Recapping TEDx New Wall Street – re-imagining Financial Services

Yesterday, I participated in TEDx New Wall Street in Mountain View, California. In the spirit of all TED events, this was a day of sharing ideas — specifically about re-imagining financial services. TEDx events operate under license of TED in support of locally organized events that hold to their TED-like vision. This event was curated by Bruce Cahan, an impressive guy with a background in academia who is (surprise) starting a new kind of online bank called GoodBank.

There was an odd undercurrent of Silicon Valley chest thumping with respect to idea generation and lordship over all things technology that seemed out of place, especially since so many of the speakers were from other places. Regardless, here is a summary of the topics presented grouped by major themes.

The underserved:

• The banking world finds a huge percentage of the world (and a surprising number of Americans) so unattractive as customers that they offer virtually no relevant products and leave them to the world of predatory “payday loan” companies.
• In poor countries with a lot of violence we should replace paper currency with digital money so Grandma doesn’t keep getting robbed.
• The hundreds of attributes that make up your web identity should replace your FICO score (a 40 year old formula) for defining your creditworthiness.
• When it comes to the housing crisis, game theory suggests that consumers and banks working together would lead to a much better outcome than the alternatives of walking away or foreclosing.

Small business:

• Combining micro-lending and small business venture investing could help grow the smallest of businesses, especially in developing nations.
• Small businesses would prosper if big companies paid their bills in 10 days instead of 3 months.

The philosophical:

• What should money be? Answer: Virtual, secure, personal.
• Innovation, the digital identity spectrum and how Björk changed everything. Best talk of the day.
• Is it our world or the algorithms’?
• Sustainable investing (i.e. investing in the companies that support the big picture of our planet) is a good thing.

The TED-esque bizarre:

• How scientists are using biomimicry to learn the design lessons of nature. (Pre-recorded)
• The history of double entry accounting in Italy and France from 1200 on. (Interesting, but it’s anyone’s guess what it has to do with renewing Wall Street.)
• Economists vs scientists and how economists are nitwits, but not really. (Don’t ask.)
• If the federal government and states ran all the banks, we’d be borrowing from ourselves and paying interest on our debt to ourselves, which would fix everything. Kind of reminded me of the old song I’m my own Grandpa.

So there you have it — the future Wall Street! Ok, so maybe the conference promised a little more than it could deliver in one day, but there were a few thought provoking presentations none-the-less. My 3 favorites:

Ami Kassar on 10 Day Pay

Ami Kassar is a small business advocate with an idea. Big businesses are hoarding cash, and can borrow at 4%. Small businesses are struggling to get loans and have to borrow (often against receivables) at rates more like 15-40% (no source quoted). He claimed that current average payment against receivables by big companies to small business is 94 days. He points out that big companies take advantage of how important they are to small business by abusing/delaying payment schedules.

Ami would like to see a social campaign that motivates big business to pay sooner (he suggests 10 days). This would reduce the burden on small businesses by reducing high-rate interest payments currently needed to float their cash flow. With current accounting rules, it wouldn’t change the big company’s profit picture at all, only cashflow, and small business would flourish. It would work like this:

• some new web service would track how big corporations pay their bills and give them a score (think BBB for small-business friendly practices).
• consumers that care would choose who they buy from based on how that company supports small businesses (using that score).
• small businesses would compete to serve the companies that embrace this concept, delivering better service.
• companies that embrace this could advertise that they support small business growth (ie, market to consumers that care).

And with that…voila! Healthier small business, more jobs, etc.

Shawn Gourley (live) and Kevin Slavin (recorded) on Algorithmic Trading

Shawn Gourley made the point that algorithms play offense and defense. As they are finding market inefficiencies and exploiting them, they also try to disguise their actions to minimize impact on the market (and maximize their own profits). Meanwhile, other algorithms are watching for these fake outs because they create the opportunity to take advantage of what another algorithm is up to. What we end up with is algorithms fighting with each other all over the place in mini trading wars that have unknown outcomes. Everyone knows about the flash crash of 2:45 where the entire market melted down under some still unclear combination of algorithmic behavior. But about 10 times a day (yes, someone is keeping track), some individual stock goes haywire and charges up or down 5% or more (and usually comes right back inline) for no reason other than two algorithms flared up against each other.

So the big philosophical question: If algorithms we barely understand are warring in ways we can’t predict, at speeds we literally can’t imagine — is it still our market, or do the algorithms own it? His take is that the genie is out of the bottle and we have to learn to work with the algos.

This would have been a great talk if the conference organizers had not played a video of a thematically similar talk by Kevin Slavin from July 2011 earlier in the day. Not sure why we needed to hear it twice.

Peter Vander Auwera on Innovation

The best TED talks are a combination of mind expanding ideas, lateral thinking and good old fashioned entertainment. When all of these videos make their way online, the presentation that I predict will end up getting the most views is Peter Vander Auwera’s pitch on babies, innovation and Bjork. I can’t say with certainty if Peter’s message was deeper than the very simple idea that innovation and taking chances is what makes the world a better place. I did learn about some Flemish painters though. And that if you were born before Bjork (in 1965) you value fitting in, while if you were born after Bjork you value being weird/unique. And that Bucky Fuller was a cool guy with big ideas (which I already knew).

Peter snuck in a little commercial for SWIFT, where he is the leader of their innovation tribe. He highlighted a couple projects related to 1) a digital identity spectrum (think of a secure way to manage your credit details, medical details, community details, military service, etc — who sees what, how these attributes securely represent you in various societal roles) and 2) the digital asset map (what he called the Google Maps for digital assets). He was short on details, just attempting to move the image of SWIFT from stodgy old inter-banking company to innovator.

All in all, not a bad way to spend a Sunday. I didn’t get a clear picture of how Wall Street will change in the future, but I did get a chance to think about financial services in some new and interesting ways.