ValueStream Labs | March 11, 2016
The key to the future of consumer financial services is data…but not in the way most industry veterans think.
Note this article originally appeared in Banking Perspective, published by The Clearing House
New technology is allowing companies to capture more data about customers and their transactions than ever before. As an industry, we are starting to put that data to use in smarter products and more data driven processes. Bank of America for example, tracks customers across multiple channel interactions, using the combination of website clicks, transaction records, banker notes, and call center records to build a full picture of “customer journeys”. They use this data to make proactive offers to customers including credit card or mortgage refinancing, or cash-back deals to holders of credit and debit cards based on spending patterns. In insurance, Progressive offers Snapshot, a program where drivers earn discounts on car insurance by giving access to...
ValueStream Labs | July 29, 2015
One of the things we find most interesting about Financial Services is the sheer number of "niche markets" that exist. However, when compared to other industries, the word niche seems misleading…after all these highly-specialized segments of Financial Services can represent trillions of dollars flowing between parties, billions of dollars in revenues, and unrevealed investment opportunities.
Traditionally, these highly specialized markets have been served by a cadre of folks in professional services, including consultants, bankers, lawyers, and traders. If you believe that there is a fundamental shift occurring on Wall Street in how research and analysis is conducted (like we do) then this creates tremendous opportunity to launch specialized products and platforms, that each have a sizeable opportunity to go after.
This is why we are excited to announce our latest investment into Syndicated Loan Direct, a transaction research platform for the syndicated loan market. For...
ValueStream Labs | October 07, 2013
At ValueStream, we have a unique view of Venture Capital. While others focus on the opportunity for rapid wealth generation or the disruption of multi-billion dollar industries, we are fascinated by how the market itself functions.
In particular, we’re excited by the emergence of what we term the “private capital market” – a fast-growing private alternative to the traditional public market. Although this market plays by its own set of rules, many concepts from the public markets are becoming increasingly relevant as the space matures.
Consider the public markets trade lifecycle:
“Pre-Trade” consists of all the activities leading up to a trade, including idea generation, research, risk modeling, and analytics. “Trade” refers to the actual execution of an investment: establishing a reasonable market price for that security, connecting an investor with a security, and agreeing upon the transaction terms. “Post-Trade”...
ValueStream Labs | August 16, 2013
Welcome to the first entry of the ValueStream Labs (VSL) blog, where the VSL staff and its advisors and partners will bring you short and relevant insights around emerging use of technology in financial services. As we continue forward in the space – beginning with a focus on companies in the capital markets and asset management space but eventually expanding to verticals like wealth management, credit markets, and insurance – a few key theses about the market are guiding the way:
Financial services has long been one of the last industries to embrace web technologies. Security concerns, complex transactions, and entrenched relationships have conspired to create an industry that still functions in silos with tight controls around communication. To some firms, hiring the best analyst or the banker with the biggest rolodex is the key to differentiation. If the Internet has taught us anything, it’s that the web tends to reduce communication friction and information asymmetry…meaning the differentiators today are increasingly becoming skill, content, and the ability to leverage a social graph. We expect to see more financial activities occurring in a distributed web context – particularly when it comes to research, analysis, and execution.
Low Frequency trading
Data is the king…long live the king. This is not news, but we believe it is becoming increasingly more difficult to generate alpha through high frequency trading. Trade times have reached the microsecond level, and it is next to impossible for new high frequency shops to open their doors and gain competitive footing.
At the same time, we are seeing an explosion of new data sources that are helping to predict market performance based on fundamental vs. technical analysis. These include new sentiment-based startups such as Dataminr and collaborative research and analysis tools like Estimize (an early VSL partner company). Many of these datasets can be linked to event-based or earnings related strategies, which are showing demonstrated alpha but typically act on slower timeframes compared to High Frequency technical price arbitrage strategies.
The data-risk-pricing triangle
The fundamental concept behind risk has always been assigning a potential range of outcomes in order to understand the potential for gain or loss. When used defensively it is called risk management, when used offensively it is risk based pricing.
Banking (both commercial and investment) has historically been about understanding and valuing this band. As we use data more and more to subdivide sources of risk, the band gets narrower and narrower…resulting in lower (and more accurate) risk based prices. This shifts the balance of power in a financial institution from risk taking to technology and data science. Risk will always play a vital role inside financial institutions, but the picture of risk inherent in any specific counterparty is becoming clearer and clearer through the use of technology.
Buy side is the new sell side
The sell side has always played an important role in financial markets, acting as a central counterparty in financial transactions. The sell side has played an important role in connecting relevant parties, intermediating and transforming risk, and generating ideas. Regulation and technology are placing serious pressure on existing business models in sell side institutions, and we see market infrastructure and peer-to-peer networks playing a larger role in connecting parties and facilitating transactions. Banks will continue to play a significant role – particularly with regards to risk transformation – but upcoming Basel III regulation will hamper larger banks ability to engage in this activity.
Seeing is believing
Numbers dominate in Financial Services – analysts, traders, investors, and advisors spend hours staring at them trying to glean a single insight, and the industry has proliferated the use of this data in seeking a competitive advantage. One screen became two screens which became nine screens.
We believe users are reaching the edge of usefulness of text-only analysis. Visualization tools will become an increasingly important weapon in the face of ever-increasing amounts of market data. The equities industry has long been a significant user of charts for technical analysis, but there are other datasets besides stock data and other asset classes where visualization tools can provide the next stage of analytical decision making…and we’re excited for it. Our latest addition to the ValueStream family, ChartIQ, is leading the charge in finding news ways to visualize institutional datasets in an HTML5 environment.
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We look forward to using this blog as a forum to share our experiences building VSL and working with our partner companies, as well as to spark debate about the themes introduced above and more. Please feel free to share any thoughts or feedback as we go.