As I promised last time, I am moving on from Wealthsimple to talk about Koho. As it happens, Koho also has the Power / Portage group as a majority investor and even has Michael Katchen as a director, so I will still need to talk a bit about Wealthsimple. But how is that my fault? I was surprised to learn that Koho has reached 120,000 clients (vs Wealthsimple at 175,000), given that it receives so much less attention. Koho raised $42 million this year, led by Power's VC arm as well as a UK VC, Greyhound Capital. (Greyhound is also an investor in challenger bank Revolut, which plans to open in Canada soon).
Koho's flagship product is a prepaid debit card. My quick review of it would be that it's like Tangerine with less features, maybe a better user interface and certainly more revolutionary talk. Anyways, I'll let Rob Carrick do a review, and I will focus on intrigue and polemics.
So Koho is majority-owned by Power Financial and Wealthsimple is very majority-owned by Power. And as I said, Michael Katchen serves on the board of Koho. Now, far be it for me to sow discord, but how does that work?
Consider that Koho CEO Daniel Eberhard has said:
We are going for the lynchpin of the financial relationship.
And consider that Michael Katchen has said that he wants Wealthsimple to replace banks as the primary financial relationship of Canadians. Wealthsimple has advocated for Open Banking in Canada, talked about offering mortgages...it's clear as day that the two companies are headed for a collision. Already, both companies offer some sort of savings account and some sort of spending roundup service.
All consumer fintechs, are in a war to be the One Financial Bundle to Rule Over Money, the famous OFBROM.
More broadly, all consumer tech companies are about owning the customer's data and relationship. Once they own that, they can sell you a lot of different things, they tend to sprawl in ways that are hard to foresee, such as Apple offering a credit card.
Again, not to sow discord, but how are the interests of respective minority shareholders in Koho and Wealthsimple protected when Power is in control of two businesses that are going after the same prize?
I guess a merger at a fair price would be one happy conclusion.
Power, being a financial conglomerate, has of course for decades managed ownership of firms that are broadly in the same field. Such as insurance products and funds, both of which can fulfill investment needs. But the war to be the One Financial Bundle has winner take all dynamics - like much of tech. I boldly predict that either Koho and Wealthsimple will become much closer or they will go their separate ways. Having Katchen on Koho's board is like a diaper e-commerce company circa 2009, having Jeff Bezos on its board, taking notes.
And as long as I am inadvertently sowing discord, what's Som Seif still doing on Wealthsimple's board? I made light earlier of Som claiming to be a co-founder of Wealthsimple, but I have to say that he was a pivotal figure in Wealthsimple's story. He was a first-round investor and the guy who introduced Wealthsimple to Power. Which is what makes what I am going to say next all the more poignant. Som Seif is a serial entrepreneur in finance, so his Purpose and Wealthsimple could eventually step more directly on each other's toes. Already, they're competing because both offer a High Interest Savings product. (In the case of Purpose, it's a High Interest ETF that accounts for a third of its assets. You can earn 2.15% on your cash with that product vs 2% with Wealthsimple. So you can use Wealthsimple Trade to buy Som's ETF without a commission and make an extra 15 bps. In this scenario, Katchen gets nothing.) Further, Wealthsimple must be able to claim that it picks ETFs in the best client interest and how can it do so with ETF purveyor Som Seif on its board? Or maybe something's wrong with me and I see conflict everywhere.
Former Google CEO Eric Schmidt was on Apple's board from 2006 to late 2009. Then a few months later, Steve Jobs was livid, because he felt Google had stolen popular iPhone features and Jobs vowed to spend his last dying breath destroying Android with a "thermonuclear war".
We can all learn from this and thanks to my eagle-eyed foresight, it won't have to come to this between Katchen and the Koho guy, as long as they act quickly!
And Katchen can keep his pristine reputation for being likeable. So likeable! Hard to imagine him going thermonuclear.
Paul Desmarais III - who oversees these interests for Power - has said that he likes to be diversified and let Darwinism play out. I get the impression that Wealthsimple is closer to Power's heart and that Koho is the one that will move farther away, but again, I would hate to sow any discord. I am all about conflict prevention.
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