Thought Leaders in Financial Technology: Infima Founder and Chief Scientist Kay Giesecke (Part 3)

Sramana Mitra: You built this model at Stanford and then you spun out a company on top of that model. What is going on with bringing this to market like commercializing this? What is the business model? What is the go-to-market strategy? Is it selling to banks?

Kay Giesecke: If you take that mortgage slice, you can divide it into different customer segments. If you want to start at the lifecycle of the mortgage, it always is the bank. What happens then is that the banks collect bundles of mortgages, take them over to a government agency, and they turn these bundle of mortgages into securities that are then bought up by investors and banks. That’s the full lifecycle.

Our current focus is the capital market side so the people who end up purchasing and trading these securities that are backed by these bundles of mortgages. This is known as the mortgage-backed securities market. It’s a very big market. It’s more than $10 trillion in the US alone. There are organizations within the US as well as globally who are very actively participating. It’s a SaaS model. We offer an analytics platform that is built on top of these deep learning projections that we talked about.

The deep learning model is the core. It produces projections about what an individual is going to do. Then we roll that up into larger pools of people that back securities. That gives us a handle on projecting the behavior of these securities and market segments.

That’s what the capital market folks are really interested in. They would like to know of the hundreds of thousands of securities, which ones are the most attractive? Which ones should we leave aside because they represent too much risk. Being able to make an accurate forecast is the most critical input that they use for day-to-day decision making.

Sramana Mitra: How many such customers are there for your products?

Kay Giesecke: In the US alone, we are reaching more than 10,000 organizations. The typical customer might be mutual funds companies that offer very different funds. Many of those funds have a piece of them invested into the mortgage markets. You may not be aware of it but when you invest into one of these funds, there’s very often exposure to these mortgage markets. It’s just the base layer investment. Even if it’s a stock market fund, it often parks money in those markets.

It’s a key piece of the investment staple stack. The mutual fund portfolio manager needs to understand what he’s getting into and what the risk profile is. There are other investment vehicles like hedge funds. There are many insurance companies that deploy lots of money into those markets.

Then there are the lenders that I mentioned. There are the services who stand between the lender and the owner. It’s a complex market with many participants. There are use cases in every one of these segments that we can address with the tech that we’ve built out.

Sramana Mitra: I want to do two things next. One is understand some of those use cases to get a more visceral understanding of the technologies. Secondly, I’d like to understand how do you price this product?

Kay Giesecke: Let me give you some use cases. Just to continue that mutual fund use case, there’s a person on top of that pyramid. It’s the manager or PM. He oversees the fund investment in a particular category, let’s say mortgage-backed securities. They’re often supported by a team of analysts and other folks that help them crunch the data that’s available.

One key question is, how do I construct a portfolio of securities that is well-positioned to take advantage of the macroeconomic trends. For example, home prices continue to increase over the next year, or interest rates will go up even further. The credit quality of people is going to go down or go up. There are these scenarios in mind and the question is how do you build a portfolio of individual securities to take advantage of the view that you have.

Then it comes down to selecting individual securities. How do they do this? They look at what is the risk profile of these securities. Is there enough upside for me given the price? This is where we come in. We are able to provide projections about the performance of each and every one of these available securities and tell people which subset of securities are attractive versus the others. That helps the portfolio manager to make investment decisions.

This segment is part 3 in the series : Thought Leaders in Financial Technology: Infima Founder and Chief Scientist Kay Giesecke
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