At the end of the day it's simple. We’ve been talking using buzzwords such as ‘crowdfunding’, ‘robo-advisory’, “peer-to-peer lending’ etc. Using hyped up or archaic expressions makes understanding trends happening now unnecessarily difficult and complex. At the same time, there are enormous implications of talking about terminology from 2015 as archaic. The pace is truly astonishing.
Open interfaces are a fact of life..
.. and even beyond that, a force of nature. Specialization, digitalization, modularization, what ever the term used, means a way to serve the client better by plugging in to leading services for the specific use case. Chris Skinner from The Finanser, a thought-leader in his own right, made a distinct observation that ‘b2c’ and ‘b2b’ are effectively redundant terminology, replaced by the concepts of open interfaces, the API economy and the ultimate aim of providing the best possible service to the end client.
Despite understanding the technical architecture, at times at least, I would argue we do not yet fully grasp the implication of specialization and open interfaces and how the entire sector will transform as a function of them. What does it mean for the market once banks are forced to expose services to third party vendors (result of PSD2)? What about when virtually anyone can pull a specific function, such as a KYC check from a specialist vendor? Or a full compliance and vetting workflow or secondary transaction through a single API call or function? All the while more and more people are gaining access to the Internet and becoming computer literate. Soon enough, we are going to find out.
Fintech is ultimately about customer centricity
A recurring framing of the conversation was that technology is being deployed in order to better meet the customer, on the customers terms. Earlier I’ve heard concepts of financial services not ‘being a distraction’, but a ‘part of life’. Or in an investment banking context, how standards and structure introduced can be a tool to empower the deal maker, originator or investor through access to data, information and the right tools.
It's good to be humble in considering the origin of innovation, at the end of the day in todays world still, most people do not switch their banking relationships even when offered a shinier and better experience. The switching cost is not worth it for a marginal improvement, we have to aim for a radically difference experience and level of service if we want to overcome that barrier. And whether upstarts create this experience, or existing institutions through acquisitions, cooperation or competition, it's largely irrelevant to the end user looking for the best service.
Whatever the distinction, the focus is clearly on customer value and whoever ends up introducing new innovation that takes hold, an upstart or an institution, it should be the end user that realizes the benefits with an improved transaction. Framing the discussion around how to use the best in class tools and technology for the customer benefit is a good way to consider fintech in 2017.
These topics also present an interesting observation in today’s world. We’re brought up with a notion that ‘every country is unique’ and ‘services have to be localized’. OK, that is a fact, but it's not the whole truth. My personal perspective is inherently global, so I was fascinated when I heard the experiences of global rollout of various banking pilots across a world-leading bank, that had found that due to the universal nature of technology (everyone is on the same handheld, more or less), scaling a service globally can be a function of deploying the same service in another country. I’m not interested in talking about the details of localizing content, so let’s leave out the marketing face of the discussion, language and user experience and trust that we have enough experience from decades already to address that separately.
A few words on approach
- “Institutions are outdated. Banks will fail.”
- “Startups cannot understand this business.”
- “Regulators are obsolete.”
“That’s great, but it could never work in this sector because of [insert excuse here].”
Whatever form it takes, the mentality of fintech and innovation being driven solely by the upstarts (or institutions for that matter) is false and naive. We should be better than this discussion and capable of seeing the benefit of a comprehensive focus on the value delivered to the end user as the ultimate goal. That’s why we’re all working in this market, is it not?
Make the analogy to Uber or any paradigm shift and transformational service in general. The upstart may indeed be the first to market, but the paradigm shift marks changing user behavior and expectations. This means that the service level and innovation of incumbent companies also has to change as a function of increased competition and demands on service and indeed some will go out of business, true of both upstarts and incumbents (e.g. the more traditional taxi company unable to compete).
The regulatory aspect is also fascinating. Despite the general consensus now being to work closely with regulatory bodies, one can only speculate what it may indeed mean with the proliferation of digital currencies, computer literacy and increased connectivity. Over 7 billion people and many opportunities for a software developer to build the bank or finance service he or she always dreamed of.
The start of the year has marked an accelerated pace in the fintech market. We’re clearly past the stage of resistance from the majority of the sector. How will it translate in practice? I’ll be glad to outline continued weak signals and data points in this format going forward and I do hope we can together continue the discussion, to ultimately bring better services and products to the finance market.
Let me know if we can work together toward better services and applications in the finance market. We’ve got a lot of work to do.
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).