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I thought I wasn't a 'Costco person' until my friend showed me what I was missing, and I've never looked back

Mon, 01/20/2020 - 10:02am  |  Clusterstock

  • I bought a Costco membership a while back, but I found the store so overwhelming that I barely made use of it.
  • After a friend showed me the ropes, though, I started planning my family's meals to get the most out of my savings.
  • Now I'm a Costco pro and spend about half of what I used to on some of my family's meals.
  • You can use the Costco Anywhere Visa® Card by Citi to earn 2% back on eligible in-store and online purchases.

"Thanks, I got it at Costco!" I had heard this so many times over the years in response to compliments I'd given that I began to realize a club of people were buying their winter coats at the same place they were buying delicious pizza, and I wanted in. So I went to Costco and bought a membership

On my first shopping trip, though, I was so overwhelmed by the sheer size of the place that I found myself wandering the endless aisles staring bug-eyed at brands I had never heard of and couldn't be sure I liked. 

I couldn't tell if the prices were good or bad, and I had no way of knowing because I had never bought 600 vitamins in a single bottle before. I ended up leaving the store with only a box of chocolate almonds and an oversize pack of lightbulbs. It wasn't much, and it certainly didn't justify the $60 membership fee, but it was all I could find.

In the months that followed, I made a handful of mostly futile trips to Costco, and at the end of the year, I sighed with relief when my membership expired. I decided I simply wasn't a "Costco person."

Getting some help from my friend

When I told my friend Amanda this, I think she may have gasped audibly. I explained to her that while I felt silly admitting it, I didn't think I knew how to shop at Costco. She promised to take me to Costco and teach me how it's done. 

Our trip together was centered on groceries. As busy mothers, we don't have time to gawk at flat screens, though we did double back to check out the clothes.

We stopped first at the produce section. That is when I remembered why Costco hadn't worked for me. Sure, $3.69 for a pound of blueberries is a steal, but who needs a pound of blueberries?

"Freeze them," Amanda told me. "Or better yet, think of all the ways you can use blueberries: smoothies, by themselves, as a snack, on oatmeal."

She was right. My children love blueberries and would eat a pound in a single sitting if I allowed them to, but I'm typically so busy rationing out the contents of a quarter of a pint from my local grocery store that the final few shrivel up waiting to be distributed.

The Costco Anywhere Visa earns 2% cash back on in-store and online purchases and has no annual fee. See Business Insider's review of the Costco Anywhere Visa card for more »

Things were just as overwhelming in the baked-goods section: a dozen Einstein Bros. bagels for $6, a dozen enormous muffins for the same price. I have often spent $5 at my local grocery store for four comparable muffins, so the savings were undeniable, but I couldn't imagine needing so many jumbo-size baked goods. 

"I always brought them to the office," Amanda told me. As a freelance writer, I have no office, but my husband does. I could also bring them as an easy contribution to my next book club. Or, as Amanda would say over and over throughout the course of our shopping trip, "Freeze them!"

As we continued shopping, the deals were so good that I found myself taking pictures of the price tags, all while Amanda suggested ways I could use a jumbo vat of coconut oil or peanut butter. But while buying in bulk is a significant component of shopping at Costco, it isn't the only part. 

Saving money on family dinners

We make six out of seven of our weekly dinners at home, and while it's a savings over takeout, I can't tell you how many times I've longed for something between sweating over the stove all afternoon and dropping $40 on Grubhub. 

While many meal-kit delivery services posture themselves as the solution for families like mine, I find myself wincing every time I go over their price plans. Costco offers a real alternative. Its premade-meal section is massive and packed with variety — plus, it's affordable. 

It is famous, of course, for its $4.99 rotisserie chickens and $9.95 18-inch pizzas, but it also sells dinner salads that easily feed a family of four, large tubs of soup, ready-to-bake pasta, and street-taco kits, with the average price of dinner coming in at $15. It's affordable and convenient — and maybe enough of a justification for the membership fee on its own. 

However, if I'm being honest, Costco is such a large store that "Costco runs" aren't a thing, only "Costco trips." So personally, I would need more reasons to hike through the store beyond a few days of premade dinners to make the trek. 

Understanding Costco's assortment of brands

Of course, Costco offers no shortage of reasons to stop in, but in the past, I had struggled with buying brands I didn't recognize. Amanda helped me find the familiar in the unfamiliar. 

Much of this came down to recognizing which items I already use in bulk quantities without preexisting brand loyalty. For example, to my uncultured palate, one olive oil is much like another, and our family pours through it quickly. Picking up a 2-liter jug for $15.99 from Costco saves me both time and money. 

That said, Costco has brand options beyond Kirkland, and on some items, the brand really matters. I love baking and use King Arthur Flour exclusively. At my local grocery store, a 3-pound bag is usually $5. Costco sells a 12-pound bag of King Arthur for $6. Even Amanda, my Costco guru, was surprised to see some of her favorite brands, at one point shouting, "Shut your face!" as she lunged for a package of Kite Hill yogurt. 

Finding my savings

I had to stop myself from a similar exclamation when the cashier announced my total. It felt like a big number for a few items, especially considering I had recently been geeking out over all the deals. But when I broke the numbers down into meals, snacks, and family members fed, I found my savings. 

I had only 10 items on my receipt, and my total was $105. But when I calculated how many meals were included in those 10 items and compared the price with my typical $150 weekly grocery bill that covers breakfast, lunch, dinner, and snacks for the week, I realized that while my while my Costco bill was not a direct meal-to-meal comparison, it was much more affordable for my family. 

For instance, the $10 box of individual pho servings would cover nine of my husband's lunches. The large bag of precooked frozen chicken sausages I purchased for $13 and the box of frozen blueberry-vegetable muffins I also got for $13 would provide my family with easy and nutritious breakfasts for less than $2 a day for the next two weeks. Typically, I spend at least $35 a week on our breakfasts. 

There were other savings as well. My grocery shopping always includes more than just groceries. My daughter's teacher recently asked parents for pencils for the classroom. With the 96-count box I bought at Costco for $9, I was able to provide pencils for the entire classroom.

Another store would have sold a 12-pack of the same pencils for $2.39. I would have not only spent much more money at another grocery store, but I also would never have bought 96 pencils at another grocery store at all. 

As someone who is used to running to my neighborhood grocery store on an as-needed basis, this mindset shift was the most important part of my Costco lesson because in so many ways, Costco is not just a grocery store, it's a way of life. It's a one-stop shop that has just about everything you need, but buying in bulk also requires a degree of planning and commitment. 

And a deep freezer helps.

Earn 2% back on eligible purchases: Click here to learn more about the Costco Anywhere Visa »

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Private equity firm Partners Group just got hit with a trade-secrets lawsuit from a railroad company that says it took investment ideas

Mon, 01/20/2020 - 10:01am  |  Clusterstock

  • Private-equity firm Partners Group has been hit with a trade secrets lawsuit by a railroad operator with which it once discussed possible investing opportunities, according to a lawsuit filed in New York state court. 
  • MidRail, a freight rail operator, claimed it entered into a non-disclosure agreement with Partners Group in 2017 to discuss rail investments together.
  • But after MidRail provided Partners Group with "confidential business information," including about its merger and acquisition pipeline and business model, the PE shop used this information for its own investing purposes, the lawsuit alleges.
  • The lawsuit claims Partners Group used the MidRail information to compete directly with MidRail in a 2019 bid for US rail operator Patriot Rail.
  • MidRail ultimately won the bid, but paid $100 million more for Patriot than it had originally planned, the lawsuit said. 
  • The lawsuit filed "is wholly without merit, and Partners Group will vigorously defend against the asserted claims," a Partners Group spokeswoman said.
  • Click here to read more BI Prime stories.

Private equity firm Partners Group has been hit with a trade secrets lawsuit by a railroad operator with which it once discussed possible investing opportunities, according to a lawsuit filed in New York state court. 

MidRail, a freight rail operator, claimed in the lawsuit that it entered into a non-disclosure agreement with Partners Group in 2017 to discuss rail investments together.

But after MidRail provided Partners Group with "confidential business information," including about its merger and acquisition pipeline and business model, the PE shop used this information for its own investing purposes, the lawsuit alleges.

The lawsuit said Partners Group solicited MidRail's "most sensitive information" and then used it to compete directly with MidRail, including in a 2019 bid for U.S. rail operator Patriot Rail.

MidRail, partnering with a new private equity firm, won the bid, but says that it paid $100 million more for Patriot than it had originally intended, according to the lawsuit.

Reached for comment on Friday, a Partners Group spokeswoman called the lawsuit "wholly without merit."

"Partners Group will vigorously defend against the asserted claims," she said. 

Patriot bid allegations

The events leading up to the Patriot bid, as alleged by MidRail, help explain the lawsuit. 

MidRail said it introduced the potential purchase of Patriot to Partner Group in 2018. That was before Patriot was even on the market for sale, MidRail said. 

Then, following that introduction, Partners Group "responded with interest" and MidRail continued to share information about the possible deal throughout 2018. 

MidRail stated that information provided to Partners Group was done with the express understanding that the PE shop would use the information "only for evaluating and/or entering" into business transactions with MidRail and for no other purpose. 

It also referenced a non-disclosure agreement, which MidRail claims it later found Partners Group to have violated.

Deal talks

In May and June 2019, they continued to talk about Patriot, which by then was engaged in a formal sale process, the suit alleges.

At this time, the lawsuit said, Partners Group told MidRail it was planning a first round bid for Patriot and assured MidRail that if it made it past the first round, it would partner with MidRail.

MidRail provided Partners Group with confidential information about its strategy for Patriot, the lawsuit said, including information on how the materials for a previously discussed deal could be adapted for a Patriot acquisition. 

Then, Partners Group made "repeated requests" for detailed information from MidRail about the application of MidRail's strategy and M&A pipeline as it related to Patriot, which MidRail provided. 

But after getting into the second round of bidding, Partners Group refused to work with MidRail, the lawsuit said. 

In July 2019, the lawsuit said Partners Group met with Patriot, including a management meeting and a dinner, during which Partners Group "improperly shared MidRail's confidential plans for Patriot... while falsely representing these MidRail creations as [Partners Group's] own."

As a result, MidRail "was forced to drastically increase its bid, and therefore cut into its projected investment profits, to compete against (for all practical purposes) itself," the lawsuit said. 

MidRail teamed up with a new equity partner and ultimately bid $100 million more for Patriot than it had originally planned, the lawsuit said. 

Fundraising claims

It also said in the suit that, based on information and belief, Partners Group has continued to use its information including as part of fundraising efforts.

The lawsuit referred to a new $5 billion Euro infrastructure investment fund Partners Group was raising.

It said that Partners Group featured MidRail's confidential information in order to solicit investments for the fund. 

The lawsuit seeks economic damages and says it was harmed at least in the tens of millions of dollars. 

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Morgan Stanley is looking to add 1 million wealth clients by wooing young startup workers who are paid a lot in stock (MS)

Mon, 01/20/2020 - 9:57am  |  Clusterstock

  • Morgan Stanley, the largest US wealth manager, on Thursday broke down how it plans to turn customers using its newly purchased stock-plan system into full-fledged wealth management clients.
  • Over the next five to seven years the firm expects to shift more than 1 million employee participants to its wealth arm's advisory or digital channels, like its Access Investing offering. 
  • Visit BI Prime's homepage for more wealth management stories.

Morgan Stanley made a $900 million bet around its wealth management business last year. Now it's sharing new details with around how it plans to execute on it.

The New York bank's executives on Thursday explained how they are looking to convert customers already using its recently purchased stock-plan platform, ShareWorks by Morgan Stanley, into possibly lucrative full-fledged wealth management clients down the line.

The acquisition of the Canadian equity-administration firm formerly known as Solium Capital, which was announced last February and closed three months later, was Morgan Stanley's largest purchase since the financial crisis. ShareWorks, used by employees at startups like Stripe and Instacart, is now part of a larger suite of tools called Morgan Stanley at Work. 

Over the next five to seven years the firm expects to turn more than 1 million employee participants to its wealth arm's advisory or digital channels like the Virtual Advisor, Access Investing, or Access Direct offerings.

That would build on its 3 million-plus client relationships, chief executive James Gorman said on a call with analysts to discuss the firm's fourth-quarter and full-year earnings results

"We'll be able to provide a compelling offering for all our relationships, servicing the ultra-high and high net worth segment with financial advisers and more mass affluent clients with our virtual adviser or digital solutions," Gorman, who has helmed the firm since 2010, said. 

The plan and the acquisition itself underscore a more sweeping, urgent focus playing out across the big business of managing money. With inexpensive introductory offerings, firms are making moves to attract a generation of young, digitally inclined customers still building up wealth with the hope of shifting them to more premium services as their situations grow more complex. Getting inside the workplace with "financial wellness" tools is one way firms are hoping to do that.

Morgan Stanley, for its part, expects to fully convert all of its existing corporate equity-administration clients over to Morgan Stanley at Work by the end of 2021 — at which time employees of the companies it serves will be able to access "financial coaching, exclusive educational content, and our self-directed brokerage offering, providing them with an introduction to our wealth management services," Gorman said.

Nearly 40% of those plans on its existing systems have been transitioned over to Shareworks. The remainder will be completed by the end of 2020, Gorman added. 

When an analyst on the call asked for more details around what kind of assets-under-management growth and revenue could come with successfully drawing in new wealth management clients, finance chief Jonathan Pruzan said it's still relatively early days. 

"I think we'll see sort of an acceleration, a slow build, if you will, of converting our Morgan Stanley at Work clients into either the digital or advisory channel," he said.

Pruzan said on the firm's third-quarter earnings call in October that it had won 265 new corporate clients since the deal closed earlier that year.

How Shareworks fits into the unit's future

Gorman has emphasized that its wealth-management arm, the largest in the US with some $2.7 trillion client assets and around 15,400 financial advisers through the fourth quarter, has stabilized the firm.

With a steady stream of fees locked in from clients who will theoretically stick around for years, business are typically seen as more steady units than other areas of banks like trading, which are more tethered to markets' fluctuations.

And Shareworks is a major part of Gorman's vision for the future. "I see it less characterizing as going down market and more characterizing as just expanding the universe of clients," he said on the call.

"There are a lot of people out there, working at companies making good money through these share plans," he added. "They do not want or need one of our large financial adviser teams, that's for sure. But that doesn't mean they can't have access to what Morgan Stanley can deliver."

Devin Ryan, an analyst at JMP Securities, meanwhile isn't blown away by what these clients could do for Morgan Stanley's wealth business.

He crunched the numbers and pointed out that its 2.7 million corporate stock-plan customers hold $1.5 trillion of wealth away from Morgan Stanley. By Ryan's estimates around the 1 million additional customers it's hoping to capture, the firm is going after some $500 billion in assets held away. 

"We believe a successful wallet share outcome would be around 50%, implying this could be a $250 billion-plus asset opportunity (on a current WM customer asset base of over $3 trillion) — thus, we think this would be a positive and is clearly incremental, but also not transformational," he said in a Thursday report to clients. 

Read more: Jamie Dimon makes renewed pitch for JPMorgan to be valued like a subscription service — and it shows how Wall Street is trying to echo Big Tech

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A consultant who travels every week shares why the Amex Platinum and the Chase Sapphire Reserve are his go-to cards for benefits and rewards

Mon, 01/20/2020 - 9:45am  |  Clusterstock

Traveling for work doesn't make this consultant (who preferred not to share his name or company to protect his privacy) any less excited about doing it for fun in his free time. He uses two premium cards to book work travel when he can, and for his everyday spending to maximize his rewards. 

"I use the cards to make my business travel less of a hassle and earn rewards so that I can enjoy aspirational travel in my personal time with my wife and my family," he tells Business Insider. 

This consultant, who works for a top consulting firm, travels weekly for work. His favorite cards are two high-end travel rewards cards: the Chase Sapphire Reserve and the Amex Platinum card. While both have high annual fees, he finds that the combination of fast rewards and luxury perks make them well worth the cost. using them to earn free travel, achieve status with hotel chains, and more. 

Keep in mind that we're focusing on the rewards and perks that make these credit cards great options, not things like interest rates and late fees, which will far outweigh the value of any points or miles. It's important to practice financial discipline when using credit cards by paying your balances in full each month, making payments on time, and only spending what you can afford to pay back. 

The Chase Sapphire Reserve offers top-tier earning potential 

This consultant loves his Sapphire Reserve because he finds it easy to rack up rewards. "I really enjoy that card because it offers more points on the categories that I use the most: travel and restaurants or dining," he says. "On the weekends, I'm usually going out with my wife to dinners and to bars. A large portion of our expenditures on the weekend are for restaurants and dining." 

The Sapphire Reserve might come with a hefty fee — the annual fee recently increased to $550 — but it racks up 3 points per dollar on travel spending and dining. Travel spending includes both vacationing and everyday expenses, ranging from airfare and cruises to subway fare, and dining points can be earned on anything from DoorDash orders to high-end restaurants. The card also offers up to $300 in annual statement credits that are automatically applied whenever you use the card to make eligible travel purchases.

Click here to learn more about the Chase Sapphire Reserve » The Amex Platinum offers lots of luxury benefits

The Amex Platinum is another staple in this consultant's wallet, thanks to a long list of travel perk.

"I really like the American Express Platinum card because of the status and benefits for both myself as well as my family," he says. Like the Sapphire Reserve, this card has an annual fee of $550. 

"It helped me kick start status with hotel chains and car rental services until I had enough nights and points to actually get the status myself," he says. The Amex Platinum offers Gold elite status with Hilton and Mariott, giving cardholders complimentary upgrades, late checkouts, and more. 

In addition to hotel status, he finds that the airport lounge access benefits make travel easier. "I have Delta Sky Club access, which I value quite a bit, especially if my flights get delayed," he adds. For frequent travel in and out Atlanta, which is a Delta hub, the Amex Platinum's free Delta Sky Club lounge access (when you have a same-day Delta flight) is very useful.

The consultant also said that Amex's concierge services have helped him out quite a bit, both when traveling and at home. "Their concierge services have helped me get restaurant reservations at some restaurants that I couldn't get reservations at myself," he says. 

Click here to learn more about the Amex Platinum » It's all about the rewards, and these two cards help them add up

By using two cards, there are two sets of rewards at play: Amex Membership Rewards points and Chase Ultimate Rewards points

"There's absolutely nothing wrong with putting all of your spend on a single rewards credit card," he says. "But I think for me, I enjoy looking at how I can optimize my spending across credit cards. I'm willing to put in the time and the effort." 

"It's not that much effort to be honest, but it does involve checking every day, making sure that things are on track, and having a long-term strategy in place," he says. Most importantly, rewards credit cards are only worth it if they're paid in full each month, as carrying a balance will negate any rewards you earn. 

Elite status and airport lounge access benefits: Learn more about the Amex Platinum » Earn 3x points on travel and dining: Learn more about the Chase Sapphire Reserve »

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What are you waiting for?..."Kilishi Delivered" in Toronto #Canada

Mon, 01/20/2020 - 2:09am  |  Timbuktu Chronicles
Kilishi Delivered is the sole online distributor & marketer of Albarkah Foods Kilishi products, for delivery to consumers across Canada and the US. We deliver great tasty Kilishi, crafted to perfection in Canada from grass fed beef, right to the front doors of our customers in no time.

Omugwo #Nigeria - An Online Care Giving Service

Mon, 01/20/2020 - 2:02am  |  Timbuktu Chronicles
Omugwo is an online care giving service company, where you can find the most professional and reliable caregivers to meet the needs and match the expectations of your entire family. We provide you with the most reliable, professional and experienced caregivers in Nigeria, whom have been trained and properly vetted.For an understanding of the cultural practice 'Omugwo' listen here

Pangea Accelerator | ShelterTech #Kenya Accelerator Program https://youtu.be/O0EIZ3IYyEA

Mon, 01/20/2020 - 2:00am  |  Timbuktu Chronicles
From ShelterTech Kenya Accelerator:
The ShelterTech Kenya Accelerator Program, is the first kind in Africa. It has been supporting 30 businesses working to address challenges in affordable housing in Kenya. The event culminated in a Demo Day on May 24th 2019. 7 businesses are finalizing with investors on investment.

Latest fintech industry trends, technologies and research from our ecosystem report

Mon, 01/20/2020 - 2:00am  |  Clusterstock

This is a preview of a research report from Business Insider Intelligence,  Business Insider's premium research service. To learn more about Business Insider Intelligence, click here.

In recent years, we've seen a ballooning of activity in fintech — an expansive term applied to technology-driven disruptions in financial services. And 2018 has been no different, with fintechs' staggering influence on the market evidenced by record funding levels for the industry — by Q3 2018, overall funding was already up 82% from 2017’s total figure, according to CB Insights.

Additionally, this year marked a watershed moment for the industry, with the once clear distinction between fintechs and financial services proper now blurred significantly. Virtually every incumbent financial institution (FI) is now looking inward and engaging in an innovation drive, spurred on by competition from fintechs. As such, incumbents are now actively investing in, acquiring, and collaborating with their fintech rivals.

In this report, Business Insider Intelligence details recent developments in fintech funding and regulation that are defining the environment these startups operate in. We also examine the business model changes being employed among different categories of fintechs as they strive to embed themselves further in mainstream finance and prove sustainability. Finally, we consider which elements of the fintech industry are rapidly rubbing off on incumbent financial services providers, and what the future of fintech will look like.

The companies mentioned in this report are: Funding Circle, GreenSky, Transferwise, Ant Financial, Nubank, Cellulant, Oscar Health, Stripe, One97, UiPath, LianLian Pay, Wacai.com, Gusto, Toast, PingPong, Flywire, Deposit Solutions, Root, Robinhood, Atom, N26, Revolut, OneConnect, PolicyBazaar, WeCash, Zurich, OneDegree, Dinghy, Vouch Insurance, Laka, Cleo, Ernit, Monzo, Moneybox, Bud, Tandem, Starling, Varo Money, Square, ING, Chase, AmEx, Amazon, Monese, Betterment, Tiller Investments, West Hill Capital, Square, Ameritrade, JPMorgan, eToro, Lendy, OnDeck, Ripple, Quorom, Chain, Coinbase, Fidelity, Samsung Pay, Google Pay, Apple Pay, Bank of America, TransferGo, Klarna, Western Union, Veriff, Royal Bank of Scotland, Royal Bank of Canada, Facebook, ThreatMetrix, Relx, Entersekt, BNP Paribas, Deutsche Bank, Gemalto, Lloyd's of London, Kingdom Trust, Aviva, Symbility LINK, eTrade, Allianz, AXA, Broadridge, TD Bank, First Republic Bank, BBVA Compass, Capital One, Silicon Valley Bank, Credit Suisse, Ally, Goldman Sachs.

Here are some of the key takeaways from the report:

  • Fintech funding has already reached new highs globally in 2018, with overall funding hitting $32.6 billion at the end of Q3.
  • Some new regions, including South America and Africa, are emerging on the fintech scene.
  • We've seen considerable scaling in older corners of the fintech ecosystem, including among neobanks and alt lenders.
  • Some fintechs, including a number of insurtechs, have dipped into new markets to escape heightened competition.
  • Emergent areas like blockchain and distributed ledger technology (DLT), as well as digital identity, are gaining traction.
  • Many incumbents are undertaking business transformations that aim to reimagine everything from products and services to front-end systems and back-end processes.

 In full, the report:

  • Details the funding and regulatory landscape in the US, Europe, and Asia.
  • Gives an overview into a number of fintech segments and how they've changed over the past year.
  • Discusses how incumbents are reacting to fintechs in order to stay relevant in the changing financial services sector.
  • Evaluates what the future of fintech will look like and what trends to look out for in the coming year.
Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to: This report and more than 250 other expertly researched reports Access to all future reports and daily newsletters Forecasts of new and emerging technologies in your industry And more! Learn More

Purchase & download the full report from our research store

 

SEE ALSO: How the largest US financial institutions rank on offering the mobile banking features customers value most

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Financial Services: 6 Key Attributes to Attract Gen Z

Mon, 01/20/2020 - 1:01am  |  Clusterstock

Now the largest generation worldwide, Gen Z accounts for nearly 68 million people in the US alone. As Gen Zers age, financial services providers will be increasingly pressed to shift focus to the burgeoning demographic.

As digital natives, Gen Zers are more receptive to influence from friends and family than traditional advertising. For marketers, strategists, and developers, understanding Gen Z's unique needs — and creating and marketing products accordingly — will be critical to reaping their value.

In Financial Services: 6 Key Attributes to Attract Gen Z, Business Insider Intelligence provides a six-point framework that highlights core traits of the demographic, which banks and payments firms can use to attract, engage, and retain Gen Zers.

This exclusive report can be yours for FREE today.

As an added bonus, you'll receive a free preview of our Banking Pro Briefing.

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5 top DTC VCs told us why health and wellness and beverages are the hottest categories and where they plan to place their bets in 2020

Sun, 01/19/2020 - 5:01pm  |  Clusterstock

  • DTC investors see huge opportunity in companies with a health and wellness bent, like 8Greens, Daily Harvest, Kin Euphorics, and Talea Beer.
  • People are increasingly health-conscious and seeking beverages with benefits, said investors from Forerunner Ventures, Torch Capital, and others.
  • The investors have also been encouraged by high-profile exits in these categories and a decline in alcohol consumption.
  • Click here for more BI Prime stories.

Despite WeWork's implosion and newly listed public companies including Uber and Lyft underperforming in 2019, venture capitalists will pump nearly $100 billion into startups in 2020. Some of it is going to direct-to-consumer startups in categories from alcohol to beauty to home security.

DTC investors from Forerunner Ventures, Torch Capital, and others told Business Insider they especially see huge opportunity in companies with a health and wellness bent, like 8Greens, Daily Harvest, Kin Euphorics, and Talea Beer.

We asked five investors why health and wellness are hot categories and which companies they're betting on.

People are becoming more proactive about their health 

Kirsten Green, a founding partner at Forerunner Ventures, said she's backing Oura, which makes rings that track health and sleep, because people are getting increasingly health-conscious and incumbent companies have been slow to catch up.

She said Oura meets this pent-up demand, provides a utility, and is less bulky and easier to use than other fitness trackers. She thinks Oura could become a hub for all things sleep.

"As people become more proactive about their own health, there is considerable opportunity to introduce new products, services, and ways of conducting business," she said.

There is a new market for health and wellness brands

Health and wellness startups are catering to a new audience, said Neda Daneshzadeh, a partner at Prelude Growth Partners, which has invested in food startups including chickpea pasta maker Banza and plant-based supplement company 8Greens.

"They really care about what they put in their bodies, on their bodies and how they strengthen their bodies," she said of that audience.

Products that are easy, convenient and affordable will succeed, she said.

Investors are attracted to convenience

M13's cofounder Courtney Reum said investors are drawn to food and beverage startups that promise convenience.

"Whether it's 8Greens offering veggies in effervescent tablets or Daily Harvest's quick meal-replacement smoothies and bowls, it's about the form factor and efficacy of convenience," he said. "Beverage startups today check all the boxes."

People are drinking less alcohol 

Factors fueling new beverages are the decline in alcohol consumption, the growing popularity of spiked seltzer, non-alcoholic beverages, and interest in sobriety, said Byron Ling, a partner at Canaan Ventures.

"You can see a really strong shift in consumption patterns, and a continually accelerating decline of people drinking alcohol," he said. "It's super clear that consumers are clamoring for new and more modern ingredient profiles, and products that deliver on a function versus a lifestyle."

The global beverage market is expected to reach $1.8 trillion in market size by 2024, and it's led by upstarts, not the big conglomerates, he said.

There have been high-profile exits

High-profile beverage exits in recent years have sparked interest in the category, said Torch Capital's Jon Keidan, pointing to Nestle's acquisition of Blue Bottle Coffee and Coca-Cola's acquisition of Honest Tea.

"Food and beverage typically saw late-stage investments, but these success stories have meant that investors are beginning to invest a lot earlier," he said.

SEE ALSO: Investors from the DTX Company, Forerunner, Greycroft, and others name 16 direct-to-consumer startups that will take off in 2020

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CIT Bank has one of the best high-yield savings accounts available, and you only need $100 a month to make it worth your while

Sun, 01/19/2020 - 3:25pm  |  Clusterstock

A high-yield savings account is the best way to grow your money without risking a dime. But you need savings to earn interest, and for many of us, consistently putting away money is the tough part.

Business Insider has named the best high-yield savings accounts, and one of our winners, CIT Bank, has a solution. The online bank's Savings Builder account currently offers an annual percentage yield (APY) of up to 1.80%, one of the highest rates we saw among national and online banks. But in order to earn that APY, you either have to save automatically or maintain a high balance.

Here's how it works: You need at least $100 to open a Savings Builder account. Every new accountholder earns an interest rate of 1.78% for an introductory period of a few weeks. If you set up an auto-deposit of at least $100 a month or keep your daily balance above $25,000, you'll earn the top APY of 1.80%. If you fail to do either, your APY will drop to 1.16%.

If you're serious about saving — whether for an emergency fund, next year's summer vacation, a down payment on a home, or your wedding fund — the Savings Builder account is a great tool to create momentum.

On top of rewarding you for consistent savings, the account doesn't impose any maintenance fees and allows mobile check deposit via its app. The account does limit transfers and withdrawals to six per statement cycle, but that's a federally mandated rule you'll find on nearly all savings products.

Now is a good time to open a high-yield savings account

It's important to remember that interest rates on high-yield savings accounts are variable. You don't lock in a fixed interest rate on this account, or any other savings account, like you would on a certificate of deposit (CD). When the Federal Reserve cut interest rates multiple times since its first cut last summer, earning potential on savings accounts fell dramatically. But that doesn't mean it's a bad time to save money.

In fact, there are a few good reasons to open a high-yield savings account while interest rates are down, including that you're still earning 20 times more than a traditional savings account. Plus, if you start the habit of automatically saving now, you'll be ready to earn even more on your savings when rates inevitably go back up. 

If you've already built up a cash reserve elsewhere, you may be able to earn even more rewards with the Savings Builder account. January 16 through April 16, CIT Bank is offering a bonus: If you open an account and deposit $25,000 to $49,999 from an external bank within 15 days, and keep that balance for 90 days, you get a bonus of $100. If you deposit more than $50,000 during the funding period, the bonus increases to $200.

Learn more about the CIT Savings Builder account »

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7 signs you're spending more money than you can afford

Sun, 01/19/2020 - 2:48pm  |  Clusterstock

If you want to end up wealthy one day, it's crucial to keep your spending in check.

Many millionaires say the secret to building wealth is living below your means. But it's not always easy to manage if you have a below average income, student loans, or other people to financially support.

How much of your income you should spend vs. save or invest depends on the lifestyle you want to live now and in the future, as well as your personal financial goals. You may be able to identify these and make a plan on your own, but if you feel overwhelmed or unsure, a financial planner can help.

Here are a few red flags that indicate you're spending more than you can afford and tips for getting back on track.

1. Your budget is based on your salary or hourly rate

You probably have a nice, round number attached to your job title, whether it's an annual salary or an hourly rate, but that's not what you're actually bringing home. After Uncle Sam takes his share of taxes and the state you live in takes its own share, you're probably left with less than you think. 

If you budget your money based on your pretax number and not the amount that ends up in your pocket, you're likely overestimating how much you can afford to spend. Use a simple online calculator to find your take-home pay and go from there.

2. Your expenses exceed your income

Life can be costly, but the key to achieving financial stability is having more money coming in than going out.

When you list all of your monthly fixed and variable expenses — from rent to food to your gym membership — the sum should not exceed your monthly income. If it does and you don't cut back somewhere, you may end up in debt.

Managing cash flow can be tough for people with inconsistent income, such as contractors or freelancers. Try finding your income baseline — either the average of your income for the last 12 months or, to be extra safe, your worst-earning month — and use that to decide your limit for expenses.

3. You have a negative net worth

When your expenses exceed your income for too long, you may end up with a negative net worth — what you owe is greater than what you own. 

If you find yourself in the hole, you're not alone. The Federal Reserve Bank of New York reported in 2016 that about 15% of US households have net worth equal to zero or less.

If you think it could take longer than five years to repay your debts, you may consider filing for bankruptcy to provide some relief, Debt.org advises. However, not all types of debt are forgiven in bankruptcy and it can affect your ability to borrow money in the future. Devising a debt repayment plan with a financial planner may be better option.

4. You carry a balance on your credit card

Using a credit card for all or most of your purchases is perfectly fine, as long as you are able to pay off the balance in full every month. If you don't, or you simply make the minimum payment, the remaining balance will begin to accrue interest and grow exponentially.

Credit-card debt doesn't mean you're doomed, but it's a surefire sign that you're spending (or spent) money you don't actually have. Consider consolidating your debt with a personal loan or a 0% balance transfer card. 

5. Your rent or mortgage exceeds 30% of after-tax income

The standard measure of housing affordability in the US is 30% of pretax income. For example, someone with an annual salary of $50,000 should ideally spend less than $1,250 a month on housing costs. But that doesn't factor in taxes.

A more helpful way to gauge whether you're overspending on housing is to try and limit your monthly expenses to 30% of your after-tax income. This can be tough to manage in a high cost-of-living city, but it's a good benchmark to aim for. Use an online calculator to estimate your take-home pay, multiply that by 30%, and divide by 12 to get your target number. 

6. You buy things to keep up with or impress your friends

If you're buying a ticket to every festival or joining every happy hour because that's what your friends are doing, it may be a sign you're spending more than you can afford.

Social media exacerbates the "Keeping up with the Joneses" affliction many of us suffer from. You probably don't know the financial situation of each of your friends and assuming you can afford something because they can — or worse, you're trying to impress them — isn't a sustainable strategy.

7. You aren't saving at all

Saving for retirement and big expenses should always be a part of your budget. Maybe you've convinced yourself you can't save because you don't make enough money or your rent is too high, but chances are you're simply spending too much.

Use an app like Mint or Personal Capital to take a hard look at where your money is going every month and choose one or more things to cut back on or eliminate all together. Or better yet, meet with a financial planner who can help map out a strategy for short-term and long-term savings goals. You have more control over your money than you may realize.

Need help getting your money under control? SmartAsset's free tool can find a financial adviser near you »

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My car insurance company raised my rate by 20%, but after an hour of research I kept it anyway — and I learned 2 important lessons along the way

Sun, 01/19/2020 - 2:41pm  |  Clusterstock

  • A few months ago, my car insurance company, Esurance, raised my rate by about $25 a month (including the service fee) even though my driving record hadn't changed at all.
  • After some research, I decided to stick with my current insurer for now — the platform is easy to use and I still pay about average.
  • Still, I learned two important lessons: It's essential to comparison shop and you can often save money by paying the six-month premium up front.
  • See Business Insider's picks for the best affordable car insurance in the US »

Cars are not cheap.

Alas, I live in the car capital of the US, Los Angeles, and despite working mostly from home, I still need wheels.

I'm lucky to own my car outright, so I don't have to worry about a monthly lease or loan payment, but California's gas prices are the highest in the nation at over $3.60 a gallon, on average, and I pay over $250 a year to register my car with the DMV. Not to mention oil changes, repairs, and maintenance costs. Plus, car insurance is a big expense — and mine just got even bigger.

In September, about a month before my insurance policy was set to renew, I got a notice from my insurer, Esurance, that my rate would be going up. My six-month premium would increase from about $727 to $890. I've always been on a monthly payment schedule, which charges a $5 service fee after the first month, so that shook out to an increase of roughly $25 a month, or about $150.

The annual cost of insuring a car in California ranges between $987 and $1,815, according to a Business Insider report, so even with the increase I came up just above average.

Still, I've had no accidents, tickets, or violations in the last two years, so what gives? Esurance said in its email notice that "rates are changing across the state" of California and "the recent rise in extreme weather has caused more claims than predicted."

After some research, I discovered it's normal for car insurance rates to increase periodically due to factors out of our control, like a rise in the cost of medical treatments, car repairs, and legal fees. And when rates go up, it's often industry-wide, not necessarily insurer-specific.

But I was still curious if I could find something cheaper.

/* Business Insider / Auto Insurance Content Pages */ var MediaAlphaExchange = { "data": { "zip": "auto" }, "placement_id": "RxLRBKtcQejwbKRhebUT0f87Cp5b7w", "sub_1": "car-insurance-california-rate-increase-why-im-keeping-it", "type": "ad_unit", "ua_class": "auto", "version": 17 }; I spent an hour researching and was surprised by what I found

Over the next week or so, I spent about an hour comparison-shopping car insurance rates. I didn't want to change my coverage or deductible amounts, so I compared my exact policy — which doesn't include comprehensive or collision coverage, as they're optional in California — to three other popular insurers: Allstate, Geico, and 21st Century.

While every company gave me a good driver discount despite an accident I was at-fault for two years ago, age has a significant affect on premiums and I'm still in my 20s. I also drive a hybrid, which can be more expensive to insure than a fully gas-powered car.

Ultimately, Geico was the only insurer that quoted a lower six-month premium than Esurance — a difference of about $72 — but it wasn't enough to win me over.

My insurer is easy to use and my policy is affordable

In the end, I decided to stick with Esurance for a few reasons. Firstly, I'm already getting a $480 "good driver" discount, which is more than any of the others were offering. Secondly, although my policy rate increased by about 20% for the six-month period, it's still affordable for me. Lastly, I love Esurance's clear and easy-to-use platform — I know exactly what's covered with my policy and I can make changes at any time.

I paid my 6-month premium in full and saved $20

Up to now, I have been paying my car insurance premium in monthly installments, which most insurers charge extra for (Esurance charged a $5 monthly fee after the first month).

Once I decided that it wouldn't be worth it to switch insurers all together, I dipped into my emergency fund to pay the six-month premium upfront, saving $20 in total. I realize that's no savings to write home about, but it does feel good to have that expense completely taken care of.

My desire to find a cheaper policy led me to develop a good habit that could save me a lot of money. It's always smart to know what other options are out there. When it comes time for my policy to renew next spring, I'll be ready to comparison shop again.

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I pay less than $50 a month for $1 million of life insurance, and I think I got a great deal

Sun, 01/19/2020 - 2:35pm  |  Clusterstock

When I turned 37 a few years ago, I purchased a 20-year term life insurance policy for $750,000. This policy was in addition to the 30-year, $250,000 policy I bought in my late 20s, meaning I now have $1 million in term life insurance coverage that will last until I'm 57.

That may seem like a lot of life insurance for a healthy gal in her late 30s, and it's definitely a lot for my little family of four. After all, we are entirely debt-free since we paid off our home mortgage several years ago. We also have above-average retirement savings and some real estate investments to boot.

But I still feel that $1 million in life insurance coverage is more than justified for us right now. And really, I don't regret buying $1 million in coverage for myself at all.

The world keeps spinning — whether you're here or not

If you're wondering how much life insurance you should buy, it's smart to play around with a life insurance calculator that considers your income, your age, and other factors. Once you run the numbers, you may be shocked — and even horrified — at what you find.

This life insurance calculator from Simply Insurance is the one I like the most since it breaks out all your potential costs for the future, including college tuition, funeral expenses, income replacement, inflation, and other factors you may not even consider.

When you start entering information into a life insurance calculator, you'll find out quickly that your future expenses can add up fast — whether you're here or not.

Find out how much a life insurance policy would cost you today with a quote from Haven Life »

If you want to help your kids with college, you'll need to plan for that. If your spouse doesn't work, you'll need to buy more coverage. And if your income is high, you'll need a higher level of life insurance coverage to replace your paycheck and allow your family to enjoy the same standard of living once you're gone.

Once you start compiling all the things you'll need to pay for with life insurance, you may find the amount of coverage you need is a lot more than you'd imagined.

Self-employment plays a role

Another reason to buy more life insurance coverage: On a personal level, my life has a lot of unknowns. While my husband and I are debt-free, we're also self-employed. This means we're 100% on our own when it comes to saving for retirement and the future, but it also means my husband would lose his business partner if I died.

For us, this was a good reason to purchase more life insurance than we probably needed. If I were to pass away, it would be nice for my husband to be able to learn how to run our business by himself slowly without a lot of financial stress. He might also have to find someone to replace me and spend time and resources training them — a chore that would be more easily handled with more money on hand.

Term life insurance is cheap

Another factor to consider is cost. To be honest, purchasing $1 million in term life insurance coverage didn't bother me because it's so incredibly affordable. My first policy, which I purchased in my 20s, costs less than $25 per month and lasts until I'm 57 years old. My second policy, which lasts 20 years and is for $750,000, is only $27.88 per month. I bought this policy from Haven Life entirely online and without a medical exam since I'm in excellent health.

Get your own personalized life insurance quote from Haven Life today »

Where whole life insurance that is meant to last until you pass away can be pricey — I once received a quote for over $700 per month for just $500,000 in whole life coverage — term life insurance is often downright cheap if you're in good health. And there's really no reason I'll even need life insurance after the age of 57 regardless, since we're already debt-free and on the fast path to financial independence in our 40s. Also, 20 years from now my children will be grown and out of the house and I'll (hopefully) have college paid for and squared away.

I sleep better at night

The reality is, having $1 million in life insurance coverage has allowed me to stop worrying about what would happen to my family finances if I died. I never lose any sleep wondering how they would pay for my funeral or whether my kids will be able to go to college, and I never stress over how my husband might pay bills or care for our two children if he were to suddenly lose my income. With $1 million in coverage, he could easily care for them and all their needs — even after taking some time off.

Term life insurance can be very inexpensive when you consider what you get in return. I'm currently paying a little over $50 per month, but my family would receive $1 million in death benefits if I were to pass away without warning. You can't put a price tag on that kind of peace of mind, but paying so little feels like a steal.

Haven Life can help you find the right life insurance policy. Get a quote today »

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Facebook's retreat on WhatsApp ads shows the limits of its Instagram playbook and means Mark Zuckerberg must answer a $22 billion question (FB)

Sun, 01/19/2020 - 1:27pm  |  Clusterstock

  • Facebook is rowing back on plans to put ads in WhatsApp and has disbanded a team that was working on the effort.
  • The surprise move suggests it will not be as simple for Facebook to monetize the app, which it acquired for $22 billion, as analysts hoped.
  • Instagram was a template for a successful Facebook acquisition, with the company filling it with ads and turning it into a massive cash cow.
  • But WhatsApp will need to find a new model, and the team is working on features that will let businesses interact with users.
  • Click here for more BI Prime stories.

Facebook is backing off on plans to stick ads inside WhatsApp — raising questions about its vision for monetizing the messaging app.

The Menlo Park, California-based social networking giant acquired WhatsApp for a cool $22 billion in 2014, and the expectation has long been that it would — eventually — load it up with ads to monetize its millions-strong userbase.

But industry watchers that were hoping that day would soon materialise are out of luck: On Thursday, The Wall Street Journal reported that Facebook has paused its plans to add ads to WhatsApp. It has disbanded the team working on a team exploring the app's potential for ads, it reported, and "the team's work was then deleted from WhatsApp's code."

Facebook insists that it is still committed to adding ads to WhatsApp over the long term, and the full circumstances of the team's shuttering aren't yet known. But the news makes clear that WhatsApp's path to profitability won't be as simple as some had hoped.

Instagram stands as the prime example of Facebook's success with acquisition, acquired for a not-insubstantial $1 billion in 2012, it is now worth more than a hundred times that: An estimate in 2018 pegged it as worth $100 billion, and its value seems certain to have increased since then.

Instagram's advertising business is thriving, helping power Facebook's continued growth in profits, revenues, and users, and has been hailed as "arguably the best acquisition in the history of tech." Its ad business is functionally similar to the core Facebook app's — ad buyers pay to target users with ads that appear in their feeds, and later, in the ephemeral Stories feature too — and was viewed as a business template for how Facebook could spin up wildly profitable advertising units in other services it builds or acquires.

WhatsApp's future will now evolve differently. A company spokesperson told Business Insider that it is now focusing on building other features that allow businesses to interact with ordinary users, like catalogs that can show what a business has for sale. They said it does still plan to eventually add ads to Status, WhatsApp's version of stories posts that delete after 24 hours, but didn't offer any kind of timeframe for doing so.

The messaging app may still make money off this business-feature approach, either by charging for access to certain features or via developing its ecommerce tools that might allow it to take a cut of purchases and payments made through the platform. (Ecommerce and payments may ultimately bring in billions of dollars a year in new revenue for Facebook.)

Bank of America analysts previously predicted in December 2019 that advertising — along with payments and transactions — on WhatsApp and Messenger could add $12 billion in annual revenue over the next three to five years, working to offset the cost of maintaining the messaging apps for Facebook and start generating profits. Facebook's decision raises question marks over such estimates.

WhatsApp remains an incredibly strong product, with more than 1.5 billion monthly active users (as of 2018). But Facebook's strategic shift indicates that turning it from a popular app into another cash cow won't be as simple as turning an ad spigot to replicate Instagram's success.

Do you work at Facebook? Contact this reporter via encrypted messaging app Signal at (+1) 650-636-6268 using a non-work device, email at rprice@businessinsider.com, Telegram or WeChat at robaeprice, or Twitter DM at @robaeprice. (PR pitches by email only, please.)

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FREE SLIDE DECK: The Future of Fintech

Sun, 01/19/2020 - 1:01pm  |  Clusterstock

Digital disruption is affecting every aspect of the fintech industry. Over the past five years, fintech has established itself as a fundamental part of the global financial services ecosystem.

Fintech startups have raised, and continue to raise, billions of dollars annually. At the same time, incumbent financial institutions are getting in on the act, and using fintech to remain competitive in a rapidly evolving financial services landscape. So what's next?

Business Insider Intelligence, Business Insider's premium research service, has the answer in our brand new exclusive slide deck The Future of Fintech. In this deck, we explore what's next for fintech, how it will reach new heights, and the developments that will help it get there.

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THE EVOLUTION OF THE US NEOBANK MARKET: Why the US digital-only banking space may finally be poised for the spotlight (GS, JPM)

Sun, 01/19/2020 - 12:32pm  |  Clusterstock

What is a neobank?

Neobanks, digital-only banks that aren't saddled by traditional banking technology and costly networks of physical branches, have been working to redefine retail banking in major markets around the world.

Top neobanks in the US & EU

The top neobanks in the US and EU include:

  • OakNorth (EU)
  • N26 (EU)
  • Atom Bank (EU)
  • Revolut (EU)
  • Monzo (EU)
  • Chime (US)
  • Starling Bank (EU)
  • Varo (US)
  • Aspiration (US)

Driven by innovation-friendly regulatory reforms, these companies have especially gained traction in Europe over the last three years. While the US is home to some of the oldest neobanks — including Simple, which set up shop in 2009, and Moven, which was founded in 2011 — the country's neobank ecosystem has lagged behind its European counterpart.

That's largely because of an onerous regulatory regime, which has made it very difficult to obtain a banking license, and the entrenched position incumbents hold in the financial lives of US consumers. Navigating the tedious and costly scheme for obtaining a banking charter and appropriate approvals has been a major stumbling block for the country's digital banking upstarts. However, developments over the past year suggest these startups are finally poised for the spotlight in the US. 

Neobanks vs Traditional banks

Consumers', particularly millennials', growing frustration with legacy banking service providers, combined with their increased appetite for digital solutions, has accelerated the shift to digital-only banking. Startups and tech-savvy players are redefining the retail banking space and forcing incumbents to either evolve or lose out on this key business segment.

In The Evolution of the US Neobank Market, Business Insider Intelligence maps out the factors contributing to this shifting tide, examines how key players are positioning themselves to take advantage, and explores how incumbents can embark on their own digital transformations to stave off disruption.

The companies mentioned in this report include: Aspiration, Chime, Goldman Sachs' Marcus, JPMorgan Chase's Finn, N26, and Revolut.

Here are some of the key takeaways from the report:

  • Despite lagging behind Europe, recent developments suggest that neobanks are finally ready for the spotlight in the US.
  • Three distinct influences are responsible for creating the fertile ground for this evolution: regulation, shifting consumer attitudes, and the activity of incumbent banks.
  • Among those driving this evolution in the US are foreign neobanks including Germany's N26 and UK-based Revolut.
  • Meanwhile, two notable incumbent-owned outfits have deployed amid great fanfare: Marcus by Goldman Sachs and Finn by Chase. 
  • In this increasingly competitive landscape, incumbent banks have a range of strategic options at their disposal, including overhauling their entire business for the digital era.

 In full, the report:

  • Details the factors contributing to a shift in the US' neobank market.
  • Explains the different operating models neobanks in the US are deploying to roll out their services and meet consumer demands.
  • Highlights how incumbent banks are tapping into the advantages offered by stand-alone digital outfits. 
  • Discusses the key strategies established players need to deploy to remain relevant in the US' increasingly digital banking landscape.

Interested in getting the full report? Here are four ways to get access:

  1. Purchase & download the full report from our research store. >>  Purchase & Download Now
  2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to this report and more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
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  4. Current subscribers can read the report here.

SEE ALSO: Latest fintech industry trends, technologies and research from our ecosystem report

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The most effective strategy to figure out how much home I could afford started by breaking my expenses into 2 parts

Sun, 01/19/2020 - 11:57am  |  Clusterstock

  • Last year, my husband and I decided to look into buying a new house. We loved our first home, but it was lacking some of the spaces we needed (like an office for me).
  • Instead of looking at listings, though, we started by splitting our expenses into two columns: expenses that would likely change if we bought a house, and expenses that would remain the same.
  • From there, we figured out how much wiggle room we had, set a budget for a new home, and started looking. Our two-part budget strategy would work for almost anyone shopping for a house.
  • Read more personal finance coverage.

In the spring of 2019, my husband and I began considering whether or not it would be a good idea to buy a new home. We loved the house we were living in, but there were a few specific things on our bucket list that it could never provide (like an office for this work-from-home writer, for example). 

Still, before jumping into the process of putting our beloved first-ever house on the market and searching for a new one, we decided to price out some renovations that might make staying in our current home doable for a while longer. 

After meeting with a contractor to discuss some plans, though, it became pretty obvious that the answer to achieving most of our home "wants" would be to invest in a bigger place. So our next big question became: how much house can we really afford?

I'm a numbers person at heart, so creating a budget to determine what an affordable mortgage would look like for us was something I actually enjoyed doing. 

If you're in the market for a new home — or even a first home — experts suggest starting with the numbers before even looking at houses in order to get a better idea of the price range you should be shooting for. 

The following are the monthly budget factors we used to help us figure out how much home we could afford, broken up into two categories.

Expenses that would likely change with a new home

Mortgage: Our mortgage payment would be our biggest X factor, but we could at least start with what we were paying on our current home as a jumping-off point. 

Energy: Our energy bills vary with factors like the seasons and if we have guests that particular month, but we have a good general idea of what we spend, and understood as well that with a bigger home, this could go up.

Water: Another moving target, we had a general idea of what we spend each month on water for our house, with the caveat that it could increase in a new house with a potentially larger yard to care for.

"For home": We have a line item in our budget for catch-all home items we might buy each month — yard stuff in the warmer months, new bedding, etc. — which is flexible.

Miscellaneous: Another moveable line item, the "miscellaneous" category within out budget covers random things that don't really fit anywhere else, like a trip to the aquarium, stamps, or airport parking (which occurs a lot).

Savings: Although we knew we'd try our best not to change this line item too much, if it was necessary, we could deduct a small amount from how much we put into savings each month to cover the difference on a new mortgage.

Individual spending: Chris and I keep a section of our budget to ourselves — we each have our own personal credit credits that we put a certain amount on each month for personal items that the other doesn't need to approve of (him: tons and tons of running shoes; me: books and 5,000 indoor plants). 

If necessary, we could each deduct from our personal monthly spending to pad what might be needed for a new mortgage.

Expenses that would likely stay the same, even with a new home

Groceries: We try to stick to the same projected grocery budget each month for our family of four (luckily, a 2 year old and 3 year old don't eat that much ... yet!). With a larger home, this number shouldn't change.

Pet care: We spend an estimated $100/month on pet supplies, which wouldn't change with a new home.

Cell phones: We spend $200/month on our joint cell phone bills, which shouldn't change.

Car insurance: Luckily, this is a number that stays approximately the same each month.

Internet/Spotify/Netflix/Dropbox/home security: All of these budget items stay roughly the same per month.

Car payments: This wouldn't change with a new home.

Car miscellaneous: The amount that we budget each month for gas and other car needs wouldn't change based on a new home.

"The girls": Our catch-all budget line item for miscellaneous things we buy for our daughters each month — clothes, swim lessons, diapers, wipes, etc. — would need to stay approximately the same, no matter what our mortgage became.

529s: The amount of money we put into 529s for our girls each month is a fixed amount for us — we wouldn't be pulling from this bucket to fund a new mortgage.

Retirement: Same here — the amount of money I put into my retirement account and that Chris puts into his is a non-negotiable.

Preschool: Monthly (astronomical) preschool payments for our daughter are a fixed, non-negotiable fee.

However long that list might seem, we both know we're extremely lucky there weren't any additional items on it for costs like student loans and other debts. 

Having our fixed and non-fixed budgets in hand, we were able to guesstimate how much we'd be willing to pull from our non-fixed items for a new mortgage, and we could head into the house-search process with an actual monthly mortgage goal in mind. 

Doing it this way allowed us to rule out even looking at (and potentially falling in love with) homes that were way beyond our means, and to really focus on the factors that were most important to us (a more private backyard, an office for me, a home on a dead-end street) and give up the less-necessary things (a brand new kitchen) in order to stick with our budget.

At the end of the day, it does take a little bit of time to figure out how much "new home" you can afford, but if you want to keep most of your lifestyle the same and not struggle each month to meet your goals, creating this kind of budget is a means to reaching those objectives. 

Oh, and in case you're wondering: We did find a new home within our budget, and I started 2020 off working from my brand new — and first-ever — home office, while still keeping our additional monthly budget items in tact.

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Here's how real-estate startups like SoftBank-backed Opendoor find new markets for buying up houses and flipping them at a profit

Sun, 01/19/2020 - 11:56am  |  Clusterstock

  • iBuyers, companies that purchase homes with almost instant all-cash offers, renovate and quickly resell them, were born in 2014 in the heat and sun of Phoenix, Arizona. 
  • With Phoenix as the model for iBuyers, companies have expanded to markets that share many characteristics with the desert city, testing their pricing models and operational acumen against different potential variables.
  • The model, composed of both algorithms and human-decision makers, tries to find the lowest price that a homeowner would accept, the lowest-cost renovations with the highest returns, and, with some operators, the highest price that will sell the home quickly on the market. 
  • Business Insider spoke to six experts in the iBuyer world to see which characteristics make for easy price modeling, how companies are testing the limits as they expand, and whether iBuyers will eventually be an option for homesellers throughout the country, and worldwide. 
  • Read more BI Prime stories here.

iBuyers, companies that purchase homes with almost instant all-cash offers, renovate and quickly resell them, were born in 2014 in the heat and sun of Phoenix, Arizona. 

SoftBank-backed Opendoor, now valued at $3.8 billion, first started purchasing homes in Phoenix that December.

By 2015, competitor Offerpad was also buying and flipping homes in Phoenix. The iBuyer model has continued to grow, with established real-estate listing players like Redfin and Zillow entering the fray. There are now active iBuyer markets in almost every region of the US, and even some international regions.

While iBuyers have tested new markets, Phoenix's lack of seasonality, an active local economy and housing market, and largely new housing stock has made it the iBuyer capital. 

A report from Mike del Prete, a consultant who studies iBuyers, found that they make up almost 6% of all home purchases in Phoenix, while a Redfin report that iBuyers made up almost 7% of home purchases in Phoenix by December 2018, the most recent figures.

With Phoenix as the model for iBuyers, companies have expanded to markets that share many characteristics with the desert city, testing their pricing models and operational acumen against different potential variables.

While this process of trial-and-error expansion will likely continue in the near future, iBuying advocates aren't in agreement as to the limits of the model. 

Will we ever see iBuyer's purchasing and renovating 19th century brownstones in Boston's Back Bay, or ranches in Montana?

Business Insider spoke to six experts in the iBuyer world to see which characteristics make for easy price modeling, how companies are testing the limits as they expand, and whether iBuyers will eventually be an option for homesellers throughout the country — and worldwide. 

If you work in real estate and would like to share your experiences or comments about tech tools in the space, please send me an email at anicoll@businessinsider.com.

Read more: We asked 7 real estate experts how far tech can go in replacing human agents

How iBuyers work

The iBuyer model is, at its most basic level, trying to maximize the profit a company can make in quickly buying, renovating, and selling a property. 

The model, composed of both an algorithm and actual human decision-makers, tries to find the lowest price that a homeowner would accept for their property, the lowest cost renovations with the highest returns, and, with some operators, the highest price that will sell the home quickly on the market. 

The algorithm, and the decision-makers, use a range of variables to create an accurate pricing market. The main variables in the algorithm are the characteristics of the homes in the market, the operational challenges of the market, and the economic characteristics of the city. These variables are given different weights. But these variables, and their weighted importance, can change drastically between different markets. 

Margins in the business are small, so the algorithm needs to be tightly dialed in. 

A report by Mike del Prete found that the average margin for an iBuyer is only 1.3%. Of course, iBuyers are also making money on their fees, which are 7.5% on average, 1.5% higher than the typical 6% that real estate agents charge, but it would be hard to continue operating if they were losing money on each sale. 

But like any algorithm, high-fidelity data is extremely important to getting consistent results. 

Phoenix, and markets like it, offer a mix of favorable market conditions that make it easier to make confident bets on home prices. As these companies expand to new markets, in theory the algorithm trains itself on new data sets, with the hope of being able to predict pricing under less favorable conditions. 

The next section will run through the most important variables, why they are important, and how companies are testing the model in markets where those variables are less favorable than in Phoenix.

The characteristics of homes in the market

When considering the characteristics of a home in a market the homogeneity of the housing stock, the age and condition of the average home, and the home price are the most important factors. 

Homogeneity is important because the models work similar to agent's pricing models: they determine value by finding "comps", or the selling price of comparable homes in similar areas. 

Age and condition determine the amount that would need to be spent on renovation, with the hope of removing any costly surprises once the home is purchased. Low home prices reduce the amount of capital that needs to be invested in a home, allowing iBuyers to buy and sell more homes more quickly, with less risk. 

A majority of homes in Phoenix were built after 1980 according to Census data, and the average home value is just below $260,000

This price is well within the typical band for iBuyers: Mike del Prete found that two-thirds of iBuyer purchases were for homes between $150,000 and $300,000. Much of the city is tract housing, or homes with similar floor plans that are clustered together on one, subdivided, piece of land. Tract housing makes "comps" significantly easier, while Phoenix's newer, and relatively cheaper housing prices lower the risks for iBuyers. 

But Los Angeles, where Zillow, Redfin and Opendoor all launched in 2019, is the antithesis of Phoenix.

Its median home price is north of $600,000, double the high end of the majority of iBuyer sales, and a majority of homes were built before 1970, according to Census data. 

Los Angeles, with older homes that weren't built in subdivisions or with repeatable floor plans, doesn't have Phoenix's easy comps. The problem is compounded by the hills, whose famous views make pricing more challenging. 

"In Los Angeles, you have issues with mountain views," Rob Reilling, Phoenix general manager at Opendoor told Business Insider. "Different houses on the same street, depending on how high up they are on a hill, can have vastly different values."

This problem is repeated in Miami, where Zillow operates its iBuyer and high-rise condos complicate the picture. 

"There's a significant price difference if the condos are facing ocean or inland, to the tune of $50,000 to $100,000," Josh Swift, SVP of acquisitions and operations at Zillow Offers, told Business Insider. 

Swift also highlighted the difference in homeowner association fees and amenities between different condos as another factor to consider. 

Read more: These 12 real-estate tech startups are transforming the financials of homeownership

The operational characteristics of the market 

Operational concerns in the market range from the ease of commuting, the impact of seasonality on the market and on home conditions, and the legal hurdles to quickly renovating property. 

The ease of commuting is important when thinking about the challenges of inspecting, renovating, and selling homes at a large scale. The lower-case i in iBuying seems to imply that the process is wholly digital, but iBuying requires people to be physically present at the home at multiple points in the process. 

Winters suck for flipping homes.

In a city like Los Angeles, where bumper-to-bumper traffic is a fact of daily life, one iBuyer executive said that they began their operations in a tight geographical area to make sure that their renovation crews weren't collecting money, and wasting time, by sitting in traffic all day. 

Seasonality has two impacts, both on the material condition of the home, and the delays that winter-time drops in activity can bring to iBuyer's breakneck speed. Other than Phoenix, many of the other areas that iBuyers have proliferated have mild, or nonexistent winters: Las Vegas, Los Angeles, Raleigh/Durham and Charlotte, North Carolina, cities in Texas, and Atlanta. 

Minneapolis and Denver are the two areas with harsh winters where iBuyers operate. If an iBuyer purchases a house in December, and it is largely unoccupied for the next month or two while it is renovated and sold, there's a high risk that pipes could freeze, causing a costly leak. If they're purchasing the home while there's snow frozen on the roof, it's unlikely that they would notice any potential leaks in the roof.  

"Winters suck for flipping homes," del Prete said, highlighting the potential for frozen pipes and general discomfort as main factors.

Homes in areas with more severe winters are also less likely to sell during the winter, leaving them on an iBuyers' balance sheet for a longer — and riskier — amount of time. 

Chicago, which doesn't yet have any iBuyers, shares the winter issues of some of the markets outside of the Sunbelt, but brings its own local operational challenges. Construction permits that take a few days in Arizona can take a few months in Chicago, according to Cortney Read, director of communications for Offerpad. This delay adds a significant cost and risk for any iBuyer. 

It has to sell, and sell fast

The most important variable for iBuyers, and the one where compromise and experimentation is least likely, is the health of the housing market in the city. Speed is of utmost importance for iBuyers, so they need to operate in markets where homes move quickly. 

The main hubs for iBuying across the Sunbelt, and outliers like Denver and Minneapolis all have booming housing markets, with positive immigration and job creation numbers. These strong markets make the probability of a quick sale much more likely

Will we see iBuyers explode across the nation — and even abroad?

iBuyers have expanded rapidly since 2014, but, outside of Minneapolis and Portland, have largely been clustered in the most booming markets in the south.

While the companies all have slightly different plans for expansion, their general strategy will be the same: collect as much data as possible, try markets that are one variable away from the markets they've historically worked in, and then test and adjust the model as it continue to buy more homes. 

"The basic iBuyer business model needs to be tested for resiliency in different market positions," del Prete said. 

Just like any algorithm, iBuyers are learning by consuming as much data as possible. This requirement may give Zillow, with its long history of collecting data and creating its Zestimate, and Redfin, which has bundled iBuying in with its brokerage, an advantage.

"We have the luxury of operating within an existing platform and an existing company," ZIllow's Josh Swift said.  

While this means that they're able to use more internal data in their calculations, it also means that they have the ability to promote their iBuyer services through their more established, and more popular products.

"This option can change real estate in the agents favor," Quinn Hawkins, head of Redfin Now said. 

This also has the added bonus of bringing in more business to their traditional sectors. In Zillow's case, a seller may reject their iBuyer offer, but could then be referred to one of Zillow's agent partners.   

"They saw an opportunity to try and move closer to the customer, which they believed and still believe probably means they can increase their influence with Realtors, which are their main customers," said Brad Erickson, an analyst at Needham. 

Other companies in the space are beginning to offer iBuyer like services to homebuyers and sellers, offering full cash offers for homebuyers or the option to sell their home to a company and then stay as a renter.

Offerpad has partnered with Keller Williams so that buy-side agents can offer the service to their potential clients.

Opendoor, with $1.5 billion raised from a list of investors that includes deep-pocketed fund SoftBank and private equity firm General Atlantic, has cash and an early head start in the iBuying business. 

Offerpad's expansion plan, highlighting depth instead of breadth, is the opposite of Zillow's rapid expansion, with 23 markets opened in 20 months of operations. The company has focused on expanding to small submarkets near the areas it has already been operating, and it believes that the model will work in more rural markets, a belief that not all operators share. 

"iBuying is unique in that it can operate in both small markets and large metro areas," Brian Bair, Offerpad co-founder and CEO wrote to Business Insider over email. 

Another trend that could expand the areas where iBuying is profitable, one that all of the iBuyers are incorporating into their business plan, is the bundling of title and mortgage services to the transaction. 

If customers were to use these services, this would significantly increase the margin for iBuyers, which could lead them to expand to riskier markets. 

There's always a segment of homes in each city to tap into and then expand from there.

 

"Our intention is definitely to go all the way across the country," Josh Swift of Zillow Offers said. 

International onlookers have become involved too. Fairhomes, a Dutch startup, has launched an iBuying business in Copenhagen, and plans to expand to Berlin shortly.

Kamran Ahmed, CMO and cofounder of Fairhomes, believes that the model could work in any city. 

"There's always a segment of homes in each city to tap into and then expand from there," Ahmed said. 

Kodit, a Finnish iBuying company, has recruited Mike del Prete to advise it. Loft, a Brazilian brokerage that offers iBuying services as well as creating its own local MLS, raised $175 million earlier this year in a round led by Andreessen Horowitz that included funding from proptech fund Fifth Wall

Others are less optimistic about the model's ability to expand worldwide, stressing the importance of quick sales and the right kinds of housing stock, conditions that don't exist in rural areas or in old, large cities like Boston and New York. 

"I think that folks in every market has that problem," Quinn Hawkins of Redfin said. "I do think it will come to every market, but it will be a long time before it comes to Boston."

Join the conversation about this story »

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Here's what Delta's incredible year reveals about the US airline industry (DAL)

Sun, 01/19/2020 - 11:49am  |  Clusterstock

  • 2019 was the best year in Delta's history, with a record-breaking showing in terms of financial and operational performance.
  • Customer and loyalty program growth, coupled with premium revenue growth also represents a positive signal for future performance.
  • Delta's near-perfect year offers several insights that can apply to the entire US airline industry.
  • Visit Business Insider's homepage for more stories.

Last year was a good one for Delta.

The company, which last week released its earnings figures for the fourth quarter of 2019, achieved record financial results, beat expectations, and passed its competitors to become the world's largest airline.

In many ways, it was a perfect year.

While Delta's major domestic competitors — American, United, and Southwest — all faced growth and capacity challenges due to the grounding of their Boeing 737 Max fleets, Delta, which has not purchased any of the planes, was able to achieve 7.5% revenue growth, partly thanks to improved efficiency; revenue per available seat mile (RASM), a key airline metric, was up 2.4%.

That's also good news for employees — Delta is planning to pay out a record $1.6 billion in profit-sharing funds to its 90,000 workers.

"2019 was the best year in our history," CEO Ed Bastian said. "These results simply would not be possible without the incredible work of our Delta team."

Delta's success was all the more notable because it avoided headwinds that sent competitors scrambling, such as the 737 Max fiasco, contentious labor issues, and uncontrollable factors like bad weather in hub cities — it also reveals trends and bets that can apply to the overall US airline industry.

Demand for travel is strong

Much of 2019 was spent by economists, analysts, and business leaders worrying about inverted yield curves and an imminent recession.

But that recession never came, and as the US economy remained strong, demand for travel continued to surge.

The airline saw the total number of passengers grow 6% from 2018 to 2019, reaching 204 million. It gambled on that continuing demand, investing in new hubs and focus cities, upgraded terminal buildings and airport infrastructure, and more.

Demand was strong both domestically and internationally. In the fourth quarter, domestic revenue rose 7.7%, while international revenue was up 2%. Passenger revenue per available seat mile (PRASM) grew 6.3% in the Latin market, a good sign as Delta prepares to launch its new code-sharing agreement with LATAM, in which it purchased a minority stake in 2019.

Demand for premium comfort is also strong — and people will pay for it

Premium cabin seats, products, and upsells have been a major source of revenue for Delta, as corporate customers and leisure passengers continue to be willing to pay more for a better on-board experience.

The airline earned $15 billion in revenue from premium products, up 9% over the previous year. Business class seats that allow passengers to sleep in a flat bed during a long flight, domestic first class seats, upgrades, and extra legroom coach seats all contributed.

Corporate travelers, who are a major source of premium revenue, were up 6%.

Just as importantly, premium revenue appeared to beget more premium revenue. According to Delta president Glen Hauenstein, 70% of customers that try a premium product will purchase an equal or better product in the future.

Opportunities for premium revenue were higher in 2019, and are likely to be even higher in 2020 as Delta continues with a rollout of new wide-body aircraft and refurbished cabins for older ones, bringing modernized business class suites and seats, as well as an all-new premium economy cabin.

Airlines typically earn high margins on premium seats, so robust demand is a good sign for the entire industry.

Consistency and performance is crucial to travelers

Delta's operational performance also contributed directly to the airline's success, demonstrating that passengers value reliability and are willing to pay for it.

Delta was named the overall best US airline by The Wall Street Journal this week based on a variety of objective performance metrics, including on-time arrivals, cancelled flights, delays, lost luggage, and involuntary bumps.

The airline ranked third in extreme delays, and sixth in numbers of delays exceeding two hours on the tarmac, but was first in on-time arrivals, cancelled flights, and involuntary bumpings. The airline was also named the most on-time North American airline by FlightGlobal. The airline saw 165 cancel-free days across its entire branded network — which includes flights operated by contracted regional airlines — with 281 cancel-free days across its mainline operations.

"Exceptional operational performance, along with unmatched customer service is why more people than ever are choosing to fly Delta," CEO Ed Bastian said.

Loyalty programs continue to drive engagement and revenue

Customers are more engaged than ever with frequent flyer and customer loyalty programs, as shown by the rise of an entire media industry built around rewards. And that engagement can benefit airlines.

Delta earned $4.1 billion in revenue from its partnership with American Express, according to Hauenstein, which purchases miles from Delta to disburse as spending rewards on co-branded credit cards.

Delta also saw 6 million enrollments in its SkyMiles frequent flyer program, and 1.1 million new co-branded credit cards issued to users.

Although some super-users complain that Delta's program is less lucrative for users than other airlines' offerings, the airline offered new ways to use miles about a year ago, including more opportunities to pay for seat upgrades with miles. About 1.2 million passengers have used that new functionality, contributing $135 million in incremental revenue to the airline. 

New planes are important, but they aren't everything

New planes are important as airlines seek to offer the newest and best cabin products. They also offer better efficiency than older models, helping cut down on fuel costs.

Although Delta is adding a variety of new top-of-the-line Airbus models to its fleet, including the regional A220 and the wide-body A330neo and A350, the airline still operates older Boeing 757 and 767 aircraft on its trans-continental and trans-Atlantic routes.

That isn't necessarily a bad thing.

The airline is in the process of retrofitting the interiors of the 767 fleet, and, unlike United, is not yet planning to retire the 757. While it continues to take delivery of newer wide-body jets and deploy them strategically, while replacing elderly MD-88 and MD-90 planes with A220s and other planes, an integrated maintenance operation and relatively low fuel costs allow it to continue relying on its older, but still entirely capable, fleet.

The older average fleet age than competitors has also helped Delta avoid the 737 Max conundrum that has consumed its competitors. Although that suggests a less efficient fleet, Bastian said that the airline had voluntarily capped carbon emissions at 2012 levels, and that each new plane added to the fleet offered an average of a 25% efficiency improvement.

The airline is scheduled to take delivery of 80 new planes in 2020.

SEE ALSO: I flew Delta's reviled 767 business class seat from Europe to New York. Here's what it was actually like.

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