The emergence of startup hubs and FinTech trends like digital currencies and distributed ledger technology are changing the balance of the world’s finance hubs towards more democratic finance services that represent everyone – and that’s a good thing
We are witnessing the shift in the geopolitical environment and how machines can change institutional structures. At the same time, we see a lot of development on a local level that is partly linked to the global development yet partly independent. For example, we see new emerging startup hubs, while FinTech and political decisions like Brexit are changing the balance of the world’s finance hubs.
Startup companies are seen as a driver of economic growth in the midst of these paradigm shifts. Nearly every country wants to have more innovative companies, and Silicon Valley in the US is seen as an example of how companies worth billions can emerge from seemingly nothing. Silicon Valley is still considered to have the most dynamic startup ecosystem, but we’re already seeing examples of some dramatic successes emerge from outside the valley.
In China, for instance, companies such as Alibaba, Huawei, Xiaomi and WeChat have emerged in recent years and can be considered enormous successes. For example, Alibaba’s payment arm Alipay processes over 100,000 transactions a second during a busy peak, while Visa typically processes under 10,000 transactions a second. Alipay will process 10 times more transactions a second from a handheld than a traditional leading credit card company.
A key paradigm shift here is how we’re already moving beyond the decentralization model. Bitcoin and blockchain have been important buzz words in FinTech for a couple of years – more generally, we talk about digital currencies and distributed ledger technology. Some people say distributed ledger technology (of which blockchain is just one model) will do for finance what TCP/IP did for the Internet – it could change the whole finance world, just as the Internet has changed many businesses and operations since the 1990s. When this starts to happen, we’re no longer looking at decentralized finance services, but distributed financial services that enable real p2p, bypassing some parties (like banks) to authorize and control monetary transactions.
With Asia emerging as a leading economy in the world, several countries and cities in Asia are building their future positions. For example, Singapore and Hong Kong must be active in FinTech to guarantee their positions in global finance in the future. Other counties like Vietnam and Malaysia are doing very active and systematic work to develop their own startup and entrepreneurship ecosystems. It is no longer about trying to emulate Silicon Valley, but developing a comprehensive digital ecosystem with services to facilitate and develop startup services, funding and support for growth companies.
We see financial services playing a fundamental role in enabling this development, but they can also help bring benefits to all people. Currently, banks and other finance institutions are seen as representing an arrogant establishment that exists to make the rich richer. More democratic finance services should represent everyone, enable operation of business and their capitalization from anywhere in the world, while also enabling fairer systems for tax collection and wealth distribution.
Emerging economies, intelligent machines, and the rise of the middle class in emerging markets are shaping the global economy, as well as all local economies. This has also influenced most companies in the world in terms of how they develop future offerings, make their products and reach their target audiences. It is a challenge for politicians to manage this development in a peaceful way, but an important part of the solution must be the promotion of changes that bring benefits to all parties, not only a few. At the same time, the solution is not to stop development, but drive development and wealth distribution.
This article is based on the Grow VC Group Research Report, “Machines, Asia And Fintech – Rise of Globalization and Protectionism as a Consequence.” The article was first published on Disruptive.Asia. The report is available here.
I have to say that Laurent Nizri did a fantastic job putting together the Paris Fintech Forum of 2017 and provoking a wide range of discussions in finance and technology. I had the opportunity to discuss fintech adoption both on stage and privately with executive management, including CEOs and innovation officers of some of the worlds largest financial institutions, as well as the leading lineup of fintech innovators, in domains such as regulatory technology (regtech), blockchain and digital currencies (bitcoin, ethereum). I represented Crowd Valley and our part in the paradigm shift.
The key take away from the first event of its kind in 2017 is that in financial services and technology adoption, the pace of change is now past its tipping point and we need to reset past assumptions and update our vocabulary.
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.
A few words on approach
“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?
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 article is written by Crowd Valley CEO Markus Lampinen and the full version published on Crowd Valley News.
Est. 2009 Grow VC Group is building truly global digital businesses. The focus is especially on digitization, data and fintech services. We have very hands-on approach to build businesses and we always want to make them global, scale-up and have the real entrepreneurial spirit.
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