Mashing up ‘financial’ and ‘technology’ might create a handy buzzword, but it gives focus to a frenzy of speculation and hype that obscures the true nature of the trends that are shaking up the financial services sector.
If you haven’t already seen Tom Goodwin’s much-reused quote about brands like Uber and Airbnb, you haven’t been paying attention.
These brands, which own neither cars nor hotels, are nonetheless the most valuable Unicorns in the world – they are also an easy shorthand for transformative, technology-driven business models that, in essence, seek to own the customer interface.
However, this focus on a handful of startups is not helpful. It dissuades us from looking for closely at the trends behind the headlines; trends that impact the very foundation of the global economy – money.
These macro trends also have a largely unhelpful buzzword attached to them: FinTech – a term that could have been applied to the Casio calculator back in the 1960s but wasn’t commonly used to describe anything until 2008.
Today, FinTech is the term that sounds the death of the banking as we know it.
It is shorthand for a seismic disruption of payments and lending so transformative that in less than a decade the banking system as we know it will be replaced by new services and new service providers in equal measure. Or perhaps not.
To truly understand the likely impact of FinTech, you need to look rather more closely at the market participants, and what they are up to.
First and foremost, that means recognising that FinTech encompasses a broad range of technologies across payments, digital currencies, personal finance and lending.
From that starting point, you can begin to analyse what it takes to succeed.
For some (for example, crowdfunding) all it takes is a new business model, the marketing dollars to reach the masses and the hope that the regulators don’t intervene too soon.
For others, the development of complex algorithms (crypto-currency) and patented technology is required (PayPal).
With the playing field defined, an analysis of the participants reveals that the market is not dominated by mythical creatures at all.
FinTech patenting: who’s doing what?
Analysis of this sort is instructive. First, contrary to popular belief, the incumbents are not asleep at the wheel.
They realise that the world is changing and understand that they will need to innovate if they are to maintain their standing in the world.
Second, the technology majors (for example Google and Apple) are serious in their intent to own the customer, and not simply the device they use.
Third, new entrants need more than a good idea to succeed. The market is fiercely competitive – a business plan and a catchy name is not enough to change the world.
So, based on the analytics at our disposal, what do we know about the future?
The good news is that FinTech is all upside for the consumer.
As layers of inefficiency are stripped from the financial services sector, and depths of transparency are added to dysfunctional markets, there will be increased choice and lower cost at faster speeds.
The bad news comes in two flavours.
First, FinTech is a nightmare for regulators.
Watching the crypto-currency (aka Bitcoin) story unfold offers a glimpse of things to come.
In that case, the challenge is how to harness something capable of transforming traditional payment systems,
whist not equipping the criminal fraternity with another place to hide.
>See also: Is FinTech a bubble?
Second, FinTech is a classic honey pot. The size of the opportunity means that there is no shortage of ideas, and all look sweet.
But we know that many will fail, and that creates the usual range of problems for early adopters and investors alike.
Overall, we can gather a simple truth from this analysis. That is, ensuring that good prevails will require cooperation, collaboration and the development of standards.
These are behaviours familiar to those that have been involved in the development of computer, internet and telecommunication sectors over the last 30 years, but have been less prevalent in the financial services sector.
In all likelihood it is the incumbents that will have to work the hardest to learn these collaborative behaviours if they, and we, are to benefit from the very significant gains to be reaped from the full spectrum of financial services technologies.
Sourced by Nigel Swycher, CEO, Aistemos