Finance 2.0: How We Will Build The Future of Finance – Part 2

future of finance

In part 1 we have discussed what underlying shift in mentality needs to happen for Finance 2.0 to really kick-off. To an extent a lot of these changes are already happening. Entrepreneurs starting new companies are adopting finance 2.0 mentality:

Risk Assessment will change

We are starting to look beyond traditional historic credit history to guide the future. Traditional credit scoring looks to the past and present as a guide to the future. But what would it be like if many data points, from psychometric testing to posts on Facebook or LinkedIn, could be used to build up a more accurate portrait of creditworthiness? What if instead of analysing past behaviour we could create an accurate persona of the customer that has predictable patterns. Hamburg-based start-up, Kreditech does just that.

risk assessment - fintech

 

Settlement and transaction time decline

Carrying out a payment is inefficient, it takes time and costs money. A typical international payment with ‘mainstream’ currencies takes anywhere between 2 and 5 days. It also costs a lot. Local payments are cheaper, and quicker. Some countries, like the UK already have instant payment systems in place, however this is more of an exception than the norm. Blockchain technology enables us to minimise transaction costs to bare minimum and makes settlement times near instantaneous, locally or internationally, creating a sound infrastructure for a layer of micro-transactions that were not viable before. This would change the way we pay for things, or even who pays for things. In Finance 2.0 people will only set up the logic for when the payment should occur (we run out of milk -> order new bottle) for the vast IoT network. Objects will do the micro payments, fridge in this case. Another immediate area that will change is the way we remunerate creators of their content. A network of microtransactions will enable us for pay for content as we consume it – pay for every page of the book you read or for every minute of the movie that you watch rather than the whole book or movie. A lot of business model will turn upside down as a result.

network - fintech

 

Data sharing and customer stickiness 

Banks currenly enjoy very high customer stickiness, well above a decade. Until very recently, it was a pain to move a bank but it is no more. In the UK the banks will transfer all you schedule payments for you and reroute all the payment to your old bank account to the new bank account. However, this is only half of the job. What we lose is all the data we have generated with the banks over the years. With upcoming PSD2 regulation, this will also change. Customer will be in charge of his data, he will be the gatekeeper and give the keys to who and when he considers fit. This will change the balance of power significantly. Rather than using 1 provider (bank) for most of your needs customer will be able to have many providers and use them as specialist for their one best function. Data generated by all these providers will complement each other. The layer of aggregation will likely to appear, that will simply plug all the APIs into one and provide great user interface.  

data sharing - fintech

 

Banks will turn into platforms

A bank won’t be a closed garden but rather a bustling bazaar. A placemaker for creators and innovators to meet their clients – a platform. AirBnb is the biggest hotel chain but they don’t own a single hotel, Uber is the biggest Taxi company that doesn’t own a single taxi. Can bank be the biggest financial institution without any financial products? Can banks simply become the gatekeepers of the bazaar, ensuring product quality, security and taking money for opening the gates to new vendors? Pascal Bouvier and David Brear have discussed the pros and cons of such platforms and Chris Skinner has laid out the steps that these banks need to take. I won’t summarise this better than they already have so do read their articles.

fintech bazaar

 

Change in regulatory mindset and approach

Regulators are perceived slow, inefficient and reactive. This would be best visualised by 1000’s of pages long volumes of regulatory frameworks such as Dodd-Frank Act. However, the role of the regulator has changed significantly. The regulator is under a constant spotlight to make sure that financial crisis of 2007 does not repeat itself. Equally, it is pressured to foster innovation, which in turn fosters competition. Many small players competing with each other reduces system risk and is beneficial to the customer in terms of price and quality. The regulator is encouraged to become much more proactive to prevent the misconduct from happening in the first place. For this, the regulator needs to have a hand on the pulse of the market, lots of data and access to the innovators of tomorrow. Sandbox by the Financial Conduct Authority (FCA) is a great example of embracing forward-looking innovation.

regulators fintech

 

Robots will transform finance business model

The corporate structure and headcounts will change drastically in finance over the coming years. Robots can already do many jobs better than humans can. Robo-advisors are better, and cheaper, at allocating assets. They can’t, and likely never will be, to provide behavioural coaching private banker can but this is only relevant for the ultra wealthy. Other parts such as compliance, accounting, modelling and other will be slowly transformed, or even outright replaced, by machines too. Machines don’t do mistakes. In the next term years banks will change from large employment hubs to lean operations. Many functions will be automated, many parts of the business will be lost to the marketplace. Banks will maintain their core functions and employees associated with that.

 

The dawn of new finance is upon us. As a crucial element of our society this changes will have a ripple effect across many functions and industries. A more efficient financial system will make our overall lives more efficient, more transparent and more fair.

Finance 2.0: How We Will Build The Future of Finance – Part 1

future of finance

This is the part 1 of the 2 part series, for part 2 click here.

In 2004 we witnessed the shift towards the ‘Web 2.0’. Mentality and assumptions of web developers have shifted from ‘everyone has very limited internet connectivity and limited browsers’ to ‘lots of people have broadband and modern browsers now’. This meant to techniques could be applied to start creating stuff we never had before. This lead to the webapp era. 2016 was arguably the start of ‘Mobile 2.0’ era. Our mindset is shifting from ‘people don’t have good mobile internet and limited smartphone penetration’ to ‘there are a billion people with high-end smartphones now constantly connected to the internet’.

Banking system is one of the underlying core systems of our society and it has always followed the evolution in our lifestyle, even though lagging behind. Web 2.0 brought limited banking capabilities online. Mobile era brought it to our smartphones, often leaving much to be desired but the capability was there. A perfect storm of increased smartphone penetration, big data, blockchain and fintech have put is on the doorstep of Finance 2.0, do we dare to enter?

finance 2.0 doorstep

The year 2017 is the year where our financial system will start to change noticeably for a mainstream user, not just the early adopters that played with P2P loans, blockchain or digital banking. A new set of startups are maturing and reaching the critical mass where they will start reaching everyday users. Here are the assumptions that the dawn of Finance 2.0 brings:

  • Past financial performance (credit check) is not the best metric to reflect likelihood of future repayment; new models are developed
  • Banks are open to collaborate and have changed from walled gardens to bustling bazaars
  • Technology can do a lot of the jobs better, quicker and more reliably than humans can
  • Regulator is not a stop break but an enabler who truly wants to encourage innovation, transparency and competition
  • Customer are willing to share their personal data, and it is easy to do and there are vast amounts of data to create personalised models
  • Settlement times and transaction become so negligent that we can power a network of instant microtransactions

 

Finance system is one of the underlying foundation of our civilisation, without finance trade would not be possible and without trade we couldn’t specialise in any of our activities – we would still have to produce all our food, clothes, shelter and, even our iphones, ourselves 🙂

In part 2 I discuss each of the assumptions in more detail and how will they change our day to day life.

The Innovator’s Dilemma: Is It Always About Technology? The FinTech Perspective

fintech innovation

The thing that intrigues me the most is the business model and how it evolves influenced by innovation. Every business I interact with I try to understand how do they make money, what is their unique angle. I had one such conversation with a friend of mine, Antoine Baschiera, cofounder of Early Metrics. They have analysed and scored over 1000 innovative companies in the last two years. We had a debate on what innovation is. Too often associated with just the technology but innovation is so much more. We have agreed on 4 main pillars – process & customer service, route to market, product & service and technology. So how do they all come together?

 

Technology innovation – embedding new technology into your stack such AI or visualisation to empower the other 3 pillars  

Process & Service – using process and technology improvements to improve customer experience or critical internal processes to gain competitive advantage, such as pricing engine in insurance

Product – creating new products that didn’t exist before, such as Apple Watch

Route to market – addressing new markets, finding ways to reach your customers differently, for example servicing banking clients via facebook chatbot

 

Let’s look at each of these in more detail:

Technology Innovation

Technology innovation in banking is often trivialised to a simple question – can we use this new technology to remove enough friction from the process that savings/profits would justify the costs, i.e. can we get a positive RoI. Often you can’t, at least initially, quantify innovation as RoI. There are much bigger benefits to technology than just cost saving – it acts as an enabler in the evolution of the company.

Technology in itself normally brings marginal improvements rather than disruption. The disruption comes from a change in the other 3 pillars as a result of this new technology. Let’s take Uber as an example, the company is so disruptive not because of their technology, if anything, it’s pretty basic, slick and well functioning, but basic. What is special about Uber is their business model innovation – creating a marketplace for transportation. This is very disruptive. They couldn’t achieve this without their technology but technology is not the value add here, just an enabler that leads to disruption of the taxi industry supply chain.  

 

fintech innovation

 

Process & Customer Service Innovation

Process innovation is less sexy than product innovation. It is not focused on creating new products or reaching new markets but sometimes it can be the best competitive advantage of all. If you can open a bank account in 5 steps while your competitor is taking 3 days you will win that game every time despite how many cool and sexy products your competitor has. Process Innovation is all about improving internal and external processes to provide better customer experience. It’s about improving existing products and business critical processes transforming the business model of the company.

Customer service often defines business models. High touch high-end product with great customer service is associated with low volume high margin business and low touch high volume approach with good price. You rarely get both.

 

FinTech Customer Service

A true process innovation would be to provide high touch customer service with good price. Some industries are approaching this possibility. Let’s take a look at wealth management industry. Previously we had private bankers who would manage money on behalf of the very wealthy. Then the robo-advisors came around, addressing the gap in the market at the bottom end. But two services are very much different, the end result may be similar – you get a diversified portfolio but the route to that result is very different. Adjusting a dial on risk-meter vs dedicated private banker talking you through all the options available at all hours of the day.

There is a middle ground here, providing good service but cheaper – do you need a private banker with a fancy office? Can his service be provided via skype? Can a good amount of queries be answered by a bot? Could we mash these two together? This would be a great example of using technology to improve your critical processes – customer service to gain competitive advantage. A robo-advisor with a human touch and a similar price would beat robo-advisor without human touch.

 

Roboadvisor Fintech

 

Same as with Uber, technology is not the game changer here. The game changer is the application of that technology. The code for a bot is available as open source and is hardly revolutionary but the application of this code is.

    

Route to Market Innovation

Finding new routes to market can drastically increase your market share. Let’s take travel insurance for example – you can sell it via brokers and price comparison sites but cross-selling it on airline websites is a new route to market. Acquiring customer in FinTech is notoriously expensive. For that reason FinTechs are often exploring different ways to market rather than taking the incumbents head on and the answer is a B2B2C model. A company plugging into existing players back-end and using their channels to acquire customers or add value saves millions of pounds in marketing expenses. The maths are simple here – acquiring customers in FinTech can be very expensive – some of the banks I’ve worked with were looking at anything between £300 and £400. That is a lot of money if you want to scale. Let’s take an example – a company has raised Series A of £10mil, ignoring all costs, this company could only acquire 25,000 customers. This is hardly enough to make a dent in the fintech space. This is why we see banks like Atom raising hundreds of millions of pounds. To achieve any sensible scale you need a very large amount of capital. Few startups will ever be able to raise this kind of money and therefore a much better way is to partner with an existing player, usually a bank, and use their channels to acquire customers. It is lower risk lower reward option but certainly still a lucrative one since you can nearly bootstrap a business that is using a B2B2C model, while it would be very hard to do that with a B2C business, at least in FinTech.

 

FinTech Route to Market

 

Insurance is another interesting example of finding a new route to market. Insurance as a product is becoming a commodity – people are less willing to buy insurance as a standalone product anymore. They want to buy an insured car rather than a separate car insurance. It is becoming a part of a larger bundle, there are a number of companies looking to enable this. This will have an effect on insurance business model.

Product & Service Innovation

Product innovation doesn’t necessarily involve creating new products like autonomous cars, smart watches or new social media app. A lot of product innovation surround repositioning products for specific verticals and tailoring your product to watch that markets needs – data visualisation for retailer, marketplace loans for SMEs, document management for lawyers.

Because the verticals keep on constantly evolving we can find gaps created in the market by current providers and innovate to fill them; much like Atlassian created a perfect ground for Trello to grow. Dimitri Tarasowski wrote a great post on this, here’s a short extract:

Trello brings a different value proposition to the market. Its value proposition is collaboration and simplicity. Jira’s value proposition is different. It seems that Atlassian is a well-managed company. Its managers did everything according to the books. They listened to their customers, and created a better and more complicated product. By adding new features, they sought to capture new customers. They went upmarket.

While the company’s revenue grew, its product became overly complicated and difficult to maintain. By moving upmarket, Atlassian created a vacuum at lower price points into which competitors with disruptive technologies could enter. This is what Trello did.
Atlassian vs Trello

 

Creating new services and products will most certainly have affect on the business model as the company will evolve and fine-tune its product offering to suit their desired customer segment, much like Atlassian did.

So what is innovation?

Business model innovation, particularly in FinTech, is not just technology based. The technology is frequently an enabler of other elements rather than the cause of the disruption. When looking to innovate and disrupt, we can’t simply focus on technology. Start with an end goal in mind of what you will show your customers, how will you access your market or what your processes will look like. Fit technology afterward.

Boring, beraucratic, commoditised: why banks need to shift towards experience

Bank Shift Towards Experience FinTech

Banking services have been commoditised since moving from one-to-one to one-to-all relationship infused by digital revolution but it can’t stay that way anymore. Banks face extreme regulatory pressures and thinning margins are making it difficult to stand out from the crowd. But what’s more worrying is that banks also don’t seem to be in any hurry to offer additional service to the everyday customers. You can open a bank account, get a debit card, possibly an overdraft and a credit card too, if you were a ‘good’ financial citizen. The difference will be very small (if any) whether you go to HSBC, Barclays or Lloyds. Everyday banking is starting to feel like using a gas station – you need to use it but you really don’t care which one you’re going to use – it is a commodity.

Gas Station Banking Experience

 

What is a commodity?

It is a product or a service that no one cared enough about to market. Marketing creates value, by combining stories, design and care. The product or service is produced in a way that makes engaging with the item better. Commodities are in the eye of the producer. If you don’t want to sell something that’s judged merely on price (or interest rate), then don’t.

There is no such thing as a commodity in banking or finance anymore. There is no such thing as a commodity in an online world. Banking is becoming increasingly online-based and can’t afford to be a commodity.

Commodity Banking Experience FinTech

 

Banking is an experience and it should be treated as such.

How do companies create an experience that appeals to the customer, like buying an apple device or using Airbnb? Banks need to take bold steps to create an experience for their customers. Banks need to move from transactional to experiential relationship. First step is to prioritise innovation and research. JP Morgan R&D budget is 0% of their revenue, yes, 0% while Apples R&D budget is 4.6% of their revenue. Banks have adopted a latecomer approach, it works when the rest of the market is equally slow or reluctant to change. It’s game theory – “I don’t need to do this because my competitors won’t”. It’s a dangerous game to play.

Once companies take a conscious steps to innovate they will allocate a budget towards that. However spending money on technology is very easy and temptation is to get quick fixes in but we need to prioritise strategic, not tactical solutions. I know it feels safer to do a short term fix (of another short-term fix of another short term fix.. you get the point) than a large strategic overhaul but a large strategic overhaul is what’s going to make the difference. A difference that will become a competitive advantage.

Chess FinTech Banking Experience

 

To create truly better experience banks need to prioritise innovation

This doesn’t mean to have robots instead of bank tellers, innovation doesn’t need to be futuristic, it can simply mean reusing concepts from other industries that work. For everyday banking, retail is a good place to look for inspiration, many stores are looking to shift from towards experiential centre. To do that you need to hire people who understand technology, innovation and its priorities (hint: this doesn’t mean poaching head of digital from Deutsche Bank or BAML, but rather the head of innovation from Amazon or Nike).

The innovation that will make the difference needs to come from an outsider, who doesn’t think like a banker. You can’t project manage your innovation pipeline by sorting your deliverables in a spreadsheet by decreasing Internal Rate of Return (IRR) column. Some of the projects that will deliver the biggest IRR won’t be obvious until implemented, even at a visionary company. Sergey Brin said he nearly discarded Google X project, a bedrock for most of the AI and other critical projects in Google, as unnecessary. You need to take a bet.

 

Bold decisions will have to be taken

I know, I know there is a lot of money involved. It takes courage to make bold decisions. Let’s take a look at an example with a lot of money involved. Apple removed headphone jack from a product that is generating 69% of its revenue. That’s bold. They have taken a commodity (headphones) and morphed it into an experience. It may be transformative for the company in the light of rapidly growing Internet of Things (IoT) ecosystem.

Or this may prove to be unnecessary friction right now, one way or another most headphones will become wireless in the next five years, who really wants to have a cable? It may be just too soon. One thing for certain, Apple will not be the company who just waited, and waited, and waited until it was too late.

Path Less Travelled FinTech

 

You can be the future or you can be the past – the choice is yours

There are many once-mighty companies that believed their history of success would inevitably protect them from technological change, only to be done in by their complacency. Blackberry was that firm. Kodak was that firm. Twitter, arguably, is that firm. It started changing now but it may be too late.

How many of financial service firms are just waiting now? Soon, it may be too late. The best time to innovate is today, just like yesterday was. Just like tomorrow will be. The sooner you start the more room and scope you have for iterations, the more successful product you can develop.

FinTech 2017 Preview in 12 Headlines

fintech predictions 2017

fintech predictions 2017

Happy New Year! I wish you lots of bitcoin, low remittance fees, secure mobile wallets and cheap P2P insurance. Today, I have prepared a special edition of FinTech Summary for you. We will review of various predictions for 2017, as well as big and important topics that need to be address. After all, we’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs. So exciting.

Have a wonderful week,
Alex

FinTech 2017 Preview in 12 Headlines

 

Pascal Bouvier shares his fintech wishlish for 2017. There are many nitty gritty problems that need solving in the financial services industry. Technology, common sense, thoughtful regulation and new business models will address these over time. There are also complex problems, bigly ones, that will require either deceptively simple solutions and/or intricate collaboration among many stakeholders.

10 Predictions for 2017 by Chris Skinner. A FinTech unicorn stumbles (this market is still nascent). Or perhaps SWIFT gets hacked again (how many times can this happen?).

For fintech, 2016 was a year of reckoning. Scandals and layoffs killed industry buzz, and deal activity took a mid-year nosedive. Regulatory uncertainty in the U.S. loomed large, as did Brexit. After a glum 2016, look for startups tackling massive opportunities like insurance and real estate to reenergize the fintech sector.

 

Cryptocurrency

Bitcoin Blockchain Predictions

2017 Will Prove ‘Blockchain’ Was a Bad Idea. Yet, all in all, 2017 might be the final year in the pump-and-dump scheme of blockchain-without-bitcoin , the last-ditch effort to prove the marginal utility of databases on crypto-steroids. Probably some smart contract hype will clutter the debate, thanks to the smartest ones among the fools trying to outsmart even the smart contract inventor. But most of this fuss will finally leave center stage, allowing for the 2018 return of (a hopefully more fungible) bitcoin.

Another bitcoin ecosystem health check as we slide into 2017. Bitcoin is at its 3 year high. Is justifiable? Daily FinTech carries out a deep dive into bitcoin prices.

2017’s Big Question: Who Pays for the Blockchain? Not since the heady dotcom days have we seen so many experts hyping a new technology. But, amid the hype, little attention has been paid to an important question. Who pays for the blockchain?

 

InsurTech/RegTech

Insurtech Regtech Predictions

What’s in Store for RegTech in 2017? RegTech has been a famous buzzword in 2016 and the industry – banking and FinTech alike – is looking eagerly at 2017.

InsurTech’s Predicted Impact on Agents in 2017. This upcoming New Year’s Day, agents and brokers should make a resolution to adopt technology that will more easily support customer requirements.

10 insurtech trends to set the stage for the digital insurance agenda in 2017. These 10 insurtech trends set the stage for the digital insurance agenda. They reinforce the need to connect insurance executives with insurtech leaders, which is basically our mission. It helps us to create an agenda for DIA 2017 Amsterdam that’s in sync with what insurers need and what the latest technologies can provide.

Banking and Payments

Banking and Payments Predictions

The top 10 trends in banking innovation. Littered with global examples, Efma has been running an awards program with Accenture for a few years now, to recognize global banking innovation showed 10 key trends emerging in the past year, of how banks are absorbing innovation.

Top 5 payments predictions for 2017. Brian Roemmele and Faisal Khan look ahead to what might change in payments in 2017.

Here’s why 2017 will be a turning point for the UK marketplace lending industry. The UK’s marketplace lending sector is one of the world’s oldest and largest, but it may be reaching a tipping point whereby growth starts to slow and market dynamics start to change.

 

What do you think? Leave the comment below!

The Overpopulation Of Unicorns Is Bad For The (Startup) Environment

Startup Unicorn Hunt FinTech

The glorified unicorn hunt… It’s the latest trend on the street to be an entrepreneur. With the increasing supply (number of startups) the number of VCs, Corporate VCs, Crowdfunding platforms et al (demand) is also increasing. Good ol’ economics 101. After all, the second biggest trend and buzzword (second to being an entrepreneur, obviously) is innovation. Everyone wants to be digital. Rightly so. Everyone also wants to get their share of the new Facebook pie. I mean if the guy who dropped out from University can do it…

I bet this guy’s Lemonade Stand valuation is in 9 digits, because, you know it’s on demand, organic, hand made, all American lemonade which is delivered to you by a drone managed by AI, right?

FinTech ecosystem - Adult Managing Lemonade Stand

Well, maybe not, but anyway it’s a ‘cool’ concept. As the number of startups (trying to disrupt lemonade stands) increases so does the noise. As a result, the overall quality of startups has arguably gone down. It requires less capital and risk to start a business. Plus it’s looks sexy on your CV.

A further fuel to the fire (in a very positive way) is the shift in mindset of the large corporates towards startups. They are much more willing to engage in a working relationship with an unknown company, or an early stage startup, often becoming that crucial first or second client. While the fee of anything under £10,000 is usually less than the cost of a coffee breakout session at their quarterly town hall, large corporations are still careful. You don’t want to bet on the wrong horse and let the winner runaway with your competitors.

Lack of information on startups is an issues stopping the corporate partnerships from forming. 

The Startup Stack Is Changing

Lucky, the startup stack is changing to address that. Here’s how I imagine it.

startup-stack

The first layer is the actual startups delivering (better) solutions to existing problems targeting retail customers or large corporations. Roughly 5 years back, we started seeing a new layer forming, the support platform for the startups, i.e. startups who are trying to solve problems that other startups create or face. Think of services like airbnb letting agency or products focusing on startups, such as Xero the, accounting platform.

With the choice so vast we are seeing the third layer forming to help navigate the treacherous sea of upstarts. It’s the discovery and validation layer:

The discovery layer – one of the more prominent here are ProductHunt, an aggregation site with popularity contest element of reddit (upvotes and karma).

The validation layer – the companies that can provide a badge of honour or a golden star to help companies stand out from the crowd.

The example for the latter would be Early Metrics, the first rating agency for startups and innovative SMEs. I was very intrigued by their business model so I have met with the co-founder, Antoine Baschiera, recently to discuss how it works and where he thinks Early Metrics come in (you can read the full interview here).

The company is a rating agency for startups that helps to ‘score’ their business potential and innovation. I found their business model intriguing. They avoid the usual conflict of interest (at least in my eyes) of the party being scored also paying the fees to the agency (as is the case with Moody’s, Fitch etc). Startups don’t pay to get rated. Early Metrics charges the decision maker who are looking to engage or invest in these startups. They then get a monthly report with the rating of a selection of startups in their selected fields and/or the analysis of startups they are particularly interested in. I think should help solve the information asymmetry that exists right now.

The Decision Process – Is It Going To Be Yes or Next?

The process of how large organisation would approach working with an early stage company is very linear. A simplified version would look and like this:

FinTech Ecosystem - corporate partnership steps

That’s the happy path, either company can pull out at any stage before the commitment happens. The hardest hurdle to pass is the stage two – will the large corporate allocate any resources to investigate this opportunity. What information would they use?

Frequently, the counterparty could be tempted to judge the quality of the startup by their VC investors and the stage and size of their latest funding rounding but this can be misleading. Bad VC investment does not equal bad company, neither does good VC investment guarantees a good company.

The reason is simple, VC has a goal to return x5 their initial money invested over 10 year period. As it is difficult to deploy VC funds quickly, and accounting for potential delays on exit, a typical VC firm is looking for an exit within 5 years. Often, if the company has great potential but the exit may be 10 or 15 years away, VCs will shy away from such investment. Hence the public outcry from VCs about Uber’s decision to stay private for so long.

uber-logo

So What?

This is why I think valuing the upstart for its business merit is so critical. Independent rating agencies can improve the quality of the startup ecosystem, analysing companies for their business merit not the potential to produce x50 return to its investors.

After all, if you’re a large bank looking to implement a middleware solution to stitch your current two systems together, you care about how sound the business is, not how rich their investors/founders are going to be in 5 years time.

wishpony-white-diamond-unicorn-horn-for-horses-ponies-920x613

This is a welcome change at the times of a constant chase of the unicorns and ludicrous obsession with higher and higher valuations. At the end of the day, the startups used to be about solving real problems not cramming as many buzzwords in your product description and trying to grow a horn on your forehead, and if that’s the only goal then I can save you the pain – you can buy one for $50 here. Why wasting 5-10 years of your life? 🙂

Thanks for reading! 🙂

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I Just Got Back From The Future – This Is How Banking Will Look Like In 2025

I just came back from the future - this is how banking will look like

I just came back from the future - this is how banking will look like

Banking has hardly changed until very recently. Yes, in the early 2000’s we started slowly adopting telephone banking, then there was Internet banking, now there is mobile banking. However, all of this ‘innovation’ simply changed how we access bank, not how we bank.
I believe the upcoming changes in banking will change beyond how we access banks and change how we bank too, hopefully, making it more secure and convenient.

 

Banking In 2025

Let’s have a ride in my DeLorean DMC-12. Year 2025, GO!
Ok, sorry about some turbulence, we’re here. See that’s future you, for some reason, you need to go to the bank branch. I know, it’s 2025, but you insist…
Other you (the one from the future) quickly tells your voice assistant that you are going to bank branch; it finds the nearest one near you and loads the details to your Augmented Reality (AR) headset. You get into your flying self-driving (or self-piloting) car. Those will exist; don’t shatter my dream. The car flies you to the branch, you don’t need to worry about parking, your car will just drive away and find a parking spot nearby. You will simply hail it from your smart watch once you are leaving the building (that’s a scary thought for Uber).

 

The Branch of the Future

Apple Store - FinTech Summary

Apple Store

You walk into all white bank branch that feels like an Apple store. There are huge touch screens and iPad Vacuums (you know they are so light it’s practically vacuum so they called it vacuum because Air is considered heavy these days) on the table. You will find the nearest available iPad, launch authentication app which will scan your retina, fingerprint and 3rd party (bank employee who is present nearby) approval that you are not being forced to authenticate your account against your will. More like supermarket self-checkout experience where there is one employee who only approves age for alcohol purchases and helps if something goes wrong.

Self Service - Digital Banking

Self Service – Tescos

 

 Instant Secure Service

You’re logged in, and the app has synced with your augmented reality handset. You seem to be transferring a large amount of money, so you need to verify the transaction with your voice, the app asks you to read out a sentence and say your name. All matches.
The reason you are transferring a large amount of money is because you are moving to a new bank, you like their app better. Since it’s 2025 changing banks is as easy as changing the brand of your shampoo. All data is owned by the customer and can be provided to all other institutions via API, instantly.
Money is wired instantly because of advances in blockchain technology and settlement.

 

Bots Are Running The Bank!

Your phone vibrates. You got a new message on Facebook Messenger from your new bank saying that your new account has been activated. You can start using it right away. You only registered for it 30 minutes ago.

Chat Bot - Fintech Summary, Digital Banking

Chat Bot – Digital Banking

You respond with a thank you because your conversation feels very natural and human-like even though you are talking to bot called Jenny (you can change it Jack if you want). She asks you if you would like to enable personal finance manager support and personal accountant support, free of charge. You ask what they are and Jenny kindly explains:
Personal finance manager, Bob, is an AI-powered bot that gives you a holistic view of your finances and provides forward-looking advice. For example – good investment opportunities for your risk profile, remortgaging your house loan or consolidating your loans into a more attractive P2P loan to shave off interest payments if better deals are available.
Personal accountant, Diana, is also a bot, who has a more backward look at your finances, identifying largest expense pools, comparing spending of any specific category month-to-month to understand the changes and providing suggestions how to make more with your money.
Diana asks if you want her to help you save better with smart saving. You quickly type – ‘what’s smart savng?’ Diana is not phased by the spelling mistake and explains that smart saving will use your previous spending data to understand when is the best time for you to save and how much you can afford to put aside. It will occasionally transfer a small amount to your savings account when according to the algorithm you need will miss it least, and sends you a message on WhatsApp (you can change it to WhatsApp or even Snapchat if you want) to ask if you’re happy about it. If you say no, the money is instantly returned to your main account.
This way, Diana explains, we can develop better saving habits and taking out the most difficult part of the savings equation – ourselves. You agree.

Digital Banking - Savings

Digital Banking – Savings – Every Bit Adds Up

 

Exceptional Service

You thank Diana and got back to your chat with Jenny. You say that you would like to use both services, it’s free after all. You say thank you, because, again, it feels like talking to a friend with a very casual language and emojis. Now you ask her to change your monthly rent payments (all payee details are stored centrally, and you don’t need to reenter them even though you just opened this bank account) to include that 2% annual rent increase and then send it to your landlady. 15 seconds later you get a message that it is done. At this point, you are not even typing but simply talking to the microphone. It’s easier this way, and you are constantly authenticated (voice authentication) to carry out most operations. At the critical moments such as money transfer, you are required to tap fingerprint scanner as a second step confirmation.
Ok, you’re done, you press the 1-button logout. The session is closed (it would close anyway as soon as you step more than 5 feet away from the iPad due to NFC sync between your AR set and the iPad as an added security measure).
You tap your smart watch to hail your car and fly into the sunset… Banking feels more like shopping for gadgets than, well, banking!
Ok we need to go back now, DeLorean is running out of fuel. They haven’t invented electric time travel cars yet…

 

Back to Reality

How do you imagine banking in the future? Would you be more likely to trust your banks with services like that? Leave a comment.

Thanks for reading! 🙂

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I need to go and wash DeLorean before dad finds out…

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FinTech and Chill – How Fintech Can Have The Netflix Moment

FinTech and Chill - New Post by FinTech Summary

FinTech and Chill - New Post by FinTech Summary

There has a lot of talk about Uber moment for FinTech. Or how disruptive Uber is. Yes, it is, but to more original, I would like to discuss a different parallel – a Netflix moment for FinTech. The streaming company has a winning model and is quickly catching up with its incumbent rival – HBO.

What makes the model tick? If you look at the top 10 TV shows most of them are on Netflix. But does Netflix truly deliver the best content? Or is it simply delivered through a more convenient platform? Or perhaps it is simply the better packaged and cleverly promoted within the platform by positioning it on the ‘eye level’, just like supermarkets do with their promoted shampoos and soaps. Finally, the audience itself, has Netflix managed to attract a more valuable audience that is growing and sticky?

While, on the surface, Netflix has nothing to do with FinTech, once we look deeper, it is quite similar.

 

Netflix – Some Background

Netflix is a great company. They have always been one step ahead of the competition. I recall when Blockbuster used to laugh at the DVDs-by-mail notion — right up until they tried to clone the business in a last-gasp effort to stave off extinction. By then, Netflix was already well underway in terms of more closely fulfilling its name, moving to streaming over the web.

But even then, it’s easy to forget now that the Netflix streaming service started as a way to stream movies, and not exactly new releases either. Thanks to the Starz deal, it was sort of like a worse HBO without any of the great original content. Then, as the film deal lapsed, television content quickly took over. Then, of course, the company did what seemed almost unfathomable at the time and moved into its own original content.

Each of these moves was genius because it was a step ahead of the curve. With 54 Emmy nominations this year, second to only HBO, Netflix is seemingly closing in on what they set out to do once again. They’ve become HBO faster than HBO has been able to become Netflix. Just see their share price below.

Most of us agree that Netflix has been a success story but how did it achieve its success? Is it the packaging? Is the content? Or is the delivery?

I say Netflix content is damn good (House of Cards, Orange Is The New Black, Narcos, Making A Murderer, Stranger Things). There is, however, other fantastic content out there that we simply don’t discover because we are too busy binge-watching (packaging) Netflix on all of our devices, synced (delivery). It’s easy to see why Netflix has been the prime cause for gray hair on the Time Warner board, the owner of HBO.

 

Is It FinFlix Time?

Let’s talk about FinTech now. There are many similarities between FinTech and Netflix. I call it the FinFlix time, after all, some of these companies growth stories worthy of a movie script. FinTech companies are picking up steam (SoFi $3bn, TransferWise $1bn, Funding Circle $1.1bn – NY Times).

But we have to ask – do they provide better ‘content’, or simply package and deliver it better than the banks? Clearly even with the latter there is enough scope to cause trouble to the incumbents (Netflix has a market cap of nearly $42bn vs. $60bn Time Warner).

Let’s take TransferWise as an example – their ‘content’ is money transfer, the quality would is measured by two factors – amount of money preserved after the transfer (amount sent minus fees) and timeliness of the transfer. I say they are doing quite well on that – check. Delivery? App or online. Pretty convenient – check. Packaging? It’s simple to use – check. Looks like a winning business model to me.

They know it and are sending a pretty strong message to the banks (picture taken in front of Bank of England)

Transferwise FYCK ad

Time Warner didn’t fear Netflix early on because Netflix relied on the content produced by others until they decided to enter the big league and start producing content of their own making Time Warner sit back and nervously seat in anticipation of what’s to come.

Alternative lending is a good example here with flagship deals like BofA & ViewpostJPMorgan & OnDeck and others. Moreover, some estimates suggest that in the US, around 80-90% of the capital lent through the two largest P2P lenders – Prosper and Lending Club – is institutional money and if they close their taps FinTech will suffocate.

Time Warner thought the same. This is dangerous assumption, all it takes is for one of the current or new players to enter the market and position themselves as FinTech friendly, with the cross-promotion power and the access to the right demographics that FinTechs have these can be the ‘original content’ of FinTech moment.

 

What Does This Mean?

Once the firms are not dependant on content from the institutions all they need to do is simply package and deliver it better than the banks, which they already proved to be capable off. Content is not enough to dominate the market anymore – you need the distribution network and appealing packaging, which FinTech are great at. I think we will see a Netflix moment in FinTech soon.

Thanks for reading! 🙂

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And now I have to go catch up on the latest season of Narcos…

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Equity Crowdfunding 3.0 – The ‘Killer’ Feature

Equity Crowdfunding 2.0

Equity Crowdfunding 3.0

According to WordSpy.com, the word “crowdfunding” was first used in August 2006, by Michael Sullivan, who launched Fundavlog, a failed attempt at a videoblog content incubator to what now is a $34.4bn industry as reported by the Crowdfund Insider.

I’m particularly excited about Equity Crowdfunding and how it will enable SMEs to obtain vital resource – money. The industry has built its presence to an astounding $2.5bn as of the end of 2015, expected to double in 2016. Everyone wants to find the new Facebook these days. If you do find one, let me know – I’ll chip in and in return, you can have your photo on my homepage 😉

Since the days of Michael Sullivan’s attempt at crowdfunding his video content incubator in 2006 (YouTube started in 2005) Crowdfunding has hardly changed. People started filming crazy videos to attract attention and get PR, but systemically the process stayed the same – here are 10 craziest campaigns. Grilled cheesus anyone? Or maybe you’re after fly-killing shotgun? Anyway, back to reality now. However, this is about to change with Equity Crowdfunding 3.0 approaching fast.

Crowdfunding 3.0 - FinTech

What will Equity Crowdfunding 3.0 look like?

A real ‘killer’ feature will be added – a secondary market that will enable investors to ‘cash out’ early. This feature will be particularly powerful with the equity crowdfunding model, where there is not fixed time frame for an exit and investors are unable to cash out if their circumstances change.

Such mechanism has the potential to open up markets that were out of reach for most platforms. People will be more willing to ‘give it a try’ and potentially become big investors in the future.

Challenges for the platform

Ensure sustainable liquidity at a fair price. This can be achieved by creating a steady flow of funds into the secondary market. Liquidity is a false friend, always there for the good times and never there for the bad ones. Like the neighbor next door always shows up for the parties but never offers to help you clean up.

Build a valuation mechanism. The share price of the company has to reflect the progress it has achieved against its targets. A company that failed to meet targets 3 times in a row can’t be worth the same as the initial purchase price because it will dry out any secondary investment into it.

Challenges for the company

How will crowdfunding affect further funding? If the share price has been dropping how will VCs react to this? How will the public react? Is this going to close the gates for obtaining money in the future? Arguably VCs will already have superior information to retail investors, but psychological factor may well come in play here.

How will this affect employees? Should they be able to cash out via secondary market? Would that make into a much more attractive option scheme? On the other hand, an employee without options will be less motivated. Or could jump the ship if the share price moved unfavourably. Right option structure plan would likely solve this issue.

The secondary market for crowdfunding platforms would be very exciting and open up a whole new level of startup and SME funding. I will be following the industry very carefully. What do you think?

FinTech and Bubbles

FinTech and Bubbles

There is a lot of talk about FinTech and the dreaded b-word. However, whether it’s a bubble or not (yes I just said it) it doesn’t matter. FinTech is enabling breakthrough and reshaping the industry that has hardly changed for the last century. I would like to share an extract from Tom Evslin‘s blog post from January 2005, when the investment world was just waking up to the fact that the Internet bubble wasn’t the end of things, but just the beginning that really sums it up well:
 
 
Screenshot 2016-08-05 13.20.38
 
Maybe some of the unicorns are not unicorns, maybe some rounds are overvalued. What’s definite is that we see what technology can do to our day to day lives and we are embracing it – enabling underbanked join the economy, increasing efficiency and globalisation, enable SMEs thrive through crowdfunding and P2P loans. If this is going to end up in a bubble, let it be. It was worth it.
 

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