Technology Holding Businesses Accountable

I went to Finovate in New York City with Rebirth Financial this past week. It was a great experience for me and the company. The networking, information, advice, and press were all extremely valuable. I wrote about the event from our company’s perspective on the company blog.

There were two other companies presenting at Finovate with technology that really made me excited. Both are ways to prevent businesses from trying to pull a fast one on people who don’t know any better. I see these ideas as a way to make markets function better by removing information asymmetries that favor businesses at the expense of customers and investors.

The first company is Robot Dough. It monitors your investment portfolio for accounting gimmicks. Accounting standards are rife with ways for companies to manipulate their financial statements to make their financial condition look better than it really is. For example, if a company wants to boost earnings, they can inflate it by cutting from expenses like inventory purchases, research and development, or loan loss reserves. In their demonstration, they showed a company reporting huge earnings, but the real story behind the earnings was that the company received a huge one-time tax credit. All that most investors pay attention to is the earnings number, but those relying on the number are on track for heartbreak down the road because these tricks can’t be sustained.

In addition to reducing the impact of creative accounting, Robot Dough has tools for stock screening, developing investing strategies, and backtesting your strategies. Best of all, its free while its still in beta testing. Their booth was right next to ours, and the guys who started the company were super nice. If you’re investing in equities, be sure to check out their product.

The other company is Transparency Labs. In short, it points out all the crap in the fine print that you would never agree to if you knew it was there. You could see that the interest rate in your adjustable rate mortgage goes to 15% after two years. Or that your credit card goes to 30% if you’re late on a payment. It prevents companies from sneaking onerous terms into something that no one reads.

I’m curious what sort of impact this technology could have. It seems like in the short term, you’ll run a set of terms and conditions through there, see that you’re signing your life away, and go look for another product. Then you’ll find other products and see that everyone is putting the same ridiculous terms in their agreements. It looks like their plan is to monetize the service by providing marketing for alternative products after they scan agreements, but they would need some companies to defect from the cartel of highly advantageous legal terms before they can present a real alternative. That may be challenging, but then again, in markets where competition is fierce, providing better legal terms may be a way for companies to distinguish themselves.

I wish Transparency Labs the best of luck in this endeavor. It seems like it has the potential to improve a number of markets for consumers once it goes public. Keep these guys on your radar.