Myths are a waste of time. They prevent progression.
Barbra Streisand
It’s still GameStop week out here in markets-land with the senate hearings last week. It’s time to bust some myths with regards to retail investing and investment products.
“The greatest trick the Devil ever pulled was convincing the world he didn’t exist”.
Charles Baudelaire.
The last few weeks have been interesting in markets and it’s time for my (short) take :). The best take on this topic is Matt Levine’s Money stuff newsletter. My take is about risk which is core to finance. I highly recommend my favorite book on this topic – Pandora’s risk for an excellent introduction to risk and how to think about it. Risk in the finance world is always about loss of capital. At the end of the day, finance is about money and the golden rule of money is to never lose it 😂. Every financial transaction we undertake has a risk of capital loss. These last few weeks have been a crash course in counterparty risk (DTCC clearing et al).
Continue reading “Risk rules everything around me”Lending is as old as money and Embedded lending is the meme of the day. In this post, I unpack my thinking and thesis on where embedded lending needs to end up. But first, always start with the basics.
The core components of a lending business are Demand, Supply, Underwriting/pricing, Loan servicing, Payments and money management, and Legal and compliance.
Demand and supply: In our economic model capital is the grease that drives the entire economy – it is one of the required inputs for the economic machine. The need for access to capital is the demand side of the lending business. To satisfy this demand for capital, you need a supply of capital to lend to the borrower.
Underwriting: The demand for capital and the supply of capital makes a market and the clearing price for this market is the price of the capital i.e the interest rate. This price is set by the underwriting function. Its core role is to set the amount if any should the borrower be able to obtain (loan amount) and at what price (interest rate).
Continue reading “The embedded lending we deserve”Whew, 2020 what a year. I’m glad that it is behind us. What does the future hold for 2021?
TLDR:
Let us take a deeper dive. What is going to make markets melt-up in 2021?
Continue reading “2021 Market musings and predictions”As we enter the last few weeks of 2020, I want to take stock of how this blogging experiment has been faring.
I started this year with a simple objective, write consistently week after week. Looking back at the metrics, this consistency habit has paid off in spades. The post count for 2020 was 40 posts (almost one every week!) which is almost double the 22 posts written in 2019. In terms of page views this has been a stellar year, dare I say hockey stick growth! The page views for 2020 came in at ~12.5K YTD growing 3X over 2019 (4.1K views). Visitors also grew 2.7X to 7.1K visitors in 2020.
Continue reading “Monetary musings – 2020 year in review”In the last post, we explored what drives an economy (spending) and the levers that a government can use to restart the economy after a crisis (monetary and fiscal). Since 2008 monetary policy has paid the dominant role, but in 2020 fiscal policy is finally making a comeback. Fiscal policy has a direct impact on consumers’ lives as the main objective is to get cash into consumers’ hands so that spending continues unabated.
It is logistically impossible for a government entity to show up at every citizen’s doorstep with a truckload of physical cash. Besides the obvious problem of logistics, there are also problems with confirming identities and physical record-keeping. Especially when governments are handing out money, they want to be very particular that only their citizens are getting the cash and there are no cases of freeloading (via fraud, etc). Direct transfers are a politically charged issue – there are always allegations of a slippery slope, nanny state, and communism that get thrown around! You have to get this part right.
Continue reading “One interface to rule them all | The next frontier in fintech? Part 2”Does a sovereign backed digital currency matter?
It’s a question I’ve been brooding about ever since the European central bank announced its digital euro project. But first, let’s take a walk through memory lane and establish some concepts and abstractions to build upon.
Humans at our core are consumers and consumption is central in our economic model. Consumption drives everything. We have needs and wants and we want them fulfilled. Businesses are the organizational unit that builds the goods to satisfy these needs and wants. They produce the goods that customers want. Money is the grease that makes this machine work, it’s the unit of exchange. At steady-state consumers need to have a source of money which is either from some form of employment (trading time for money) or via borrowing (trading collateral for money i.e credit). Consumers can either save, invest, or spend the money that they have. Savings and investment are just steps on the way to spend. The end state is always to spend down the cash and exchange it for goods and services.
Continue reading “Sovereign digital currencies | The next frontier in fintech? Part 1”Upstart Holdings, an online lender recently filed their S1. This is the first blog post that I have collaborated on. It was too good to pass up collaborating with another Rohit :). Y’all are in for a treat, it’s a 2-Rohit’s-for-the-price of one analysis!
Upstart is an online consumer lender and a lending technology provider. Their core differentiation is that they use Artificial Intelligence for lending decisions. Upstart claims that this results in automated disbursals, higher approval rates, better risk-adjusted performance, and reduced fraud. Their main customer interface is via its website http://www.upstart.com and through bank partners. Currently, their cloud lending platform is available only in the US. Software is eating the world, but in a financial services business, the product is always money. Upstart is an online lender first. They have operated a lending platform for years and now pivoting to providing a SaaS (ish) platform for banks.
Book review time! Some lessons learned from reading the End of the Line: The Rise and Fall of AT&T by Leslie Cauley . How I got to this book is an interesting story in itself. I’m a huge Twitter consumer (I read a lot, but barely tweet) and Post_M is one of my favorite accounts on Twitter. She tweeted a video of a talk with Liberty Media’s CEO John Malone, which I watched and started going through the rabbit hole of more John Malone talks on Youtube and one of the videos recommended this book. The cable industry was never on my list of things that cared about, but thanks to Twitter and Youtube and a book recommendation – I learned a lot! The internet is truly a wonderful place.
We’ve been taking a journey through the BNPL space, we looked at the history, the product, and the go-to-market. I’d like to close the series with a view on the competition and where I think the industry is headed. Warning speculative discussions and opinions ahead.
