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Top Ten Personal Finance Start-Ups

This article was written by in Consumer. 11 comments.

The financial industry has been mostly static for centuries, with companies doing business and offering services not much different from how the companies operated for earlier generations of consumers. When there is innovation in the industry, it generally comes from smaller companies and entrepreneurs looking to fill a need that isn’t covered by larger, less flexible entities.

While today’s start-up companies are changing how customers interact with their money, most of these small business owners have the ultimate goal of selling their businesses to larger, more established companies who will then incorporate these new services if the start-up companies cannot become industry leaders without help. In the mean time, start-ups compete for funding from a growing community of investors in the industry.

Here are ten customer-facing personal finance start-up companies that could help change the way consumers interact with money. Some have already been thriving for a few years, while others are new to the industry. These are not in any particular order.

BrightScope

BrightScope401(k) plans are tough to evaluate from the plan descriptions and prospectuses offered by plan administrators to employees. Employees can’t always choose the best investment options for them due to limitations by plan administrators. Additionally, plan administrators often change available investment options and automatically transfer employees’ money from one fund to another without sufficient notification to the investors.

BrightScope lets employees evaluate their company’s 401(k) plan. If, for example, you have two job offers and you’re comparing compensation, you can take the quality of the 401(k) plan into account by researching these companies. Each company receives an overall rating as well as scores in important categories including total plan cost, company generosity, and participation rate. You can directly compare each company with its industry peers.

BrightScope

The above image shows the overall rating for MetLife. For comparison with other companies in its industry, MetLife’s score of 73 is below Morgan Stanley’s 83.8.

LendingClub and Prosper

LendingClub LogoAs technology advances, it brings manufacturers and customers closer together, often eliminating the need for companies that stand in between, adding to the cost of products and services. In some ways, the financial industry is a “middle man.” Banks take deposits in the form of savings and checking accounts, and turn that money around and lend it to individuals and businesses in need of capital. Peer-to-peer lending companies like LendingClub and Prosper take deposits out of the process; lenders can choose borrowers and lend money directly or invest in a group of loans packaged as an investment product with measured risk.

State regulations prevent peer-to-peer lending from being available to all United States citizens, and the primary concern is that customers who may not be able to take advantage of loans from a bank turn to these options where they can be charged nearly-usurious rates. For many people, however, peer-to-peer lending has provided a solution that banks have been unable to fill, whether for borrowers or investors.

Jemstep

JemstepFor your investments that are not locked in a 401(k) with limited options, like your personal IRA or your taxable investment account, the variety of mutual funds and ETFs available is staggering. And unless you work with an unbiased financial planner, it can be difficult to choose the investments that will give you the best chance of making the most of every dollar you invest.

Jemstep is like an unbiased investment adviser with an immense set of data available to help you make investing decisions. You can create a profile for yourself that reflects your attitudes about investing. Most online investment recommendation engines stop at risk and time profiles, but Jemstep goes much further. You can decide how important fees are, whether you’re looking for actively managed funds or index funds, and whether potential tax plays a role in your investing decisions.

After calibrating your profile, Jemstep can evaluate your current portfolio and offer investment suggestions that are better suited to you.

Today, Jemstep announced it completed its Series A round of financing. Start-up companies look for funding from outside sources to grow their businesses before the business generates enough revenue on its own to finance its own operations. In total, Jemstep has raised $10.5 million from early investors in order to fund product development and hire employees.

HelloWallet

HelloWalletThere’s a need for consumers to better manage their own personal finances. Over the last decade, this has been the realm of software like Quicken and Microsoft Money, but the latter has disappeared from the market and the former is increasingly seen as an outdated piece of software. In recent years, a number of companies had been developing personal finance management software for a new generation, incorporating mobile options and focusing on reporting and trending rather than reconciliation, though the depth offered could not compete with Quicken. Many of these companies have disappeared, and the apparent winner, Mint.com, was purchased by Intuit, the makers of Quicken.

HelloWallet has emerged as a new competitor for Mint.com, but while Mint.com is now free, HelloWallet charges users a fee of $8.95 per month. For the fee, you can be sure that the recommendations you receive are unbiased — companies and products do not pay HelloWallet for advertising placement within the service. The goal of HelloWallet is focused more on overall financial advice than tracking. Mint.com has moved in this direction, as well, however.

Dwolla

DwollaMerchant account service is a big business rules by large companies. Each time you swipe your credit card or debit card, a number of companies get paid in addition to the retailer from which you’re buying a product or service. Small business that need to operate on tight profit margins to compete with larger businesses suffer in these situations, because a larger proportion of their revenue is dedicated to paying these fees.

PayPal entered the marketplace and attempted to shake up the industry, offering a new way for retailers to accept credit card payments and for individuals to initiate person-to-person payments without the help of a bank. Dwolla has taken this model and, rather than relying on linked credit cards, has found away to put the focus on cash. The cash focus could be more financially responsible for a large percentage of customers.

Dwolla charges lower fees and allows users to send cash from person to person or to pay for a purchase using your phone. Customers can transfer payments using e-mail, the web, or social media applications within Facebook and Twitter. By default, the $0.25 fee is paid by the store or the recipient, though the individual initiating the payment can change this option. Transactions less than $10 are free.

SecondMarket and SharesPost

SharesPostThe buzz today is about Facebook’s imminent initial public offering (IPO) of stock. Soon, Facebook will be a public company, and investors will be able to trade shares of the company in a liquid stock exchange. For most people, this will be the first opportunity to invest in Facebook, a company that has grown significantly over the last few years. Of course, those who own part of the company already, like early and current employees, will see the biggest benefit after an IPO, assuming the company continues to grow.

You don’t have to be an employee to own and trade shares of Facebook, however. Two companies have specialized in creating a market between a small number of common or preferred shareholders — usually employees but also capital funds — with the wider audience of investors. I signed up with SharesPost (review here) last year to gain access to Facebook shares.

Occasionally, SharesPost holds an auction of shares held by investors who wish to liquidate their holding for the best price, and investors interested in buying can participate in the auction by naming the amount of shares they’d like to purchase and the price willing to pay. If there’s a match, SharesPost handles the transfer of shares. Surprisingly, the share price for Facebook’s Class B common stock has been stable over the past year, particularly given the volume of trading is significantly lower than it would be on an open market. The price has moved from $33 to $34 per share. It will be interesting to see how the stock performs on the open market.

SecondMarket is similar to SharesPost in that it creates a market for financial products that don’t have an accessible exchange for trading. With SecondMarket, you can trade public equity, fixed income and bankruptcy claims in addition to private shares.

Google Wallet and mFoundry

Google WalletWith technology changing quickly, smaller companies are able to jump on new technology. Google is not exactly a smaller company, but the company’s development operations function like a start-up. Google also has the size to buy smaller companies with innovative ideas early in their development. Google Wallet, however, was developed in-house. New technology in mobile phones makes it easier to transmit information securely in close range, and retailers are using that technology to accept payments without swiping a card. An application stores credit card information, and when a receiving device is in range and the consumer initiates the transaction, his or her device sends the information securely to the retailers.

As more mobile devices incorporate this NFC technology, contactless transactions will continue to increase. This was a hot topic in the media several months ago, and I explained why Google Wallet would not catch on as quickly as people were predicting. Today, Google Wallet is still limited to using only Citi MasterCard credit cards or Google’s own reloadable debit card.

There’s a smaller company that has seemed to penetrate this market deeper from Google. Among mobile payments, mFoundry works with banks and credit unions to develop their own applications based on the company’s technology. I’ve focused on start-up companies that face the public rather than other businesses in this article, but mFoundry does both. Mobile banking has a long road to becoming a mature and ubiquitous service, but it’s these companies that will help bring the innovative services to consumers and bigger financial institutions.

There are many other personal finance start-up companies worth mentioning, but I limited this list to ten across a broad spectrum of personal finance to keep this article interesting and not too long. If you feel I’ve missed something substantial, please feel free to share your thoughts in the discussion area below this article.

Normally, I do not allow business spokespeople to promote their companies in the comments on Consumerism Commentary, but as long as it’s relevant, I’ll allow short comments intended to note companies looking for broader exposure in the personal finance space, but I still reserve the right to edit, moderate, or delete promotional content.

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The $4 Million Photograph: How Do You Value Art?

This article was written by in Investing. 14 comments.

Last week, a photograph by Andreas Gurksy, Rhein II, was sold at auction for $4,338,500 to an anonymous buyer. The record-breaking sale allowed Gursky to reclaim fame as the artist whose work has claimed the highest price paid for a photograph. This auction was a secondary market sale. As in most art auctions commanding high prices and press attention, the artist sees little if any financial benefit.

What do you think of the image? Is it art? Is it art you would consider to be worth $4 million? $1 million?

Rhein II

It wasn’t this lowly jpeg that was sold. Seeing the print — considered a very important part of the art of photography — is an experience in itself. To see this work in person, you would be gazing at a print eight feet by twelve feet. Even today’s relatively advanced digital cameras, devices used by professional wedding photographers and amateurs like me around the world, wouldn’t be able to produce a print that size with quality and resolution. This image was most likely produced with a large format camera using analog film.

There’s only one way to determine the value of a work of art: offer it to a wide audience of potential art buys and determine what at least one of them would be willing to pay to take it home. Looking beyond the simple supply-and-demand answer, any piece of art is able to fetch a certain price at auction due to only a few factors. Some aspects moving a price aren’t related to the specific piece of art as much as the artist.

  • Buyers look for a works by photographers who have a history of creating art in demand by galleries and collectors.
  • Photographers who were trained by other artists who have been successful are also rewarded for their potential.
  • In most cases, buyers believe that the art will be worth more in the future, and view the purchase as an investment.

Some reasons behind a price relate to the process of creating the art. It’s only recently that photography has become accepted as art, color photography even more recently, and many artists still consider photographs with digital manipulation in editing software like Photoshop not art at all. Photography still has a long way to go before it’s fully accepted alongside oil painting and sculpture as art. That’s reflected in value as well; while this $4 million price for Rhein II is a nice sum, it falls short of the Running Man I sculpture by Alberto Giacometti, which fetched a sale price of $104.3 million recently.

The fact that this image was captured using a large format camera, a process that is significantly more involved than pointing and shooting, helps to add to the value, but many photographers, particularly landscape artists and architectural photographers, still use large format cameras. The type of camera cannot be the sole reason driving the value of art, but it is an important factor when an artist is striving for the best quality possible.

Although this image looks simple, a lot of planning went into its creation. Artists carefully plan the time and place, bring the right equipment, and without a digital camera, do not have the luxury of taking a flurry of snapshots to choose the best image of one hundred on a memory card. Often, a work of art is part of a series or a study on a particular theme, and in the case of Rhein II, the photograph falls within a series about the river in Germany.

Ken Rockwell, a respected but divisive photographer who has one of the most popular websites about the art, has this to say about the photograph.

It is valuable because it is art, not just a photo. Rules are worthless. If [Gurksy] was just a photographer instead of an artist, he would have been crippled by the nonexistent “rule of thirds” myth, and put the horizon someplace else. In his case, the horizon slams right through the middle, which adds to the power by giving a sense of unease. Our minds ask “what’s up with this? This is so barren and empty; where is this place?”

Likewise, if it’s not captured on film, it is not art. Artists create art, not photographers. Artists may choose to work in photography, but being an artist is what matters above all…

If shot with a digital Nikon or Canon like amateur photographers, it would not have been art. If he used a zoom lens or many modern prime lenses, their distortion would have subtly curved the lines, weakening and destroying the artist’s work.

Ken doesn’t point out that Gursky did digitally manipulate the image after making the capture. The view portrayed by the image above doesn’t exist in nature. Gursky removed people, dogs, and a building from the captured image to create the art.

Nevertheless, the image is so simple that it looks like something anyone can capture, standing beside any river in the world on any dreary day. One nature of art is the ability to stir emotions in a spectator, even if that emotion is anger in response to a sale price, frustration that an image of mostly straight lines and solid colors can be considered art, jealousy that another photographer’s images wouldn’t fetch such a price, confusion about why it’s acceptable for some digitally manipulated images to be considered art while others aren’t, or questioning whether the image is art at all.

This describes the industry reaction to the sale. The Luminous Landscape forums are buzzing with comments about this sale and the image from professional photographers — mostly commercial photographers who dabble with artistic photography, specializing in medium and large format cameras.

Why spend so much money on art?

With so many problems in the world, why spend $4 million on one piece of art rather than using that money to build a school or feed starving children? This is a fair question to ask. At this high level of sophisticated art acquisition, there is a big emphasis on the investment aspect of art. With the photographer still living and with photographic art still being rare compared to other visual art methods, there is a good possibility of the value of this work increasing over the very long term.

Although it’s common to question the intent of purchasing a work of art for $4 million, investors who dedicate the same amount of money to a company to become an owner of that company usually won’t face the same questions about the virtue of their investment. Both buying art and buying a company are capitalistic endeavors, but while the value of a company can be easily justified by looking at a set of financial reports, the art is more difficult to rationalize. Regardless of the reasons, the value of a company or a work of art is whatever someone is willing to pay.

By investing in art, it sends a signal that art, in general, is worth society’s attention. Art is an important part of civilized society, and both reacts to and inspires thought that drives a society forward.

Photo: Andreas Gursky/Christie’s Images, Ltd., 2011
NPR, Seattle PI, Ken Rockwell

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Earn More Money: eBay Selling and Flipping

This article was written by in Income. 13 comments.

This is the second article in a series about methods of supplementing income with spare-time projects. I typically focus on the big changes people can make that result in earning significantly more money, but this series focuses on incremental income. The first article was about becoming a secret shopper.

A friend of mine is stuck in a job she hates. She’s been looking for a way out, but for financial reasons, is currently stuck in her position. One way she’s trying to earn some income is by buying items at low prices from a variety of sources and selling these items on eBay for a profit. The concept makes sense, because eBay is such an efficient market. Garage sales or yard sales are much less efficient because there isn’t a wide pool of potentially interested buyers to drive up the cost of a rare item. Nevertheless, people still use garage sales to sell unwanted items because they don’t want the hassle of creating an effective eBay listing.

Finding deals at physical shopping locations and selling those items on eBay can produce a healthy profit with the right kind of knowledge guiding the shopping prices. It’s also possible take advantage of bad eBay listings and flip products purchased online for incremental income.

Finding the right items to sell

Income potential for selling items on eBay is limited only by the seller’s ability to recognize good deals before purchasing. In this case, a good deal is anything that is underpriced based on the eBay market. This type of knowledge comes from paying close attention to completed eBay sales. It would be very difficult to understand the eBay market for all products, so it might make sense to focus on one or a small number of product categories, such as old books, magazines, dolls, vinyl records, or vintage clothing. As you gain knowledge and experience, you might have the confidence to expand into additional categories.

Book SaleKnowing the target prices for purchasing products, the price at which you will be able to earn a profit, is one step for finding the right items; next, you need to be in the right places to find a deal. Here are a few locations where you may scour for deals.

  • Garage sales and yard sales. Your local newspaper or local events website can help direct you to garage sales in the area. At garage sales, you can often be successful negotiating towards a better deal, increasing your potential profit if the item can be sold on eBay. There are two good times to visit garage sales: at the beginning, when some of the best deals have not yet had the opportunity to be scanned by other shoppers, and at the end, when you have stronger negotiating power and sellers who are motivated to get rid of their less popular items at any price.

  • Book sales. Libraries and schools often put collections on sale to the public once they’ve outlived their use. The key is to be able to cherrypick the best selections, spotting any editions that may be rare or collectible. That isn’t the only way to succeed, however. Often, at the end of sales, you may find that the selling organization offer deals where you can fill a box of any books and take an entire lot at a small price. Even with books that aren’t rare, you can make a profit by listing these individually on eBay or a book selling website of your choice.

    For an overview of what this can be like, take a look at the Bryn Mawr/Wellesley book sale, an annual event in Princeton, New Jersey. The claim to be the biggest book sale on the east coast, and many shoppers here are looking to profit by reselling their finds. Here’s a video.

  • Other eBay auctions. If you become adept at spotting auctions that are not well-designed and would not attract a lot of interested buyers, you may be able to bid a low price, win the auction, and turn the item around on eBay with a better listing to earn money. There are tools you can buy that help in this endeavor, but I wouldn’t suggest paying any money up front for a tool that can help with incremental income. Search eBay listings for popular misspellings, and you may find popular items with less traffic than they should have, if the correct spelling was used. Many sellers anticipate misspelled searches and use incorrectly-spelled words in their listings to draw more attention from potential buyers.
  • Flea markets and swap meets. Thanks to eBay, it’s less likely to find great deals at flea markets and swap meets. The more savvy vendors have moved the bulk of their operations online because of the greater revenue potential. Nevertheless, flea markets and swap meets could provide some opportunities for finding profitable items, but education and experience is more important than ever.

Building your eBay reputation

You can attract more potential buyers on eBay by being a good — and frequent — seller. Always offer good return policies and always communicate well with your customers. The feedback and ratings they provide will solidify your reputation as a trusted seller. The more you sell, the more eBay increases your status. The more business you do on eBay, the faster you will move up to and through the ranks of PowerSeller. The eBay PowerSeller badge is a somewhat important piece of advertising for your seller account, but it isn’t the only criterion that buyers are concerned about. Interestingly, as a PowerSeller, eBay allows a certain number of policy violations, but the more you make your selling approach friendly to buyers, the less you need to worry about that.

To build your reputation, you may want to focus on growing positive feedback from buyers, and that might require forgoing significant profit. Sell as many items as you can handle, even for a bargain, to quickly receive the positive feedback you need to attract more discerning buyers.

Here are a few ideas that will move your reputation in the right direction.

  • Ship your items quickly after receiving payment and offer shipment tracking.
  • Respond to shoppers’ inquiries immediately.
  • Charge reasonable prices for shipping.
  • Always be gracious in your communications.
  • Leave great feedback for others.

eBay selling income potential

Unfortunately, the internet is full of promises of riches to be derived from selling items on eBay. Many such advertisements simply fail to subtract the cost of goods from their revenue, others just outright lie. However, it is possible to earn a living making a business out of scouring physical sales and inefficient eBay listings for deals, selling the best finds for a profit on eBay. My former co-worker’s husband made such a living, but I believe he would say that he wasn’t exactly rich and it was a hard, time-consuming job. He focused on music recordings, and really enjoyed music, so besides the potential revenue he was working with something he enjoyed. Furthermore, their entire apartment was full of stuff determined to be unsaleable or waiting to be sold. To do this well, you may need significant storage space while your items are being sold, and that could be a drawback.

More likely than making a living, this process has the potential to add a few hundred dollars to your bank accounts each month. Even this requires diligently finding only the best deals and attracting enough buyers on eBay. In the worst case scenario, you spend more for your inventory than you can make by selling on eBay, resulting in a loss. It’s a risky business, but you can reduce that risk with practice and by focusing your tactics on a specific category to start.

Do you have a profitable side business (or main business) selling or flipping items on eBay? What are your suggestions for success?

Photo: Phil Roeder

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$1.2 Trillion in Secret Fed Loans

This article was written by in Economy. 5 comments.

We know about TARP, the program that used taxpayer money to lend to the biggest Wall Street banks tin an effort to prevent the collapse of the financial industry. The Federal Reserve loaned more money to Wall Street, however, in secret. The details are only coming out now thanks to the Freedom of Information Act and an act of Congress.

Besides TARP, banks received $1.2 trillion in federal loans, the details of which have been sorted through by Bloomberg. The programs include the Term Auction Facility, Commercial Paper Funding Facility, Primary Dealer Credit Facility, Term Securities Lending Facility (TSLF), Single-Tranche Open Market Operations, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, and Discount Window.

  • The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility gave loans to banks so they could meet withdrawal demands of customers invested in money market mutual funds.
  • The Commercial Paper Funding Facility helped companies sell short-term bonds (with maturities less tan 270 days) to find their operations.
  • The Discount Window allowed for more loans to banks to meet consumers’ withdrawal demands at a low borrowing rate.
  • The Primary Dealer Credit Facility allowed brokerages to qualify for TARP-type loans, which were originally intended for banks, not brokerages.
  • The Single-Tranche Open Market Operations created an auction for banks, using mortgage-backed assets as collateral.
  • The Term Auction Facility was another set of loans for banks who feared the negative market reaction to using the Discount Window, loans of last resort.
  • The Term Securities Lending Facility allowed banks to swap toxic assets for U.S. Treasuries.

The loans were not limited to American companies. In one of the most interesting cases, a German commercial property lender received $28.8 billion, double the amount the bank received from its own country, amounting to $21 million per employee. Like most companies taking advantage of these Federal Reserve lending facilities, this company did not make the details of the borrowing known until the program itself became public.

What kind of precedent does this set for future recessions? First, Federal Reserve lending comes at a cost to taxpayers. In some cases, government money has been exchanged for share ownership, and there’s a potential for the public to profit when that company recovers. It’s a risky investment for public money, and the public has very little influence in how their tax revenues are invested and spent. Keeping the $1.2 trillion in loans hidden from view might have been the only way the plan would have survived, with public opinion turning away from assisting Wall Street with more bailouts. Nevertheless, many economists believe these loans were necessary to prevent the destruction of the global financial industry.

Thanks primarily to the internet and the abundance of informational sources, you would think transparency is greater and that organizations would have a difficult time keeping major programs secret. While many people were aware of the existence of these programs, they weren’t nearly in the public eye as much as TARP was, and the extent of these programs and the affected companies were for the most part unknown until recently.

It’s worthwhile to note that $1.2 trillion is the peak amount of the loans. As some institutions paid back earlier loans, the proceeds were then available for new loans. The “same dollar” could have been used in several loans to several different companies at different times.

Bloomberg, Bloomberg

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Sell Your Unwanted Gift Cards at Plastic Jungle

by Flexo

Whether you’re giving or receiving gift cards, it’s usually a pretty positive experience. Both the giver and receiver are often satisfied because most gift cards allow the receiver to spend money in the way they want, as long as the giver has taken the receiver’s interests into account. Sometimes a gift card can miss the ... Continue reading this article…

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How to Start a Coin Collection For You or Your Kids

by Flexo

Out of all of my favorite interests or hobbies, coin collecting isn’t ranked first. It is something I’ve enjoyed throughout my whole life, however, even if it’s not something that’s been a primary goal or warranted much effort on my part. It is a great hobby for children for a number of reasons. It opens ... Continue reading this article…

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Body Parts You Can Sell

by Flexo

As I mentioned a few days ago, Consumerism Commentary is matching your charitable contributions. Please take this opportunity to give to your favorite charity. Here’s how to make your charity count twice. If you’re desperate for cash, you may have considered selling some of your extraneous body parts. In some ways, I’m glad there isn’t ... Continue reading this article…

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Is Annie Leibovitz a Failure?

by Flexo

Annie Leibovitz is one of today’s most famous photographers. You may have seen her name in the news recently for her financial problems rather than for her art. Although reports of her annual income included numbers north of $3,000,000, she was saddled with multi-million-dollar debt and exposed to legal problems. The photographer is mainly known ... Continue reading this article…

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