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Root’s Expensive Lesson, China Blocks Financial Analyst, More (Future of Finance | Week in Review)

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
future of finance week in review

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.

Insurtech’s Lost Decade Suggests Financial Revolutions Move Slowly

What happened: Someone is offering to buy car-insurance startup Root for $280 million. That’s slightly less than the $7 billion it IPO’ed for three years ago. It’s the latest sign that assuming a traditional industry is ripe for disruption (see: AI in everything, today) from a financial startup may involve a painful, expensive lesson. 

Why it matters: “As happened with personal computers and then the internet, AI could greatly benefit its suppliers—software and chip behemoths, whose stocks have gained the most in the recent rally. It could also open up some new markets and, yes, upend how established players perform specific tasks. For insurers, it is opening new avenues for identifying fraud, for example.Investors who see revolution everywhere, however, could end up putting their own portfolios in the dock.”

What’s next: The AI revolution may continue to benefit the picks-and-shovels companies and no one else. (By Jon Sindreu, The Wall Street Journal)

Salt Lake Becomes the Latest American City Aiming to Create a FinTech Hub

What happened: A Utah billionaire and the University of Utah just opened a $65 million satellite campus in downtown Salt Lake that aims to create a new generation of fintech entrepreneurs. The city joins a handful of other large metros in the U.S. that are making purpose-built investments to create more fintech activity.

Why it matters: Developing a sector-specific tech ecosystem from scratch is difficult. See: every Silicon Valley competitor ever coming up short because of economies of scale. But Salt Lake’s combination of investments and tax breaks could work given it has an organic history of incubating fintech startups like Divvy and Finicity, whose founder is the financial backer of the new campus.

What’s next: Copycats. Cities like Charlotte and Atlanta, like Salt Lake, have enough fintech competency and banking know-how to justify spending big to attract talent. (By AnnaMaria Andriotis and Peter Rudegeair, The Wall Street Journal)

China’s Financial Black Box Gets Darker

What happened: “Wu Xiaobo, one of China’s most prominent economic commentators with nearly 5mn followers on Weibo, was blocked on Monday alongside two unnamed writers, said the owner of the Twitter-like platform.”

Why it matters: Independent financial analysis of the world’s second-largest economy is already hard to come by. The fact that China is now censoring in-country commentators with huge followings just because they’re more bearish than most is troubling, especially the weak post-pandemic recovery and a recent record in youth unemployment.

What’s next: Reliable data from within China is already hard to come by. It’ll get harder now, as it’s expected that the censuring of Xiaobo will likely serve as a warning to others who might have considered publishing anything even remotely negative. (By Edwin White and Hudson Lockett, The Financial Times)

Why the SEC Was Right to Hammer Binance

What happened: Regardless of your POV on the SEC’s stance on digital assets, the agency’s charges against Binance are severe. Among the most notable allegations: Certain Binance employees ”orchestrated a complex scheme to obtain and retain high-value U.S.-based users on their unregistered international exchange,” which violates both U.S. law and Binance’s own policies. 

Why it matters: “While the digital revolution has enabled fintech platforms to conduct business with unprecedented global reach, it has introduced new challenges to compliance systems. The lack of more explicit geolocation rules and standards in crypto — and across financial services more broadly — creates enormous compliance issues.”

What’s next: The SEC’s lawsuit against Binance was already a wake-up call for any exchange that took compliance less than seriously. Expect the use of VPNs, or anything that looks like company endorsement of them, to go away entirely. (By Will St. Clair, American Banker)

Meet the Man Who Got FTX’s Sam Bankman-Fried All Those Celebrity Photo-Ops

What happened: FTX’s bankruptcy lawyers have sued K5 Global, a financial firm run by former Hollywood agent Michael Kives, for $700 million Sam Bankman-Fried invested in what looked like an attempt to court interest from celebrities and other powerful people.

Why it matters: It can be confusing to try to figure out how relatively unknown financial figures like Bankman-Fried suddenly end up on panels next to Bill Clinton and Tony Blair, or in commercials with Giselle Bundchen and Tom Brady. Understanding that there are vast hidden networks of middlemen–who are then accused of using their status to massively enrich themselves–helps to clear up exactly how this particular kind of sausage gets made.

What’s next: Instant suspicion of any figure from the relatively staid world of finance or banking who suddenly becomes famous. At least for a few years. (By David Yaffe-Bellany and Erin Griffith, The New York Times)

Stories like Charlie Munger’s inspire me. It shows why you must live life as an optimist.