Elon Musk launches new AI company xAI. It's a key step towards his end game of creating X: the Everything App 🤯; Building the AI Bank of the Future 🤖🏦; Block sues Visa & Mastercard 😳
You're missing out big time... Weekly Recap 🔁
👋 Hey, Linas here! Welcome back to a 🔓 weekly free edition 🔓 of my daily newsletter. Each day I focus on 3 stories that are making a difference in the financial technology space. Coupled with things worth watching & most important money movements, it’s the only newsletter you need for all things when Finance meets Tech.
If you’re not a subscriber, here’s what you missed this week:
The best M&A Due Diligence Template 📊 [Read this if you want to avoid M&A failures 💔]
JPMorgan continues to dominate across multiple fronts 💪🏼 [why it’s the Microsoft of Banking, JPM’s badass FinTech strategy & more deep dives]
The most active VCs in the current down market 🤑 [who’s still writing checks + a bonus list of 2500+ investors that welcome cold outreach]
As for today, here are the 3 fascinating FinTech stories that were changing the world of finance as we know it. This week was super intense and intriguing, so make sure to check all the above stories.
Elon Musk launches new AI company xAI. It's a key step towards his end game of creating X: the Everything App 🤯
The BIG News 🗞 Elon Musk has recently launched his artificial intelligence company called xAI to challenge OpenAI and understand the true nature of the universe. 😳
The team at xAI is an all-star cast of some of the brightest individuals within the AI space. Masterminds from Google, Microsoft, and OpenAI are leading this project.
More on this 👉 In case you don't know, Elon was a co-founder of OpenAI. The company that built ChatGPT, a viral AI-powered chatbot that's taking the world by storm.
He left it in 2018 because of a disagreement with senior executives over the speed and nature of technological advancement.
In less than 5 years, he has announced his own AI company, whose primary goal is to rival ChatGPT and Google Bard.
In a few interviews, Elon said that while ChatGPT and Bard are focused on being politically correct, he will build a "truth-seeking AI." xAI therefore aims to become "TruthGPT" that provides true facts, without any political biases.
How and whether this can be achieved - remains to be seen. But it's an interesting goal nevertheless.
Impressive track record 🚀 xAI joins an impressive list of other companies that Elon Musk has started and/or invested in:
- PayPal PYPL 0.01%↑
- Tesla TSLA -2.79%↓
- SpaceX
- Neuralink
- Boring Company
- OpenAI
This means that Elon has averaged a multi-billion dollar company every ~5 years for 3 decades 🤯. Let that sink in…
Love him or hate him, but you cannot ignore him. His entrepreneurial spirit and innovative mind is second to none.
But here comes the interesting part…
✈️ THE TAKEAWAY
The BIG Picture 🌍 Many said that Elon is too late with his AI project, or that he’s having too many things on his plate already. But this is completely irrelevant as it ignores the big picture and the ultimate state of affairs here. And the big picture here is that xAI is a critical component of Elon Musk’s quest to create X, the Everything App. Here are the tools Elon now has at his disposal:
400 million Twitter accounts with years of text to train his AI agents on
Starlink satellite network, which can bring internet to all corners of the planet.
X.ai, which boasts a team of the top AI researchers on the planet.
Coupled with Tesla’s data and infrastructure, brilliant AI talent from Neuralink, and pretty much abundant capital (he’s the richest man in the world), Musk is slowly yet deliberately putting all the pieces together to what could define the future of the internet. Huge.
The beginnings of the most powerful FinTech company in the world 😳
The Everything App starts today: Twitter launches stock and crypto trading 💸 [+2 more reads]
Building the AI Bank of the Future 🤖🏦
Note: this was initially posted on LinkedIn but due to massive interest and engagement, I’m sharing it here as well. Plus, some extra reads too.
Untapped potential 🚀 Artificial Intelligence will unlock $1 trillion of additional value for banks. Each year 😳
Let’s take a look at how to build the AI bank of the future that will be driving the next wave of FinTech innovation.
Perspective 🔎 We already know that rapidly evolving AI technologies have the potential to skyrocket bank revenues, slash costs, and unveil untapped opportunities through improved personalization, automation, and data-driven insights.
According to McKinsey, the potential annual value of AI in banking is estimated to be as much as $1 trillion 🤯
More on this 👉 But to fully leverage AI, banks need to undergo a holistic transformation spanning their engagement layer, decision-making layer, core technology/data layer, and operating model. Piecemeal AI initiatives will fall short.
Here are the most important building blocks for the AI-centric bank:
👥 The engagement layer
Should provide intelligent, personalized propositions across all channels, seamlessly integrate within partner ecosystems, and enable smart servicing with fast, simple interactions.
💡The decision-making layer
It requires deploying advanced analytics and machine learning models across the customer life cycle for automated, data-driven decisions. This requires industrializing model development.
📊 The core technology/data layer
Modernizing the core technology/data layer is crucial to make systems scalable, resilient, and adaptable enough to fuel real-time AI capabilities. This includes transitioning to the cloud, having robust APIs, data platforms, etc.
⚙️ Operating model
The operating model must bring together the right talent, culture, and organizational design in cross-functional teams to synchronize all layers of the AI stack. The platform model creates business-tech partnerships.
Value to be unlocked 💸 If done right and put together, these building blocks will transform financial services from the ground up and allow the following:
- Hyper-personalized recommendations and insights driven by advanced analytics
- Intelligent virtual assistants and chatbots providing 24/7 customer service
- Automated fraud detection and risk management using machine learning
- Streamlined operations and reduced costs through increasing process automation
- Tailored products and pricing based on individual customer data and behaviors
- Seamless omnichannel experiences with secure biometric authentication
✈️ THE TAKEAWAY
Looking ahead 👀 Going forward, banking will be all about experiences & personalization and AI is the key technology to unlock it. Banks that fail to become AI-first will inevitably lose to FinTechs and Big Tech competitors (think Apple, Revolut, or Klarna here). Welcome to the new world of finance.
And if you want to stay ahead of the curve, read these:
ICYMI: Game-changer: the first Open-Source Financial LLM is finally here 🤯
Bonus: The insurance sector is more and more exploring the benefits of AI 🤖
Generative AI will completely transform FinTech and Banking over the next 3 years 🤖🏦
JPMorgan is developing a ChatGPT-like AI service for investors 😳 [+6 more reads]
Block sues Visa and Mastercard 😳
The news 🗞 FinTech heavyweight Block SQ -0.70%↓ is suing card network giants Mastercard MA -0.02%↓ and Visa V -0.42%↓ over the interchange and other fees imposed by the duopoly on the Square payments platform.
The news was rather unexpected so let’s take a look at how big this really is.
More on this 👉 Block claims that Visa and Mastercard conspired to fix inflated “interchange” fees and maintain market power, according to a suit filed July 14 in the US District Court for the Eastern District of New York, Bloomberg reported.
Square, which charges users fees for payments passed over its platform, directly pays the interchange charges levied by the card schemes.
The effect of these artificially inflated fees — assessed to and paid by Square — is higher retail prices paid by consumers economy-wide. As retail prices increase in response to inflated fees, consumers can afford less and thus purchase less, reducing output (Block).
On top of that, Block has also complained about separate charges applied by Visa and Mastercard that are determined by merchant locations and size, arguing that the fee is "highly complex, difficult to calculate, and unavoidable".
✈️ THE TAKEAWAY
What does this mean? 🤔 First, we have to realize that these accusations are not the first of their kind for Visa and Mastercard, as they have already been swept up in an antitrust case stemming from interchange fees in the United Kingdom. Further, various FinTech & FinServ companies are probably going to be suing Visa and Mastercard over interchange fees until the end of time… But is this even worth it? Well, one thing has been proven wrong over and over again - retailers never (or in 99% of the cases) lower(ed) prices. On the other hand, the complaint about separate complex charges applied by Visa and Mastercard could be interesting court material. Zooming out, while it remains to be seen how the court system will act on Block's accusations, this is sure to be a case to watch closely in the days to come. So stay tuned!
ICYMI: Prospering amid economic weakness: Visa acquires Brazil's Pismo in one of the largest FinTech M&A deals in LatAm 🤝💰 [deep dive into Visa & my investment thesis]
🔎 What else I’m watching
FedNow is live 🚀 The Federal Reserve has switched on its new instant payment system, FedNow, with 35 banks and credit unions onboard. The 35 early-adopting banks and credit unions are joined by the US Department of the Treasury's Bureau of the Fiscal Service and 16 payment processing service providers. The Fed is committed to working with the more than 9,000 banks and credit unions across the country to support the widespread availability of instant payments for their customers over time. As an interbank payment system, the FedNow Service operates alongside other longstanding Federal Reserve payment services such as Fedwire and FedACH. More here: Should banks worry about the launch of FedNow? 🤔
Cap extended 🧢 The Federal Financial Supervisory Authority (BaFin) has issued an updated order for digital bank N26 on the prevention of money laundering. This order has been published with a delay. The updated order replaces a previous order focused solely on anti-money laundering measures, which was published in May 2021. We can remember that in 2021, N26 received two orders from BaFin. One order, issued in May 2021, focused on anti-money laundering measures, and N26 promptly fulfilled it. The second order, which concerned N26's business and risk management organization, has also been completed and has now expired. During this period, N26 dedicated substantial resources to enhance its anti-money laundering efforts and continues to invest in improving its technological and organizational capabilities. The newly published order acknowledges the progress made and outlines a plan to address any remaining outstanding issues. N26 is fully committed to swiftly complying with all aspects of the order and will collaborate closely with the special representative appointed by BaFin to ensure progress in all critical areas until all orders are fully resolved. The company's dedication to meeting regulatory requirements underscores its ongoing efforts to bolster customer protection and reinforce its position as a responsible financial institution. ICYMI: Should N26 leave Brazil? 🇧🇷
💸 Following the Money
Pipe co-founder raises $6M for CapStack, a bank-to-bank marketplace aimed at “de-riskifying portfolios.”
UK-based cybercrime detection and disruption service provider Netcraft has secured $100M for the development of its solutions and worldwide expansion.
Cross-border payments technology company Thunes has extended its Series C funding round to $72M with support from Visa, EDBI, and Endeavour Catalyst. The additional $12M in equity financing comes after Thunes bagged $60M last month from London hedge fund Marshall Wace with support from Bessemer Venture Partners and Southeast Asian private equity firm 01Fintech.
👋 That’s it for today! Thank you for reading and have a relaxing Sunday! And if you enjoyed this newsletter, invite your friends and colleagues to sign up: