Bank fees vs. IT spend (and the essence of fintech)

As a technology company we’re constantly on the hunt for new apps and services that increase our efficiency. Whether it’s Slack for chatting, Google Hangouts for meetings, or Freshdesk for client service, our day-to-day business runs on third-party software.

We don’t look for a free lunch when it comes to tech. We expect to pay for applications and services as long as they provide value and save time. But we also expect these services to get better iteratively – and the best ones do.

But like any business we maintain bank accounts, wrestle with currency exposure, pay processing fees, and so forth. Despite the fact that we’re cloud based, from the banks’ perspective we’re no different than a retail shop or cafe.

This brings me to the intersection of a new and old school when it comes to running a business.

When prepping our financials for 30 June 2015, I looked at the proportion of our IT spend versus portfolio growth, and the proportion we spend on bank fees versus cash movement.

Expenses: IT spend vs. bank fees

IT Spend

Sharesight is growing fast. As such, we require more server horsepower, more stock market data processing umph, faster content delivery for overseas customers, and a nimble hosting provider.

Our technology stack must keep up with new client acquisitions, and the additional features we roll out to everybody. Everything we provide is on-demand. A couple of years ago, we might have supported 100 clients accessing two sharemarkets. Now we have thousands accessing hundreds of markets – each with 20 years of history available.

Interestingly, our product IT costs have remained fairly flat for over 2 years. Leaving out the increased cost of new datafeeds (new markets, managed funds), the spread between our most and least expensive month is just $1,500.

Bank Fees

On the other hand, as we grow, we’re doing more and more business with our banks. We push more client transactions through our bank accounts each month and we move larger amounts of money between accounts. One would think that as we do more volume and store more capital for them to use with their other, higher-margin businesses, we’d get a break.

Fundamentally, a bank account is a digital product. It’s an electronically maintained collection of 1′s and 0′s. Combing through our bank statements reveals a nasty mix of merchant fees, foreign transaction fees, “account” fees, “plan” fees, and just a general “bank” fee.

How the ratios stack up:

Graph: Sharesight IT Spend

(left axis is cash vs. bank fee ratio, right axis is IT spend vs. portfolio growth ratio)


Our IT spend has just become more efficient than our bank spend. Our portfolio growth is exponential. As we ask more and more of our IT providers, the ratio of demand to product cost is falling. But, it’s the opposite with our banks.

As we grow, I imagine we’ll be afforded opportunities to meet with bankers and be pitched better rates. But that’s a floor of the bank that we haven’t been invited to yet.

The nice thing about working with fellow nerds at our IT providers? We never had to ask for that meeting.

I’m not asking for a discount on the bank fees we pay, but a flat rate would be fair. We’re not taxing the banks by pushing more capital through their system. Quite the opposite.

The Essence of Fintech

These two expenses illustrate what fintech is all about: transparently priced, scalable, consumer-driven products.

Our IT providers are getting better all the time. The engineers they employ remain at the heart of their businesses. They come up with ingenious ways of building scale and efficiency. For them, the world is their marketplace, and the features they haven’t yet built are their revenue-generating opportunities.

It’s the same with fintech. Squeezing more money out of our customers is not a priority. Instead, we focus on finding more customers, creating value by adding features, and solving old-school financial problems with state-of-the-art technology.

So long as the banks insist on charging opaque, 20th century fees, they’re just encouraging more fintechs to attack their main street products.

We’re hiring!

Do you like working in small teams to achieve great things? We’re looking for a couple rockstars to help sell and support the best investment portfolio tracker and reporting system out there.


Check out the postings below and get in touch ASAP if you think you’ve got what it takes:

Account Manager

Client Support Representative

See you at ATSA!

We’re pleased to announce our silver sponsorship and attendance at the Accountants’ Technology Showcase Australia (ATSA) conference:

ATSA 2015

ATSA 2015 highlights:

  • 50 exhibitors already confirmed including many new companies!
  • Featuring John Ball, Head of Google’s Small Medium Business in Australia
  • Signature Technology CEO’s Panel discussion questioned by leading journalists
  • Geoff Leeper, Second Commissioner ATO
  • Mary “Effie” Coustas guest dinner speaker

As a proud sponsor, we’re offering our customers a 15% discount* off your full two day attendance to ATSA 2015.

Use the online registration form, and enter the 3 letter code: SHR at the beginning of the registration process in the ID Code area.

See you in Sydney!

*applies to standard two day fee only – does not apply to earlybird or one day tickets

ATSA 2015

Fintech kills a city’s legacy: an oral history of the Chicago Board of Trade

Finance and banking have only been moderately disrupted by fintech. But technology has brought an end to one particular corner of financial services. A corner that, if you’re not from Chicago, you might not appreciate.

Last Monday, the Chicago Board of Trade and the Chicago Mercantile Exchange shuttered their open outcry trading floors, which had operated continuously for 167 years.

Upon its closure, open outcry trading represented just 1% of CBOT’s overall volume. Replacing the legions of battle hardened traders standing atop tiered pits are racks of servers, quietly humming away in a nondescript suburban bunker.

If you’re not familiar with the Chicago markets (or the movie Trading Places), the open outcry trading floor is essentially the same as the arena seen at the New York Stock Exchange. It’s a physical space where buyers and sellers gather to barter over the price of goods.

The Midwestern US is the “breadbasket of the world,” and because Chicago is the largest city in the region, it became a natural trading hub for grain harvests and cattle. Due to the nature of the goods traded, “futures” contracts were invented. Basically, the idea of a “future” was to protect farmers from future price fluctuations.

In the years following, brokerage houses, specialist funds, and even individuals were drawn to the trading floor to trade for profit. Speculators and brokers took advantage to profit (or lose) massively by taking on risk that others wouldn’t bear. In the futures market, traders must be willing to cover as much as 10x their principle in the event of a loss.

Good and bad days are the stuff of legend. For a time in Chicago, traders, not professional athletes, were the local celebrities.

Fortunes were made and lost in an instant, and because anyone who could afford a “seat” on the exchange could participate, the trading pits earned a rough and tumble reputation. In order to buy and sell, traders had to shout and physically interact with each other. People were punched, stabbed with pencils, and brawls routinely saw grown men rolling down to the bottom of the tiered pits.

Over time, the products traded extended to financial derivatives (index, bond, and currency futures) and even climate derivatives. One could even trade options on the future prices of assets. Demand for these products increased significantly from big institutions in search of alpha after the repeal of the Glass-Steagall Act in 1999.

To keep up with this demand the Chicago Mercantile Exchange built its own electronic order system (Globex) in the 1990s. A terrific revenue-spinner for the exchange, this signed the death warrant for the open outcry system. No longer a necessary pinch-point, floor traders were bypassed by institutions who were able to trade cheaply and electronically 24/7.

Part of Chicago’s industrial heritage, a once hard-charging, personality-driven industry, began to disappear in the early 2000s.

Chicago Board of Trade - Sharesight

Jim Morris (third from back right), Chicago Board of Trade

One of those personalities is my father, Jim Morris who traded in the agriculture futures pits for 25 years, beginning in 1974. In fact, I spent my own summers working on the trading floor as a “runner,” shuttling hand-written orders from the phone banks to the traders and brokers in the pits.

Recently, I sat down with my dad to ask him questions about his industry.

Doug Morris (DM): How’d you get your start at the Chicago Board of Trade?

Jim Morris (JM): I started as a clerk and office worker for a small commission firm in 1974. I was fortunate to begin my career just as trade in the grain market was expanding. Because of the need for more people on the grain floor I started working as a runner and phone clerk.
I was just one year out of college and never had been outside the state of Minnesota until I came to Chicago.

DM: So what was your actual job?

JM: Commodities broker and proprietary trader. As a member of the exchange, I owned a seat, which meant I could trade in any futures or options pit in the building. Yeah, it’s kind of weird that I could spend the morning trading soybean futures and then wander into the Eurodollar pit after lunch, but guys tended to stick to their original pits.

DM: What was the floor like back then?

JM: For starters it was nearly all men, and you could smoke on the trading floor. In the corners of the floor there were clusters of 70’s style lounge chairs. As a younger group of traders appeared the pits became very physical arenas. Arguments were commonplace and fights would break out.

Guys were brash, aggressive, and unlike any group I had ever been around. Almost all were from Chicago and many families had been in the business for generations. The corn pit was comprised almost entirely of Irishmen. The wheat pit was largely Italian.

Most of the existing traders were older men who were used to dull markets only moving a couple pennies week.

All of a sudden It was an uncommonly active market. Prices were gyrating wildly and volume was comparatively huge. The archaic system was hard pressed to keep up with the action.

DM: What makes a good trader?

JM: Aggressiveness, alertness, discipline, and quick thinking. A strong voice is also an attribute and one must be able to push and shove on occasion.

When I first started I was too timid and hesitant to react to changes in the market and I had to overcome those weaknesses in order to succeed. It’s obvious, since I survived down there, that it does not take great intelligence to be a good pit trader.

Some of the best pit traders that I knew could hardly tie their shoes but did far better than some highly educated individuals. Some of the same attributes that competitive athletes possess make for good traders.

Traders have to guard against becoming emotionally involved and can’t be afraid to take a loss and admit that they are wrong. Survival is the name of the game.

DM: So you were a 1970’s disruptor? You were a broker and traded your own account simultaneously, correct?

JM: Well, I eventually became a broker in the soybean pit in 1976. I worked for two older men who wanted out of the order filling business because of the stress and risk. It wasn’t long before I and another young guy established a large “deck” as it was called and were handling large volumes of orders. All of our clients were commission houses. Merrill Lynch was the largest.

DM: How did you do that before computers?

JM: Keeping track of what we had to do at each price was a huge challenge. Cancellations were a huge problem as were stop loss orders. There was no electronic entry of data. Every order was taken by phone, written down, and carried to the pit by runners. Filled orders were thrown on the steps and the floor behind us. It sounds like a ridiculous system but it actually worked quite well.

DM: When I think of global market events, I think of the tech bubble or 9/11. What events affected your business?

JM: Droughts. freezes, floods. The one sudden event that greatly affected the agricultural markets was the nuclear meltdown at Chernobyl. There was panic in the markets because no one knew how serious the situation was. Reliable information was very difficult to come by as the Soviet Union was secretive and agronomists had no informed opinions about if the land would be barren forever or if the contamination would spread. It was a scary time for the markets!

The biggest event, however was the crash of 1987. It almost caused the meltdown of the exchanges, as  the capital of many firms was in serious jeopardy.

DM: All of a sudden it was the 1990’s, an era of global stability and market prosperity. I recall this being at odds with your business?

JM: The events of the 80’s lend to many changes, which were mostly good for the industry. Trading oversight was ramped up significantly and the CFTC and exchange regulatory bodies became much more involved in regulation.

Many old timers such as myself were against government involvement but I must admit that it was mostly good for the industry especially the customer. Capital requirements for clearing firms were increased dramatically which led to the demise of many small trading houses including the one that I had become a partner in.

We were forced to sell our business to a larger concern. All of these factors moved the industry toward larger capitalized firms and consolidation.

DM: When did you notice the effects of technology on the trading pits?

JM: Our system was near its saturation point for order entry and clerical capability. Then a huge explosion in volume occurred when interest rate and stock index futures were developed. These events changed the entire scope of the industry as I knew it.

Once the Globex system for trading was developed it was just a matter of time until electronic trading became the dominant method of trading.

Pit trading was just not nearly as efficient. Commodity funds and hedge funds became much larger and more dominant. The small trader still existed but his importance to the market was minimized.

DM: How did you position yourself as a result? Was the end of the floor in sight?

JM: The “screen” and open outcry trade co existed for quite a few years and it was possible to make a living in the pit. In fact, a cottage industry developed to take advantage of the arbitrage between the two systems.

There was a feeling of denial among the floor traders. Everyone knew that the inevitable was going to happen but most felt it was a way off in the future.

Personally, I hired a clerk who made trades on the computer to offset whatever edge I was getting in the pit. This system was quite profitable for a couple of years and I wished I would have made the move earlier!

In the old days a savvy pit trader or broker could “feel” a market and sense when things were going to change. As the electronic trade gained market share the pit traders lost that ability. I experienced first hand being blindsided by large orders coming out of nowhere from the screen. Eventually the customer orders entered into the pit became fewer and fewer.

 DM: Do you think derivatives and futures are a net benefit to the market?

JM: I really don’t know. I think derivative ETFs are a good tool for the public customer. What has changed, in my opinion, is that the number of decision makers using the market has decreased.

More and more public money has been put into hedge funds, commodity funds, etc. The small speculator or hedger now places his capital with a fund rather than deciding when and how to enter and exit the market individually. I think that has made the markets less liquid.

As the funds got larger they mostly turned to algorithms. Now they’re all going the same way at the same time which makes for liquidity disruptions. A trading friend of mine said the futures market is a mile wide but sometimes only a few inches deep!

DM: Even as some of my friends began working on the floor, and doing quite well, I recall you distinctly telling me not to follow in your footsteps.

JM: I never encouraged you to seek the life as a pit trader or broker because it was apparent to me that the system would eventually die.

It was a great place to be for 25 years! I never thought of it as work and loved every day.

Announcing Sharesight Canada

Today we’re proud to announce Sharesight Canada!

Canadian DIY and professional investors can now sign up to Sharesight to track their local and overseas investments in Canadian dollars.

There’s a lot of buzz about being a “global” company these days, but to gain real traction, we believe you need to be hyper-local. Products needs to solve local problems from the ground-up.

Sharesight Canada

That’s why we now support the Toronto Stock Exchange (TSE), the Canadian Venture Exchange (CVE), and the Canadian Securities Exchange (CNSX). Very soon we’ll be adding capital gains and taxable income reporting too.

The plan is to continue building out Canadian-specific features and to put sales and support staff on the ground in Toronto. In fact Angela, our marketing guru and token Canadian, is headed over there next week to scope things out.

All plans are available from the Free Plan to Professional Gold. Our API also supports Canada. We’re in discussions to integrate with Canadian brokers, two accounting platforms, and a roboadvisor.

Doug Morris, Sharesight CEO

Sharesight is a great fit for Canadian investors.

Canadians are avid equity investors. Their strong banking, resource, and energy sectors mirror the behaviour we see from our Australian client base. They also enjoy a competitive (bank and non-bank) online brokerage market and access to RRSPs (Registered Retirement Savings Plans), which are similar to IRAs in the US and SMSFs in Australia.

The professional advice market is significant as well, and the move next year to fully disclose how advisors are paid and the returns they’ve delivered to investors will cause a market shake-up. Just like in other Sharesight markets, it’s nearly impossible for investors to understand exactly how they’ve performed – and – there’s a dearth of solutions for well-intentioned money managers.

We expect to see Canadian DIY investors demanding web-based tools that “just work,” and a distinct separation between fee-hungry advisors and those truly creating wealth.

A big thank you to our beta clients who gave us a hand in testing the Canadian version. Leave a comment below and let us know where you’d like to see Sharesight go next.