Nov

28

Credit Intelligence where Credit is Due

Filed Under B2B, Big Data, Blog, Financial services, Industry Analysis, internet, Search, semantic web, social media, Thomson, Uncategorized, Workflow | 1 Comment

The best network marketplace ideas are simple. And inexpensive in terms of user adoption. And productivity enhancing. And regulator pleasing. And very, very clever. So we need to give Credit Benchmark, the next business created by Mark Faulkner and Donal Smith, who successfully sold DataExplorers to Markit earlier this year, a double starred AAA for ticking all these boxes from the start. And doing so in the white-hot heat of critical market and regulatory attention currently being focused on the three great ratings businesses: S&P, Moodys and Fitch. Here is a sample from the US (taken from BIIA News, the best source of industry summary these days at www.biia.com):

“Without specifying names, the U.S. regulator said on Nov. 15 that ratings agencies in the country experienced problems such as the failure to follow policies, keep records, and disclose conflicts of interest. Moody’s and Standard & Poor’s Corp. accounted for around 83% of all credit ratings, the SEC said. Each of the larger agencies did not appear to follow their policies in determining certain credit ratings, the SEC found, among other things. The regulator also said all the agencies could strengthen their internal supervisory controls.

The SEC noted that Moody’s has 128 credit analyst supervisors and 1,124 credit analysts, in contrast with S&P’s 244 supervisors and 1,172 credit analysts. The regulator also examined the function of board supervision at ratings agencies, and implied in its report that directors should be “generally involved” in oversight, make records of their recommendations to managers, and follow corporate codes of conduct. Source: Seeking Alpha”.

Well, in a global financial crisis, someone had to be to blame. It was the credit rating agencies who let us all down! The French government and the EU have them in their sights. They have a business worth some $5 billion with excellent margins (up to 50% in some instances). They are still growing by some 20% per annum because they are a regulatory necessity. They have become a natural target for disruptive innovation, and small wonder, because this combination of success and embedded market positioning attracts anger and envy in equal parts. Yet no one, least of all the critical regulators, wants disruptive change. It is easy enough to point to the problems of the current system, illustrate the conflicts inherent in the issuer-pays model, bemoan the diminished credibility of the ratings, or criticize the way in which multiple -notch revisions can suddenly bring crisis recognition where steady alerting over a time period would have been more useful, but at present no one has a better mousetrap.

At this point look to Credit Benchmark (http://creditbenchmark.org/about-us). Having successfully persuaded the marketplace, and especially the hedge funds, to contribute data on equity loans to a common market information service at DataExplorers (a prime example of UGC – user generated content – more normally seen in less fevered and more prosaic market contexts) the team there have a prize quality to bring to the marketplace. They have been once, and can be again, a trusted intermediary for handling hugely sensitive content in a common framework which allows value to be released to the contributors, which gives regulators and users better market information, and which does not disadvantage any of the contributors in their trading activities. So what happens when we apply the DataExplorers principle to credit rating? All of a sudden there is the possibility of investment banks and other financial services sharing their own ratings and research via a neutral third party. At present the combined weight of the bank’s own research, in manpower terms, dwarfs the publicly available services – there are perhaps as many as 8000 credit analysts at work in the banks in this sector globally, covering some 74% of the risks. If all members of the data sharing group were able to chart their own position on risks in relationship to the way in which their colleagues elsewhere across a very competitive industry rated the same risk using the same data – in other words show the concensus and show their own position and indicate the outliers – then the misinformation risk is reduced but the emphasis on judgement in investment is increased.

And of course the Big Three credit agencies would still be there, and would still retain their “external” value, though maybe their growth might be dented and the ability to force up prices diminished if there was a greater plurality of information in the marketplace, and if banks and investors were not so wholly reliant upon them .The direction in which Credit Benchmark seem to be going is also markedly one which is very aligned to the networked world of financial services. User generated content; data analytics in a “Big Data” context; the intermediary owning the analysis and the service value, but not the underlying data; the users perpetually refreshing the environment with new information at near real-time update. And these are not just internet business characteristics: they also reflect values that regulators want to see in systems that produce better-informed results. A good conclusion from Credit Benchmark’s contributory data model would be better visibility into thematic trends for investment instrument issuers and their advisors, as well as more perception of and ongoing monitoring of their own, their client’s and their peer’s ratings. In market risk management terms, regulators will be better satisfied if players in the market are seen to be benchmarking effectively, and analysts and researchers who want to track the direction and volatility of ratings at issuer, or instrument, or sector, or regional levels will have a hugely improved resource. And something else will become clear as well: the spread of risk, and where consensus and disagreement lies. Both issuers and owners get a major capital injection of that magic ingredient – risk – reducing information.

None of this will happen overnight. Credit Benchmark are currently working on proof of concept with a group of major investment banks, and the data analytics demand (in a market place which is not short of innovative analytical software at present) is yet to be fully analysed. Yet money markets are the purest exemplars of information theory and practice, and it would be satisfying to be able to report that one outcome of global recession had been vast improvements in the efficacy of risk management and credit rating of investments. Indeed, in this blog in this year alone we have reported on crowd-sourcing and behavioural analysis for small personal loans (Kreditech), open data modelling for corporate credit (Duedil) and now, with Credit Benchmark, UGC and Big Data for investment rating. These are indicators, should we need them, of an industrial revolution in information as a source of certainty and risk reduction. Markets may never (hopefully) be the same again.

Nov

12

Marco’s Magical Mystery Tour

Filed Under Blog, Education, Financial services, Industry Analysis, internet, mobile content, news media, online advertising, Publishing, Search, social media, Uncategorized | Leave a Comment

Two days at the Old Billingsgate conference centre last week, but for investors  and early stage and post start-up information service and technology players the annual Noah conference, moderated by Noah’s co-founder and genial ringmaster/moderator, Marco Rodzynek, has never been a chore but an exhausting pleasure. The meeting seems to go by in a blur – I  seem to have written notes on 55 short presentations – and the food, drink and parties all add to the atmosphere. Even the Prime Minister’s office talking about the Shoreditch Tech City sounded upbeat (and a bit spaced out!). Marco and his colleagues shifted the focus a bit this year, and while there were a satisfying number of UK, French and German companies, there was special emphasis on Turkey, Israel and Russia, releasing some really interesting perspectives on those marketplaces.

There were specialist break-out groups for those who wanted to get closer to the action than the variety show on the main stage permitted. And there were a couple of really interesting panel sessions and investor recaps/case studies. Two of these – a session on the digital investment strategy of Axel Springer, and a strange panel on the future of television, which oddly sounded like “everything will change except the primacy of broadcast, schedule and channel” (ie nothing will change) – were mentioned here in Friday’s blog (“Monty’s Flagging Circus”). Both gave food for thought. And it was a good idea to put Priceline (the forgotten man, but now a critical investor), Facebook and eBay up to talk about their strategies. On the other hand there was a muted atmosphere to the music industry panel, with a strong feeling that while some would still like to play the old tunes, the band has moved on for this sector.

It was in the agenda sessions that the real value lay, as a wonderful diversity of information and tech players each gave a 10 minute toot on the trumpet. It almost feels invidious to mention names, but who could fail to be impressed by Fiverr? The global marketplace for services – “turn your hobby into a revenue stream” – is now in 200 countries, has a million listed businesses, and 15% of those see Fiverr as their primary income stream. AVAST, the consumer antivirus player from Prague, now has an installed base of 170 m computers and works in 43 languages. Naturally, it shifts into mobile, with 1 million new Android users joining per month. They have their incremental cost of a adding new customer down to 2 cents per year – and currently, on all devices, 250,000 are joining each day. In conversations around the hall, I heard advocates for Klarna, the online payment system that started in Sweden, has Sequoia and General Atlantic amongst its investors and says it will do 140m euro in revenue this year. Wix (Bessemer, Mangrove, Benchmark) have 27 million users for their quick build website service, and have now built 23 million sites. MyTaxi, meanwhile, one of the start-up school of 2009, report 2.5 million downloads of their taxi calling service as they move it out from Hamburg, across Germany and into Washington DC, Madrid and Warsaw this year. 90 million people download IronSource per month to ease software download problems in a market where 40% of consumer downloads fail. Or consider Schibsted’s LeBobCoin.fr (a mirror of blocket.se), a classifieds site with revenues of 63m euro and an ebitda of 70%. I sat wondering whether this market would turn into matchmaking services, but at the moment, as with Axel Springer, the classifieds business, now unrelated to news and newspapers, is forging ahead.

Are you getting breathless? Have a look at Nordeus, from Serbia, whose TopEleven game has 2.1 million daily active users. Then dash over to hepsiburada.com, Turkey’s most popular shopping mall. In a country without nationwide branded departmental stores, and 50% of the population between 15-45 (40% of internet users are under 25) there has to be a future for shopping. Then check out Russian fashions on KupiVIP.ru, or, if growth is your magnet, look at Spain’s Privalia, strongly selling end of season fashions and competing for Spanish speaking populations of over 500m with only 50% current internet penetration (USA is around 80%). Their demographic profile is the 20-40 age range, they claim more Facebook connections than any other fashion site, 1 in 4 sales are on mobile devices, and their 300 m euro revenues are rising at 100% (400% in Latin America) CAGR. And if you are fed up with stores, try Stuffle for an online flea market – they have done 450k in revenue in the first six months.

And still I have not done justice to the show. WyWy is an interesting Shazam-style service for television. Wynsh has 3 million users who record their wants photographically while the brilliant and beautiful Busuu.com goes from strength as a language learning environment for consumers. The peer to peer element is interesting here, as is the mobile apps angle. Since it is estimated that 2 billion will speak English by 2020 improving performance is going to be a big market. Or Cooliris, claiming to be the no 1 app on the iPad in 75 countries as it helps people manage and present their photographs.  I would also like to talk about Skobbler, the navigation site, or the very impressive small loans site Kreditech from Hamburg. Given space, we could look at Wrapp, the social gifting service, or Burda’s HolidayCheck travel review site or Israel’s Conduit (or ask.fm from Riga with 9 m users). But you are now tired and I am exhausted – you need several days to sleep off a Noah conference.

I left with a profound impression of huge growth and energy in Europe on the internet, and a feeling in consumer markets that building a base of a few million users is no longer the problem. Sustaining and renewing that audience is the issue, and it is interesting that the Noah seedlings are now very various in size and shape. And the Noah people are right about something else as well: this is now a dynamic investment market with real growth prospects, especially where European players are able to seek global markets as well as local ones.

Star of the show goes to Yossi Vardi, veteran Israeli investor and doyen of the tech community. Peering into an audience of 1400 paying delegates, he said that while giving  a recent speech in Tel Aviv he noticed that a man in the third row had fallen fast asleep. So Mr Vardi pointed to the man next to him and said “Wake him up, he’s fallen asleep”. To which the man next to the sleeper replied “You wake him up – you put him to sleep in the first place”.

« go back — keep looking »