Google and Amazon's mixed reality advertising could become digital lending and payments platforms; plus 13 short takes on top developments
|Jul 8, 2019|
Hi Fintech futurists --
Today the long take focuses on the convergence of mixed reality, digital lending and payments, and the social media advertising unit. Will you be shopping, paying, and borrowing inside of a video ad? 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!
Finance is everywhere, and everywhere is finance. Smart city supply chains, self driving car insurance, video game real estate markets -- no matter which frontier technology you touch, it will have embedded implications on the delivery of financial services. And why wouldn't it? Like the use of language, finance is a human technology that allows societies to coalesce and compete with one another (in the Yuval Harari sense). It lifts people out of poverty and into entrepreneurship through microloans, providing generational sustenance for their families. And of course it also throws them into pits of corruption and greed, as they drink too deeply from the rivers of securitization and political power.
But enough poetry! I want to talk about augmented reality, attention platforms, and the re-formulation of payments and lending propositions in a global context. First, let's state the digital lending vector of evolution. It used to be that in order to lend money, you needed to have it. So, for example, you were a bank that took in depositor assets, then kept some of it and lent out the rest. For this pleasure, your bank made net interest income, and you went golfing. With the advent of digital lending, driven by startup tech firms that did not want to be tied to a regulated financial entity, the balance sheet side of the business got lopped off. Digital lenders "merely" tied demand for loans with people or organizations that could provide them.
First, this happened in lending categories that weren't particularly well served after the 2008 financial crisis -- personal loans, education financing, small business cash flows. But as the model matured, early pioneers went public, and the Web became the focus of our lives (rather than a hit-and-run channel), digital lending started to seep into every possible fixed income asset class. Whether you are getting a second mortgage on a million dollar home, or have an industrial facility that needs financing, or want to borrow to build a skyscraper -- Google's search box is your first financial advisor.
More recently, companies like Affirm, GreenSky, and Fundbox (among others) have been bringing these dispersed lending categories into the point of sale. What's the point of sale? If you think about a marketing funnel, a borrower will start with some generic desire for a product, sharpen that desire into an interest, perhaps do some comparison shopping, and then interact with a point solution in order to close the deal. You feel hungry -- find the nearest store, get a sandwich, pay at the physical point of sale. You feel your career stalling -- Google business schools (haha, just kidding), compare costs, apply, and get an education along with a fat loan. The point of sale is that last bit in the process, where the purcharser is ready to make the purchasing decision.
But once you get to the purchasing decision, ability to pay is key. Traditionally, you would step outside the commercial flow to get debt financing by going to a neighborhood bank with a stack of papers to prove your case. However, the Fintech approach allows that financing to live within your shopping cart -- whether that is PayPal's "Bill Me Later" button (small amount) or GreenSky's self-financing home improvement contractors (large amount). The maximalist approach to this line of thinking is Chinese digital commerce app Qudian, which is like all of Amazon but on consumer credit. Anything that is sold on the platform, you can get underwritten by the store itself.
So where do we go next? Here is where things get interesting. Google recently launched "Virtual Try On", a capability that lets users apply make-up through an augmented reality filter. Think Snapchat or Instagram filters, just tied to some particular product. The social network companies have played a lot with the idea of sponsored filters, trying to find a way to use custom 3D rendered effects to align with brands. But it is awkward, and separated from intent in our marketing funnel. Google's approach is far more compelling, because (1) it can live inside of an ad unit in YouTube and (2) is pushed by influencers and celebrities engaging with their fans.
These augmented reality shopping experiences are also happening deeper down the funnel, within ecommerce aggregators like Amazon (shown above). Using Amazon's mobile app, users can try on L'Oreal products. As a result, the company saw conversation rates triple when viewers got to engage with it in an augmented reality interface. The reason Amazon and Google are the destinations for such technology -- rather than Walmart or the product website itself -- is because they run massive clouds, have powerful machine learning software for facial recognition, and own the attention of millions of people around the globe. In fact, 69% of American women start their online shopping for beauty products on Amazon. No wonder the retailer is going to start manufacturing under its own brand.
Let's bring it all together. On the one hand, payments and lending products have been moving closer to the point of sale through APIs, built and deployed by giants like Shopify, Stripe, and Affirm. On the other hand, mixed reality applications are motivating people to engage with products and help improve economics per transaction. Whoever owns the customer attention also (most likely) owns the AI and mixed reality application software. That would be Amazon, Apple, Google/YouTube, and Facebook/Instagram. The bridge between attention and commerce today is the advertising unit -- which increasingly will contain a social media influencer from the host platform telling you to try a product using a rendering powered by your phone.
My hypothesis is that the advertising unit will become a commerce platform into itself.
You will be able to pay with Google wallet inside a Google mixed reality ad. You will be able to pay with Facebook's Libra crypto coin inside a Facebook mixed reality ad. And if lending at this point of sale is necessary for you to pull the trigger, why not underwrite your purchasing decision within the ad as well? No financial data need even be provided -- your face is your password. Facial recognition can use your identity to authenticate into bank accounts and financial aggregators already on your phone (e.g., Plaid, Mint) to pull traditional structured data. Or, it could use your actual facial and voice data to structure an underwriting decision by asking questions and evaluating the truthfulness of your responses.
So, tell me again, who is best positioned to be the virtual financial assistant of the future?
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JPMorgan's Fintech Deal Shows Asia Cash Services Ambitions. I find the move of Western global banks (and Facebooks) into Asia fascinating, and am highly sceptical of the long term success of non-local solutions. This investment is targeted into a local commercial banking player, and highlights where the competition is moving.
The Coming Legal Challenge to State Fiduciary Standards. In fintech bundles, investment is as strong a pillar as deposits. So it is key to understand what regulatory requirements are there for roboadvisors. The SEC recently releases the Best Interest Standard, and this article talks about how that looser standard conflicts with the stricter fiduciary rules of some of the several States.
Brazilian Bank Plans to Use Tezos Blockchain for STOs Worth $1 Billion. Two things notable from this article -- (1) that Tezos is still alive at all after its founder and legal turbulence, and (2) that a mid-size investment bank wants to use it for a pipeline of deals. STO market is dead, until it isn't.
China’s Ping An rolls out OneConnect blockchain smart legal contracts; Blockchains CEO buys local bank, charting course for company; BIS starts fintech hub as central banks look into crypto; Apex Clearing's Parent Company Launches Crypto Platform. This collection of articles highlights the institutional progress in the space, which to me feels undeniable. Asian tech companies have launched their own chains (likely with see-through to the government), crypto companies are buying regulatory entities, or seeing traditional custodians like Apex launch crypto ones, and central banks are responding to Libra.
Ethereum Experts Share Their Facebook Libra Insights; Billion-Dollar Returns: The Upside of Facebook’s Libra Cryptocurrency. Two interesting takes on the book ends of what Libra means. The first article provides a technical analysis of the programming language Move embedded into the Libra chain (and its difference to Ethereum's Solidity), and generally people are complimentary. The second article highlights why you'd want to run an early node -- you get an ongoing interest stream off the entire pile of collected cryptocash according to your early investment, which could be many billions!
Canada-based Manulife Bank is betting on conversational AI to hook customers. Chatbot company Kasisto private labels AI channels for banks, and this one of the most meaningful deployments. I really enjoyed Penny Crosman's detailed take on the value proposition.
Building Ethical AI into Banking Innovations; Policy Makers Examine the Disparate Impact Risk of Artificial Intelligence and Underwriting. Regulators will come for machine-learning based underwriting, and focus first on explainability, transparency, and auditability. Congress is also looking at questions around distributive justice. Familiar problem, but it matters who is articulating it.
Creator of DeepNude, App That Undresses Photos of Women, Takes It Offline. So obviously awful, but important to note. A developer was able to hack an implementation of generative adversarial networks (GANs) to create fake photos of women. The tech is already here, and harassment already started. This motivates legal and regulatory answers.
Discussions in digital: Making machine-driven marketing work. How do you use AI to segment prospects and market at scale? Great take from McKinsey on what it takes to build a robot that sells.
Qualcomm & Bose Back RealWear's Enterprise Augmented Reality Wearables in $80 Million Funding Round. Big round for an industrial mixed reality headset company, helping people work in dangerous environments. What I like is that building AR on top of physical objects like this creates a real time integration between humans and industrial digital twins.
Gucci Jumps Feetfirst Into AR With Augmented Shoe Shopping Experience. I covered similar concepts in the long take. Today, vertical retail brands will digitize their physical products and finance won't notice. Tomorrow, the world.
Waymo allowed to use self-driving vehicles to transport passengers in California. Lyft users will be able to select Waymo cars as a mode of transport, of course in a highly limited and tightly controlled manner. But still, robots on the road. How's that gig-economy working out?