To Support Disruptive Technologies, Take Bigness Seriously

Denise Hearn | Myth of Capitalism | May 24, 2019

future start - To Support Disruptive Technologies, Take Bigness SeriouslyShivaun Moeran and her husband Adam Raff founded one of the most promising startups you’ve never heard of.  Adam managed Europe’s supercomputers used for weather forecasting and Shivaun managed software products for General Motors. While having a cigarette outside his office one day in 2006, Adam was struck with a brilliant idea. What if you could create an online search platform to find the best price for any product? It would aggregate specific information about category verticals, and nothing like it existed at the time.

They quit their jobs, hired a team, and began beta testing. Their site, Foundem.com ranked well on Google and they were receiving a steady flow of traffic. However, a few days after the official site launch, visitors to the site disappeared and never came back.

Upon investigation, they discovered that Google had updated their search ranking algorithm and had demoted the site, so it appeared on page 4 or even 170 of search results. Foundem had effectively disappeared from the internet – blacklisted. They suspected that they had been intentionally knocked out of the market and, after speaking with other entrepreneurs who had similar experiences, filed a complaint with the European Commission. Nearly 13 years later, Google was fined 2.4 billion euros for crushing competitors and steering users to its own product search sites. This was the first of 3 big antitrust fines leveled at the company, the third coming this past March.

The story of these two entrepreneurs is representative of the challenges facing many new entrepreneurs today – they are up against concentrated and centralized power not seen since the first Gilded Age, making it very difficult to compete.

See:  Advancing Competition in a Changing Marketplace

Across many industries in the US and Canada, (and indeed globally), industries have become increasingly concentrated via waves of mergers and acquisitions. Many Canadians are aware of the main oligopolies of telco companies and banking. Banking is controlled by the Big 5 (TD Bank, RBC, Bank of Nova Scotia, Bank of Montreal, CIBC) which would have been the Big 3 had the Competition Bureau not blocked merger proposals in 1998. And The Wireless Telecom industry in Canada is heavily concentrated, with the big three capturing an estimated 88.7% of the market between Rogers, Bell, and Telus.

But fewer are aware of how industrial concentration has seeped into nearly all areas of the economy: eyeglasses, pharmacies, grocers, retail, and even funeral services. Park Lawn Corp, Canada’s largest publicly traded funeral service provider, went from owning 9 funeral facilities in 2013 to over 149 locations by the middle of 2018. Investment strategists praise the company’s consolidation efforts because death, though unsexy, is now becoming highly profitable for shareholders.

When companies merge, they announce the great savings from “synergies” that they will share with customers.  To give you a sense of how outlandish the estimates are, the accounting firm Deloitte calculated that the announced cost savings of the current mergers boom amounted to $1.9 trillion, which is more than the entirety of Canada’s GDP. Despite the purported ‘efficiency gains’ meant to come from merging, Canadians pay some of the highest rates globally for international travel, cell phone packages, and banking services.

Wall Street earned $21 billion in merger fees last year, so there is an incentive to keep this engine running.  And the US has its sights set on Canada: outbound deals into the U.S. increased by 40% from $80.56-billion in 2017 to $112.9-billion in 2018 (USD).

This matters for fintech firms for a variety of reasons. Most crucially, it should serve as a warning. The internet was invented to avoid single points of failure and protect from nuclear attack. Yet, in 2014, nearly 50% of all internet traffic moved through the Google and Facebook universe. Today, it is closer to 70%. What was meant to be the world’s decentralized, democratized exchange of information has become beholden to two choke point companies that extract the majority of revenue value from the internet.

See:  Technology is the ‘most profound force bearing down’ on big banks, ex-Barclays boss says

Denise Hearn ffcon19 - To Support Disruptive Technologies, Take Bigness SeriouslyBlockchain-backed cryptocurrencies were invented with a similar premise of decentralization and democratization. However, Bitmain, a Chinese bitcoin mining company, is estimated to have 70 to 80% market share in bitcoin miners, earning $2.8 billion in revenue in 2018. It is unclear, more than 10 years since inception, who has benefitted most from blockchain technology as it has yet failed to significantly deliver on its most lofty claims about equitable distribution.

This is why it is increasingly important to recognize the powerful forces with incentives to re-centralize power, and to set up appropriate checks and balances via regulation and citizen engagement to support the next wave of Canadian entrepreneurs – fintech or otherwise.

For regulators and government: Tax and transfer approaches treat symptoms, not the true disease of concentrated market power and capital ownership. We need to adopt economic policies that support distributed economies that more widely disseminate power. We also need to get serious about bigness. Antitrust and merger review need a return to the forefront of political discourse, as they increasingly are in the United States. Caring about innovation means taking concentrated power seriously and supporting disruptive industries like fintech, crowdfunding, and blockchain.

Funders should change success metrics away from chasing elusive unicorns with billion dollar valuations to fostering thousands of stronger locally grown and supported companies. Yes, we want national champions, but we also want a robust network of medium-sized businesses that are sustainable and adding value to the economy that do not get swallowed by foreign giants.

Lack of competition in markets hurts consumers, workers, innovators and entrepreneurs. It leads to a host of other symptomatic ills like income inequality and, by extension, populism. As the famous US Supreme Court Justice Louis Brandeis said,

“We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

See:

The time is now to admonish incumbent oligopolists and to support challenger entrepreneurs.

Disruptive technologies will play a key role, but it is incumbent upon regulators to foster markets where everyone has a chance to compete. We all have a responsibility to help create a more equitably distributed economic future.

 

Denise Hearn, Co-Author, Myth of Capitalism, mythofcapitalism.com

Denise Hearn 200 - To Support Disruptive Technologies, Take Bigness SeriouslyDenise writes, presents, and consults on economics, systems change, and human flourishing. She has presented to over 50,000 people at venues including:  The Oxford Union, Bloomberg, a Canadian Parliamentary Standing Committee, and group homes for foster children. Things she find fun: investigating complex social and economic problems and co-creating organizational growth strategies with entrepreneurs and founders. She has done this across diverse fields: impact investing, education, the sharing economy, and macroeconomics.


NCFA Jan 2018 resize - To Support Disruptive Technologies, Take Bigness Seriously 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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Fortunly | Biljana Nikolovski | Aug 23, 2019 The figure of home-ownership in Canada is one of the highest in the world, even though the number of people who own residential property in the country slightly dipped from 69% in 2011 to 67.8% in 2016. But, the portion of the Great White North’s population with debt repayment woes has been increasing at an alarming rate. In fact, a 2018 report revealed that 19% of seniors still have an unpaid mortgage. As a result, 20% of Canadians continue to work well into their golden years. Certainly, a basket of solutions is necessary to help ensure that mortgages in Canada run their course, allowing homeowners to be free and clear come retirement. Fortunately, fintech solutions are here to the rescue. According to Fortunly, peer-to-peer (P2P) lending and decentralized finance (DeFi) are some of the newest innovative models with great potential to help more Canadians, including seniors, reduce their overall cost of borrowing and to better manage debt repayment. P2P lending enables an individual to borrow money from another individual and it allows both parties to seamlessly interact with one another through a digital platform. This is beginning to invade the mortgage space ...
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NCFA Canada | Aug 9, 2019 JOIN US ON A STORYTELLING JOURNEY EVERY FRIDAY. Aug 23:  Techfins with Michael R. King, PhD CFA EP36 GUEST:  MICHAEL R. KING, PhD CFA, Lansdowne Chair in Finance, Gustavson School of Business, University of Victoria, (Linkedin) HOST: Manseeb Khan, Fintech Friday's show host BIO:  Professor Michael R. King is the Lansdowne Chair in Finance at University of Victoria’s Gustavson School of Business. Prior to joining UVic, he held the Tangerine Chair in Finance at Western University’s Ivey Business School (2011-2019), where he co-founded Canada’s first FinTech research centre (the Scotiabank Digital Banking Lab). Before joining academia, he worked in investment banking in Zurich, New York and London from 1990-1998 (Credit Suisse, RBC Dominion Securities) and central banking in Ottawa and Basel from 2001-2011 (Bank of Canada, Bank for International Settlements). Michael completed his PhD at the London School of Economics in 2001 and his CFA designation in 1999. He has taught finance to undergraduates, MBAs and executives. His research focuses on FinTech, banking, international financial markets, and corporate finance. About this episode:  On this episode of NCFA's Fintech Friday's Podcast, our host Manseeb Khan sits down with Prof. Michael R. King PhD CFA, Lansdowne Chair ...
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About NCFA Canada | C. Asano | August 23, 2019 TORONTO, Aug 23, 2019 – The National Crowdfunding & Fintech Association of Canada (NCFA) today announced that Paul Schulte, Founder and Managing Editor of Shulte Research in Singapore, has joined the Association`s international Advisory Board to advise in the areas of Banking and Financial Services (profile). Paul's roles in banking & financial services in the past 30 years include equity & fixed income research (buy & sell sides) in emerging markets. In recent years, technology has evolved rapidly to challenge all facets of financial services his core belief is: Liquidity & credit are everything; get bank liquidity & solvency right and the rest follows. Aside from being the founder & editor of Schulte Research, he has taught for 18 years IN MBA programs: Tufts, HK UST, HKU, LMU Hilton School in LA & SUSS in Singapore. He has also worked for the Number 1 investment bank from Switzerland, US, UK, Japan, PRC & Holland starting in 1990. Paul has been a source for the WSJ, NYT, Bloomberg, Nikkei, FT, Economist, Barron’s & Forbes. His clients include some of the largest sovereign, pension, mutual and hedge funds globally. He served as ...
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Schulte Research | Paul Shulte | Aug 21, 2019 China is barreling forward on reforms and rolling out the crypto currency. It will be the first central bank to do so.  This will give added momentum to Libra. Libra could become a new anchor market for global IPOs. Take this seriously. Join if you can.  I’m pretty sure I’m right that it has backing from the very top of the US govt. 1. Cryptocurrency — The China coin is due to be rolled out in November. I hear that the distribution of the coin will be limited to 7 players: The big banks: CCB, ICBC, BOC, ABC. Alibaba and Tencent.   Positive momentum,,, Union Pay.   Interesting — to keep this alive. All others will be secondary.  The PBOC head did on SUnday make an explicit reference to Libra. As I suspected, China rightly sees Libra as a challenge to China’s early commanding lead in e commerce and payments in all of Asia and through the Silk Road. It clearly is.   Interestingly, HSBC and Stan Chart are cut out. No foreign banks in the consortium.    No foreign firms in Libra (except, weirdly,  Mercato Libra from Arge). 2. China ...
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NCFA Canada | Craig Asano | Aug 20, 2019 TORONTO, ON Aug 20, 2019  The National Crowdfunding & Fintech Association of Canada (NCFA) is pleased to announce that the Exponential Group (Exponential Ventures, Exponential Capital and Exponential Markets) has joined NCFA as an industry partner. NCFA's industry partners are builders, investors and innovators who have provided a significant level of service and/or contribution towards the sustainability and growth of NCFA and related fintech sectors globally.  We encourage the fintech ecosystem to support and collaborate with NCFA's global network of industry partners by engaging directly with their ventures of mutual interest. "Since founding NCFA in the summer of 2012, one of it's core missions has been working with communities of change that are passionate about enabling inclusive opportunities for 'big vision' companies seeking to change the world but need access to capital and resources to innovate competitive products and services that otherwise may not exist.  These companies often focus on new economies of scale that look beyond 'for profit' models alone.  Supporting and leading this change by developing new infrastructure and partnerships while leveraging new technologies can be a beacon of light resulting in massive transformation and change." - Craig Asano, ...
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MIT Technology Review | Mike Orcutt | Aug 15, 2019 Complying with regulators could mean the difference between going mainstream and remaining forever on the margins of the global financial system. One of the biggest knocks against cryptocurrency has always been its status as a refuge for tech-savvy criminals. Even as some bigger players—particularly exchanges that handle many billions of dollars in crypto-wealth each day—have gone out of their way to play nice with regulators, the image persists, in part because some crypto firms have evaded regulators by moving to jurisdictions that are less strict.  But the end of the lawless era may be nigh. A new set of global anti-money-laundering rules aimed at cryptocurrency exchanges has been handed down by the Financial Action Task Force, an intergovernmental organization that sets standards for policing money laundering and terrorist financing. The rules, which call on exchanges to share personal information about their users with each other, are controversial. Many cryptocurrency enthusiasts think the privacy that drew them to the technology could evaporate. On the other hand, complying with the rules is likely to make the industry more attractive to mainstream financial institutions and users. In other words, cha-ching. See:  A Global ...
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Pryor Cashman | Jeffrey Alberts and Dustin N. Nofziger | Aug 13, 2019 The Federal Reserve Board has announced plans to develop a real-time payment service that should appeal to FinTech companies and community banks. The Board announced last Monday that it will develop a new round-the-clock real time payment and settlement service to support faster payments in the United States. This new real-time gross settlement (RTGS) service, which will be known as the "FedNow Service," is anticipated to be available in 2023 or 2024. The Board is currently soliciting comments on all aspects of the proposed service in order to finalize its design and features. The Board's intention to operate a RTGS service is a win for community banks and FinTech companies, although it may threaten those FinTechs with business models centered around providing real time payments. The Board's plans were not developed in a vacuum. The Clearing House (TCH), which is owned by 30 of the world's largest commercial banks, previously rolled out a RTGS system known as the "RTP network" in November 2017 – some six years before the Board anticipates that its FedNow Service may first become available. The RTP network reportedly cost over $1 billion ...
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Forbes | Ron Shevlin | July 1, 2019 OBSERVATIONS FROM THE FINTECH SNARK TANK A Seeking Alpha article titled Why Fintech May Not Be Fit For Public Consumption states: The year 2019 seems set to be a record-setting one for venture capitalist exit value capture by means of tech IPOs. But fintech doesn't seem to be a part of this picture. VCs are certainly putting money into fintech startups. There were 170 financings in the US in the first quarter of 2019. But, as Pitchbook says, 'not one of the most valuable fintech companies in the world seems particularly close to an offering.' " The article chalks this up to three primary causes: 1. Poor IPO performance in 2018. According to the article, "One reason nobody is in a hurry to go public is that the results of the last crop of fintech concerns that did go public have been unimpressive. Adyen and IntegraFin are prospering, but neither GreenSky nor EverQuote is "lighting up the heavens" according to Seeking Alpha. See:  OurCrowd Double IPO Success Provides Crowdfunding Validation 2. Mega-round financing. Seeking Alpha postulates that investor interest in mega-rounds--e.g., Qatar Investment Authority's investment of $500 million in SoFi and Tiger Capital leading a round that raised $300 ...
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TechRepublic | Mary Shacklett | July 23, 2019 Learn how artificial intelligence and analytics can be used to improve customer service in banking. When I was a CIO for a financial institution, I worked with executives on the operations side to see how we could improve relationships with customers at our branches. Our front-line tellers at these branches were more like order takers—they did what customers asked, but no more. These employees were in low-wage positions, and they often had limited skills. One of the skills we wanted was interpersonal engagement with customers that you would typically find in a salesperson. We decided to hire people with retail and/or people-facing experience, figuring that we could train them to be tellers. We implemented systems that would prompt a teller to ask a customer about new products the customer might be interested in, and we offered financial incentives for enrolling customers in new products. The experiment yielded mixed results and likely would have gone better if we'd had some of the analytics and artificial intelligence (AI) automation tools that are available today. See:  How Jack Ma’s $290b SME credit engine is changing Chinese banking "Most customers tend to keep their accounts with ...
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