Hi Fintech futurists --

In the long take this week, I look at the recent Fortnite blackout and compare it to neobank Chime's embarassing down time, as well as explore the business model implication of what it means to be the social square where people hang out. Does Finance have such an equivalent? Maybe it is Venmo, crypto Twitter, or the credit unions. We also look at statistics behind influencer marketing, and how influencers have usurped the position of music labels. Perhaps banks should get ahead of this game too.

The latest short takes on the Fintech bundles, Crypto and Blockchain, Artificial Intelligence, and Augmented and Virtual Reality are below. Thanks for reading and let me know your thoughts by email or in the comments! Last but not least, these opinions are personal (or maybe made by a robot) and do not reflect any views of ConsenSys or other parties.

Long Take

Fortnite is one of the most popular video games of 2018. It generated over $2 billion in revenue from selling digital goods, like virtual costumes, while being technically free to play. The top Fortnite streamer on Twitch earned $10 million last year for entertaining his audience by playing the game and sharing the video. And about a week ago, Fortnite had a global event — it was shut down and unresponsive for several days. That’s the equivalent of dozens of millions of dollars. American Neobank Chime just had a similar outage for millions of customers, and the press did not receive the news very favorably. But for Fortnite, this was a major win. Let’s jump into the Why.

I am going to be borrowing liberally from Matthew Ball’s thinking in talking about these events. If anything, consider it a summary. Fortnite has a funky history. Its software was written to be a shooting game, but instead it has turned into the equivalent of a place for hanging out (like a digital mall) for teenagers. Unlike prior iterations of popular games, which are fashionable according to genre (sort of how movies of a type get popular for an amount of time), Fortnite is less of a game and more of a place where games happen. Hundreds if not thousands of people show up at some 3D rendered island, also known as a map. There, they participate in a deadly competition to survive. But the rules of that competition and its features can be regularly updated by the development team. Imagine if Chess could host games of Checkers, or Tetris, or Minecraft on its board depending on what its customers wanted that month. This is the making not of a game, but of a place. This is the making of an attention monopoly.

Do you think there could be a Finance focused business model like this? What is this place, where people just hang out and try out different features and ideas? Where could we socialize and consume financial products at the same time, then change our minds and reshape those products according to fashion? In large part, this community building and “social square aspect”, powered by Twitter, is what makes cryptocurrency and decentralized finance tick. There is a million people, give or take, who are playing this next generation Finance game. It was token offerings last year, now it is margin lending, tomorrow who knows — but this tribe is in it together for the adventure.

Credit unions, I believe perform a similar function. Unlike banks, they are structured for the benefit of their members. These are either local members of a small town, or perhaps share some affiliation to an organization like the Navy and the Army. Could we re-engage our credit unions to be a place of exciting tech innovation and product development, dealing with community issues like local unemployment and the gig economy? Maybe, if those members were more engaged from an attention perspective. Another comparable is Venmo, with its social payments stream. The app has gone furthest in a product definition that marries the social square with financial information — but there is more to do.

Anyway, Fortnite needed to add a new map, upgrade its infrastructure, and patch some bugs. Instead of letting people know in advance and warning its streamers not to waste time loading an unresponsive program — they didn’t. They turned the event into a mystery by packaging the downtime as something transformative and exciting, resulting even in a Forbes story about ... a game being down. People stared at a black screen for days, waiting for something to happen. This pent up attention and anticipation, however, will likely make up for lost revenue.

In comparing this to payments and banking, the immediate reaction is to say that *money is not a game*. Or that by interrupting service, your are destroying someone’s livelihood! It’s not frivolous, this money thing -- and I can’t argue with that. The downtime for Chime, a banking app that smooths income by lending out a paycheck advance, impacted 5 million customers and was caused by the integration with payment processor Galileo (a Stripe competitor). For some neobanks that offer free services, the economics of the business come out of the payments flow rather than from lending or banking fees. But saving money on infrastructure isn't always the best idea, it seems.

Still, some sort of financial downtime could be less damaging -- especially if financial apps were marketplaces rather than vertically-integrated commodities. Imagine if Chime went dark for 20 minutes, and on rebooting added a new investing feature with $10 in every account (just $50 million of marketing cost, which could be structured as a loyalty token). Or, imagine if, without taking down any of the payments rails, Visa replaced its website or app with an animation saying *Libra is coming* for 48 hours. Or what if, when launching their new roboadvisor, Vanguard replaced its site with a picture of a robot immaculately rearranging itself, with a sign up link. Or perhaps some embedded game that account holders have a limited window of time to solve, and if they do they win a $100,000 account? 

Do you think there would be press coverage? Will “digital users” get it? Yes, there is brand disconnect between what you expect from Vanguard and JP Morgan and what you expect from Fortnite. It partly comes down to the banks making too much money from manufacturing, and not needing to really engage or please the average consumer. If corporate or institutional business collapsed tomorrow, would we be seeing cartoon renderings of collectible stock trading bots and cryptic memes all over Instagram? Imagine if Citadel marketed itself like the Transformers?

As another example from the entertainment industry, see this write up by Danilo Vicioso on the music labels. The core message is that on Instagram or YouTube, accounts run by 20 year olds focused on particular music niches can garner multi-million person followings. These attention footprints are 5-10x larger than the of the legacy music labels themselves. A digital music artist is better off paying $100 to promote her record to a YouTube channel, than to get signed and promoted in insider music industry magazines. More customers watch the video! More prospects look at Stories! Tower Records is no more. And so, as an artist, you have to be super clever to find the attention moneypots.

This matters, because manufacturing music today is pretty much free. Thereafter, you can distribute to everyone in the world through Spotify. And even in the best case, you won’t make much money doing so — getting 1,000,000 million streams earns an artist just $8,000. That won't cover a ton of marketing. So when manufacturing and distribution both trend to zero, you should be looking at an equilibrium point that makes sense under new economics. New supply and new demand, not new supply and old demand.

For finance, it’s still a while till we get our moment of freedom. But if you know where to look, you can already see pockets of attention forming on LinkedIn, various Apple Podcasts, Twitter, and thousands of growth hackers figuring out where attention is underpriced. The answer could be surprising. For someone like Assurance, which sold its 700k monthly uniques to Prudential for $3 billion, massive direct website traffic came from Publishers Clearing House — a sweepstakes marketing company. Should finance firms be thinking about acquiring these underpriced social and gaming channels before the rest of the world finds out?

Featured Interviews, Podcasts, and Conferences

• Are banks losing the brand war to tech firms? Check out my podcast with American Banker's Penny Crossman. We don't buy Tylenol from the Tylenol store. Why do we buy Wells Fargo bank accounts from Wells Fargo?

• From Crypto to Decentralized Finance. Another great podcast with Will Beeson at Rebank: Banking the Future. Check out our conversation and subscribe here.

• Blockchain Insider. Had a great time with Todd McDonald of R3, Thomas Zeeb of SIX exchanges, and Simon Taylor of 11FS discussing the latest blockchain developments.

Short Takes

• Schwab, in Bid for Younger Clients, to Allow Investors to Buy and Sell Fractions of Stocks. You will no longer have to buy shares in units, and therefore have all sorts of rebalancing issues. You will instead be able to buy the dollar amount of what you want. The mechanism by which this happens is a bit hacky, and a tokenized chassis would be powerful. Regardless, think of this as increasing digitization of "venerable" businesses.

• RBS sought Monzo takeover before deciding to launch standalone rival. It walked away because it "balked" at the price. This seems like an economic disequilibrium. RBS, and others, are very unlikely to make a compelling neobanks, and they should be able to buy one. The neobanks need to exit, and should be able to sell. Someone needs to take it on the chin.

• Allianz X invests in B2B payment and credit network Fundbox. Today the B2C fintechs are getting bundled, but tomorrow digital lenders like Fundbox could offer the full suite of SME banking and treasury management needs.

• Uber has just laid off around 350 employees across a variety of teams within the organization and 2,000 Staff Getting Laid Off As WeWork Faces Collapse. Uber has been losing $5 billion per quarter, and WeWork looks to have its IPO price haircut from $60 billion to maybe $5 billion? This informs the state of venture in the US as it hits public markets, and is a warning shot to Fintechs (to build cash-flow businesses, you monsters).

• Circle to Spin Out Poloniex Less Than 2 Years After $400 Million Takeover. Poloniex is getting kicked out of Circle, and will have $100mm in funding from Asian investors. I suspect the main issue is US regulation, which doesn't always look favorable on crypto-native exchanges. Also, Circle recently killed its research business -- so maybe it's not Polo, but just increasing focus.

• China’s Cryptocurrency Plan Has a Powerful Partner: Big Brother. I don't mean to write so much about China -- but the counterfactuals are so profoundly compelling. Imagine that instead of trying to shut down Libra, the US government nationalized it immediately and created the consortium from government entities, like the Treasury and the Central Bank. That's not quite what's happening in the East, but thinking about the difference is valuable.

• Bitcoin Network Transfers $1 Billion ‘For Price of a Cup of Coffee’. At some point, the financial industry has to understand why this is cool, right? There are certainly counter arguments (e.g., "$1 billion" and "transfers" being mis-labels), but human belief is what makes any socioeconomic system work -- and this is a socieconomic system.

• China’s Tencent will seamlessly embed video ads directly into movies. I am guessing that this is a combination of machine learning for image detection and motion, plus some 3D rendered object or maybe a GAN generated image. In the West, we've been focused on fake videos and artistic style transfer. Tencent has commercialized the idea smartly.

•  The Next Word. Where will predictive text take us? An interesting take from the New Yorker on the latest in predictive writing technology. The words feel compelling, while their meaning is an illusion. However, the busy work of describing charts in equity research reports, for example, could and should be automate away with robo-prose.

• Destination AI for insurance underwriting. Linking this for the following number -- the global value of insurance premiums underwritten by AI have reached an estimated $1.3 billion this year, via Juniper Research. That's ... not a lot.

• Auto claims leans into AI, automation. Good overview of how the insurance industry is acquiring and funding telematics companies and smart car software. Interesting tidbit is that Allstate is working to eliminate 500 drive-in claims centers to be replaced by mobile apps. That's the equivalent of the bank branches melting away.

• RIP: Google Has Abandoned Its Daydream VR Platform. This was a headset into which you plug in a smartphone. Looks like integrated headsets, like Oculus, have won.

• Sotheby's Curate App for Magic Leap Lets You Reimagine Your Home & Office in the Most Realistic Fashion via AR. Pretty powerful stuff, if you click through for the visuals. Designing on top of physical spaces for story telling is going to get real. What stories can Finance tell?

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