Google and Amazon's mixed reality advertising could become digital lending and payments platforms; plus 13 short takes on top developments

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!


Long Take

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.

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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.

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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.

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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.

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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.

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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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Short Takes

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  • Nordic Banking Behemoth Nordea Invests 5 Million Euros In Swedish Neobank P. F. C. Nordea is quite good at digital, but is hampered by a small country market and the idea that everyone is technologically as advanced as Norway. Surprising to see yet another Neobank getting funded -- do we believe it can outcome Revolut, N26, SoFi, and Chime?

  • 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.

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