and cannabis producers to make more by giving them access to funds that they would have been unable to raise otherwise. This has already caused a slight increase in production but is predicted to cause a larger shift in the coming months as the world recovers from COVID-19.

2. Crowdsourcing can break monopolies in the growing sectors

Before the dawn of the widespread legalization of cannabis, at the time when growing marijuana was still dubious, to say the least. It was private cannabis growers who braved the consequences and weathered the unlicensed storm. To a large extent, these private growers have been left in the dust since legalization hit and as major agri-businesses swept in and took over the market, building huge monopolies in the sector.

However, the crowdsourcing innovation that has recently taken the industry by storm has given them a fighting chance. It is common knowledge that good amounts of competition are healthy for any industry to flourish. The kind of competition that crowdsourcing envisions is very beneficial for the cannabis industry; an industry that still has a massive margin for growth.

See: Crowdfunding: Fundamental Cases, Facts, and Insights

The potential for breaking these huge monopolies is exceedingly desirable in the industry at a time like this, to enable it to grow to potential.

Crowdsourcing also helps individual growers overcome the red tape that currently limits their abilities to grow and scale.

3. Cannabis enthusiasts can benefit

For a long time, the fight for the legalization of cannabis has been championed largely by common people, medical cannabis users, cannabis advocates, celebrities, and others who were on a mission to educate the relevant quarters about the value of cannabis.

It was these enthusiasts who championed enlightenment campaigns on the value of cannabis to our emotional stability as a de-stressor without the negative side effects like violence, aggression, hangovers, and potential for poisoning that exist with alcohol.

Some of these people have put their money where their mouth is. Notably, the American Hip Hop legend, Snoop Dogg started his Cannabis-based businesses in 2018, but not many others have had the opportunity to, until now.

See:  Canadian securities regulators propose new nationally harmonized crowdfunding rules for comment by May 27

Crowdsourcing has opened a huge door for investment in the industry for enthusiasts who would love to make a little money from their loyalty to the cause or just for the business person who recognizes the huge opportunities in the market.

With crowdsourcing investments, investors are making investments in a sector that has not even approached the demand levels and that need funds to fulfill a constantly growing demand.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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The Impact of Coronavirus on Funding Innovation

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Crowdfund Insider | | Apr 22, 2020

Crisis and opportunity - Why AI-driven financial advice is getting regulators’ attentionThe Impact of Coronavirus on VC Funding

It’s no secret that times of economic instability are the ones that create the greatest opportunity for innovation and innovators. When everyone is content, the incumbents tend to win – while when there is injury, the innovators happily fill the open wound. As Baron Rothschild once said:

“the time to buy is when there’s blood in the streets.”

It’s certainly no secret that the instability and need that was created by the last cataclysmic economic event – the stock market crash of 2008 – gave birth to the most groundbreaking companies and business models that we call Unicorns today, and a whole new breed of entrepreneurs with radical ideas were born. That chaos is what brought us Slack, Instagram, Pinterest, Cloudera, Airbnb, Venmo, Square, Uber, Yelp, WhatsApp, Groupon, and tons more.

See:  How Regulation Crowdfunding Stood up to the First Weeks of Coronavirus – Almost Opposite of the Public Markets

The question is, what happens this time? 

We’re at the height of the revolution; innovation is blowing up, the next breed of Unicorns is being hatched – all the while the old guard (the VC) are retreating. They should be diving in as this is the most fertile ground that startup investors will likely ever see. So how come according to a survey released April 9 by PitchBook, VCs “are riding out the coronavirus outbreak with a wait-and-see stance, but a significant portion of them already are expecting to scale back their bets this year”.

Or as Jonny Price, the Director of Fundraising at Wefunder (a leading Equity Crowdfunding platform) recently put it:

“March 2020 has been our best month ever already…..You can make a case that when the stock market is crashing, investors will seek alternative investment opportunities. And when conventional sources of capital dry up (e.g. VC), more founders might turn to their fans and customers for capital… High level — if there was ever a historical moment for a democratic and people-powered financial system, this would seem to be it.”

But what lays behind this drying up of VC funding? Well, it’s in large part due to the fact that most of the world has been ordered to avoid all gatherings. And for VCs, these measures mean there’s no opportunity to travel to events and have face-to-face interactions, which is still the predominant means by which they connect with startups and with their own investors. Then there’s the new risk environment we’re all now living in, with VCs managing this with the aforementioned “wait-and-see” stance. Whatsmore, the innovation coming out of this crisis will be truly new, not just iterative – meaning that VCs have no experts on hand to evaluate it – and if they can’t evaluate it, they can’t invest in it.

This is where Equity Crowdfunding (EC) steps in. Its online mechanism of matching investors with startups continues uninterrupted during this crisis. And the access afforded to any would-be investor means capital is easier to come by via this investment channel, while VCs remain sat on the sidelines waiting for the crisis to abate.

See: 

If more startups raise funding through EC during and after the crisis, then the effects on the ecosystem will undoubtedly be positive. We’ll start to see far greater diversity among founders and leadership teams, seeing that 44% of current EC funding goes to female founders or mixed-gender teams. Given that the startup space is routinely criticized for its male-dominated leadership, this will be an extremely positive force for change. And on the investor side, small and medium-sized investors will also find a far greater supply of promising startups to take a bet on, which will further democratise access to investments formerly reserved for the elites.

Impact of Coronavirus on Funding Innovation

The VC vs EC war has been building over the last few years and nowhere is it more prevalent than in the world of early-stage financing. Many VC and Angel Groups explicitly state that they do not invest in companies that have raised money from the crowd. Even those that have a mission of promoting diversity in the startup world often oppose Equity Crowdfunding.

This sounds counterintuitive – how can organizations that pride themselves on promoting diversity be opposed to the top mechanism that unlocks investment for female and minority founders? There are many reasons for this opposition that we won’t get into here, but the bottom line is that any funding innovation is profoundly disruptive to the VC business model and to how the VCs themselves make a living.

What we have, in essence, is a battle between the VCs who use next to no technology to automate, market, evaluate or otherwise augment their offerings and make decisions based on personal connections and “gut feelings” – who’s fiduciary responsibility is to only represent the interests of millionaires (not startups). And, EC – a marketplace that bypasses the traditional “relationship building” (and its built-in biases and inefficiencies), fully use modern internet-based tools to reduce friction, reduce cost, attract, manage, and drive investors and startups online – whose sole responsibility is to connect all sort of startups with all sorts of regular folks and help them invest.

See:  Facing disaster, corporate venture capital to undergo key stress test

While the coronavirus crisis by itself won’t spell the end for VC funding, it may find itself having to adapt when the dust settles. If they’re largely absent from the market throughout the crisis, there will be a whole cohort of startups that had to raise capital through alternative means. And if VCs want to invest in any of them, they’ll be forced to relax their approach around investing in startups that have raised capital through EC. What’s more, this could be the beginning of a larger culture shift within the startup ecosystem, with more and more entering EC funding channels and discovering first hand the benefits of this model.

Ultimately, the battle between VC and EC will continue raging. This is not unlike the battles that we’ve seen before in other industries over the last 20 years – between modern internet-based technology and the “old way of doing things.” It’s a battle that we’ve seen in Netflix vs. Blockbuster, Priceline vs. Travel Agents, Uber v Taxis, and on and on. While these battles are often long drawn out affairs, they have all ended decisively in the end.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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COVID-19: A Test Of The Stakeholder Approach

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S&P Global Ratings | Bernard De Longevialle | April 21, 2020

In August 2019, the U.S. Business Roundtable adopted a new standard for corporate responsibility. It changed its "Statement on the Purpose of a Corporation" to a broad commitment to all stakeholders--customers, employees, suppliers, communities, and shareholders--from shareholder primacy. In a similar vein, France in May 2019 enacted the PACTE law that obliges corporate management to take into consideration "social and environmental issues" alongside other objectives and encourages them to enshrine social objectives in their purpose ("raison d'être") in their bylaws.

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Such developments, while welcomed by many, were sometimes received with a degree of skepticism. Would companies really translate these principles into a fundamental change in the way they operate? Would these principles contribute to a more sustainable and prosperous future?

Less than a year later, the coronavirus pandemic is highlighting why stakeholders matter. Insufficient consideration paid to all stakeholders in decision-making is backfiring on a number of companies. In contrast, other businesses are taking actions that may ultimately strengthen employee engagement, brand, and reputation. While nearly all the rating actions we've taken during this time have been driven by the impact of the lockdown on revenue and cash flow, we believe that might change. We expect that differences in stakeholder management will ultimately play into a number of future rating actions, especially where companies differentiate themselves materially from their industry peers and this in turn has a bearing on creditworthiness that is observable over time. Corporations that better embed stakeholder considerations in their decision-making and strategy will likely limit unintended consequences and be more resilient over time.

Governments--and by extension taxpayers--have provided massive amounts of support to prevent economic collapse, which have raised expectations for corporations. At a time when our economies and our societies confront an unprecedented shock, there is a widespread expectation that companies must consider every stakeholder when responding to the challenge. By ignoring certain stakeholders, a company that chooses to act as if nothing has changed is likely to suffer the consequences—as it seems like everyone is watching.

  • The attempt by the U.K. retailer, Sports Direct, to keep its shops open despite the country's lockdown, with the argument that it was an essential service, could have been considered a rational business decision under normal circumstances. However, after experiencing a backlash from staff and the media, the company had to back down.
  • The appearance of unduly profiting from the pandemic or excessively bowing to shareholder interests could result in not only reputational damage but also extend to undermining a company's license to operate.
  • It is yet uncertain how much the COVID-19 crisis will lead to lasting fundamental changes to the social contract between society and corporations, but it is likely that effective stakeholder management will become increasingly important for companies to successfully operate in a world of weakened public finances, social scars, and environmental degradation.

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Conflicting stakeholder priorities are sometimes difficult to manage

At a time when growing fragmentation threatens the stability and resilience of our societies, we think that corporations that are contributing to social cohesion might come out of this period stronger in the eyes of all stakeholders. Conversely, companies seen as having focused excessively on short-term shareholder interests at the expense of other stakeholders may undermine their licenses to operate. Many companies may need to slash costs and shed workers to stay in business, but even in these instances, stakeholder management will be important. The immediate positive or negative bottom-line effects of decisions they take today may unleash large, negative or positive second-round effects.

Besides helping to address the pandemic, stakeholder-focused corporations are creating new ties with stakeholders in civil society and therefore might avoid serious reputational and financial repercussions. One legacy of COVID-19, therefore, may be greater awareness of the benefits of the stakeholder approach.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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OpEd: IT’S TIME TO BUILD

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Horowitz | Marc Andreessen | April 18, 2020

rebuilding - Why AI-driven financial advice is getting regulators’ attentionEvery Western institution was unprepared for the coronavirus pandemic, despite many prior warnings. This monumental failure of institutional effectiveness will reverberate for the rest of the decade, but it’s not too early to ask why, and what we need to do about it.

Many of us would like to pin the cause on one political party or another, on one government or another. But the harsh reality is that it all failed — no Western country, or state, or city was prepared — and despite hard work and often extraordinary sacrifice by many people within these institutions. So the problem runs deeper than your favorite political opponent or your home nation.

Part of the problem is clearly foresight, a failure of imagination. But the other part of the problem is what we didn’t *do* in advance, and what we’re failing to do now. And that is a failure of action, and specifically our widespread inability to *build*.

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We see this today with the things we urgently need but don’t have. We don’t have enough coronavirus tests, or test materials — including, amazingly, cotton swabs and common reagents. We don’t have enough ventilators, negative pressure rooms, and ICU beds. And we don’t have enough surgical masks, eye shields, and medical gowns — as I write this, New York City has put out a desperate call for rain ponchos to be used as medical gowns. Rain ponchos! In 2020! In America!

We also don’t have therapies or a vaccine — despite, again, years of advance warning about bat-borne coronaviruses. Our scientists will hopefully invent therapies and a vaccine, but then we may not have the manufacturing factories required to scale their production. And even then, we’ll see if we can deploy therapies or a vaccine fast enough to matter — it took scientists 5 years to get regulatory testing approval for the new Ebola vaccine after that scourge’s 2014 outbreak, at the cost of many lives.

In the U.S., we don’t even have the ability to get federal bailout money to the people and businesses that need it. Tens of millions of laid off workers and their families, and many millions of small businesses, are in serious trouble *right now*, and we have no direct method to transfer them money without potentially disastrous delays. A government that collects money from all its citizens and businesses each year has never built a system to distribute money to us when it’s needed most.

Why do we not have these things? Medical equipment and financial conduits involve no rocket science whatsoever. At least therapies and vaccines are hard! Making masks and transferring money are not hard. We could have these things but we chose not to — specifically we chose not to have the mechanisms, the factories, the systems to make these things. We chose not to *build*.

You don’t just see this smug complacency, this satisfaction with the status quo and the unwillingness to build, in the pandemic, or in healthcare generally. You see it throughout Western life, and specifically throughout American life.

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You see it in housing and the physical footprint of our cities. We can’t build nearly enough housing in our cities with surging economic potential — which results in crazily skyrocketing housing prices in places like San Francisco, making it nearly impossible for regular people to move in and take the jobs of the future. We also can’t build the cities themselves anymore. When the producers of HBO’s “Westworld” wanted to portray the American city of the future, they didn’t film in Seattle or Los Angeles or Austin — they went to Singapore. We should have gleaming skyscrapers and spectacular living environments in all our best cities at levels way beyond what we have now; where are they?

You see it in education. We have top-end universities, yes, but with the capacity to teach only a microscopic percentage of the 4 million new 18 year olds in the U.S. each year, or the 120 million new 18 year olds in the world each year. Why not educate every 18 year old? Isn’t that the most important thing we can possibly do? Why not build a far larger number of universities, or scale the ones we have way up? The last major innovation in K-12 education was Montessori, which traces back to the 1960s; we’ve been doing education research that’s never reached practical deployment for 50 years since; why not build a lot more great K-12 schools using everything we now know? We know one-to-one tutoring can reliably increase education outcomes by two standard deviations (the Bloom two-sigma effect); we have the internet; why haven’t we built systems to match every young learner with an older tutor to dramatically improve student success?

You see it in manufacturing. Contrary to conventional wisdom, American manufacturing output is higher than ever, but why has so much manufacturing been offshored to places with cheaper manual labor? We know how to build highly automated factories. We know the enormous number of higher paying jobs we would create to design and build and operate those factories. We know — and we’re experiencing right now! — the strategic problem of relying on offshore manufacturing of key goods. Why aren’t we building Elon Musk’s “alien dreadnoughts” — giant, gleaming, state of the art factories producing every conceivable kind of product, at the highest possible quality and lowest possible cost — all throughout our country?

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Is the problem money? That seems hard to believe when we have the money to wage endless wars in the Middle East and repeatedly bail out incumbent banks, airlines, and carmakers. The federal government just passed a $2 trillion coronavirus rescue package in two weeks! Is the problem capitalism? I’m with Nicholas Stern when he says that capitalism is how we take care of people we don’t know — all of these fields are highly lucrative already and should be prime stomping grounds for capitalist investment, good both for the investor and the customers who are served. Is the problem technical competence? Clearly not, or we wouldn’t have the homes and skyscrapers, schools and hospitals, cars and trains, computers and smartphones, that we already have.

The problem is desire. We need to *want* these things.

The problem is inertia. We need to want these things more than we want to prevent these things.

The problem is regulatory capture. We need to want new companies to build these things, even if incumbents don’t like it, even if only to force the incumbents to build these things. And the problem is will. We need to build these things.

And we need to separate the imperative to build these things from ideology and politics. Both sides need to contribute to building.

The right starts out in a more natural, albeit compromised, place. The right is generally pro production, but is too often corrupted by forces that hold back market-based competition and the building of things. The right must fight hard against crony capitalism, regulatory capture, ossified oligopolies, risk-inducing offshoring, and investor-friendly buybacks in lieu of customer-friendly (and, over a longer period of time, even more investor-friendly) innovation.

It’s time for full-throated, unapologetic, uncompromised political support from the right for aggressive investment in new products, in new industries, in new factories, in new science, in big leaps forward.

The left starts out with a stronger bias toward the public sector in many of these areas. To which I say, prove the superior model! Demonstrate that the public sector can build better hospitals, better schools, better transportation, better cities, better housing. Stop trying to protect the old, the entrenched, the irrelevant; commit the public sector fully to the future. Milton Friedman once said the great public sector mistake is to judge policies and programs by their intentions rather than their results. Instead of taking that as an insult, take it as a challenge — build new things and show the results!

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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