One industry clearly ripe for disruption in the next few years is banking. Anyone who spends days waiting for a check to clear, for an overseas money transfer to take place, or for a complicated securities transaction to close, must wonder why, in the digital 21st century, banking so often seems stuck in the 20th.
“Information moves instantly and for free, but value is still stuck in these closed networks,” says Chris Larsen, CEO of a software startup called Ripple. I was introduced to Larsen in Davos last month by Gene Sperling, an economic adviser to Presidents Obama and Clinton who sits on his board, and I followed up yesterday. Larsen is one of hundreds of entrepreneurs who see big opportunities in financial technology right now. His goal is global: to use blockchain technology to create a “new infrastructure where value can move instantly and for free, internationally” – what he calls a new, global “internet of value.”
The biggest money center banks may have an incentive to slow this change, since they make money off of the current system. But Larsen says the vast majority of smaller banks have an incentive to embrace change, since they must rely on the biggest banks for certain global transactions. CFOs of global companies also have an incentive to support change. And increasingly, there’s evidence the big banks “see the handwriting on the wall.” That’s why Goldman Sachs recently made an investment in Digital Asset Holdings, a blockchain venture run by former JPMorgan Chase executive Blythe Masters, and why JPMorgan Chase announced this week it is partnering with Masters for an experiment in the settlement of certain securities.
Who wins and who loses in this grand game remains unclear. But the writing is indeed on the wall. “Over the next 2-3 years, “ says Larsen, “you are going to see enormous change.”
More news below. And a correction from yesterday. I said Alphabet’s “other bets” loss was $3.6 billion “during the quarter.” It was actually $3.6 billion for the year. Apologies.
• Mayer makes pitch to ‘simplify’ Yahoo
Yahoo CEO Marissa Mayer spent an hour and fifteen minutes on Tuesday night explaining her new plan to simplify Yahoo, focusing more on mobile, video and native advertising and cutting back resources for Flickr and divesting real estate and patents. Yahoo will also mull a sale and outlined plans to cut 15% of staff and close five offices. All of this sounds far from simple. “It’s clear to everyone our situation is complex,” she said, answering an analyst question. “Our strategy for maximizing value is also going to be complex.”
• Sliding oil prices rattle U.S. stocks
U.S. shares tumbled lower on Tuesday as worries about a drop in oil prices may reflect a weakness in the global economy that the United States won’t be able to avoid. A tumble in oil prices put pressure on the profits of big energy companies that reported results, including BP – which reported a huge $3.3 billion loss. ExxonMobil said its fourth-quarter profit dropped 58%. Oil prices have dropped by more than 50% over the last year and analysts have said there are no signs they can rebound soon.
• Syngenta pursued in $43 billion deal
China National Chemical Corp. has agreed to buy Swiss pesticide and seed giant Syngenta, an agreement that would likely result in a fraught process of gaining regulatory approval across the globe, including in the U.S., where Syngenta does a lot of business. The deal also highlights China’s deal-making ambitions in strategic sectors. The nation is trying to bulk up its agricultural capabilities to feed a more affluent populace.
Wall Street Journal (subscription required)
• Zika virus worries spread to the U.S.
The first locally-transmitted case of the Zika virus was confirmed in the continental U.S. on Tuesday, a day after the World Health Organization declared the outbreak a global public health emergency. It has been reported that a patient in Texas transmitted the virus after having sexual contact with a sick person who had returned from a country where the virus was present. WHO has reported that virus has been spreading quickly in South and Central America and problematically, there is no vaccine for Zika.
• Chipotle crushed by food safety woes
It wasn’t exactly a surprise: Chipotle’s fourth-quarter results were badly dented by the impact of E. coli and Norovirus outbreaks that have led to slumping sales. So what’s next for the once-hot fast-casual restaurant chain? Executives promise they have put procedures in place to reduce risk as the Mexican food seller faces the “most challenging time” in the company’s history. It outlined broad changes in practices, including high-resolution DNA-based testing, preparing items in central kitchens, and blanching ingredients to destroy microbes.
Around the Water Cooler
• Apple wastes billions on buybacks
For the past nine quarters, the technology giant has spent $87.2 billion on buybacks that have reduced the count of shares outstanding by 12.1%. Over that period of time it paid an average of $115 for each share it retired. The problem? Apple’s stock is worth around $95 today – meaning management paid a 21% premium over the value investors are now according its stock. Apple’s stock buyback, now looking poorly-timed, cost it $15 billion more than it would have done today.
• Amazon may open book stores
In a news story that is sure to make the former executives at Borders weep, the e-commerce giant is reportedly considering a plan to open 300 to 400 physical bookstores in the U.S. It wouldn’t be Amazon’s first move into the world of brick and mortar retail, though it represents an interesting twist for a company that has greatly challenged many key consumer categories (like say books, electronics, and toys) by luring shoppers to turn to the web for deals. Amazon could be better positioned than traditional booksellers: it has a lot of data to comb through to know exactly what to stock.