We’re a huge supporter of financial technology (fintech). We think that the ability to force the hand of incumbents into change is powerful.
We think that banks have had it too good for too long. Change is needed. Change is coming. Change is good for people like you and me.
But is change really happening, or is it just a front?
We’ve been in Toronto this week at a banking and finance conference. We come every two years — albeit it’s in a different city every year. Next year is actually in Sydney. We wonder if we’ll make it to that one…
Anyway. The point is we come to understand the change going on in the world that we’ve worked in for over a decade. We’re a huge believer in the revolutionary change of cryptocurrencies and crypto assets. But we’re also still an analyst and researcher of public companies and ‘traditional’ financial system investments.
That means we currently have a foot on both sides of the financial future fence.
It also gives us a unique perspective to understand the change that’s taking place. And of course the change that’s perceived to be taking place. And of course the change that isn’t taking place.
As far back as we can remember there’s always been a talk at these conferences of ‘fintech’. And the world that often follows is ‘disruption’.
It’s the idea that fintech companies are disrupting incumbents and will replace them. Viva la fintech. Sayonara banks.
Well not yet, but soon?
The big idea was all our financial needs would be through our apps and phones. Even we said banks are dead and fintech will find a way to push them out.
Well as we sit amongst thousands of bankers, the reality is that banks are still here. They’re still multibillion dollar financial giants. They still grease the wheels that make the whole existing financial system turn (and grease their own pockets).
They aren’t dead. They haven’t gone anywhere. If anything, they’re back to their old tricks. And loving it. Instead of changing, or crumbling under the pressure, they seem to be thriving on fintech. Many of them now run their own ‘incubation labs’, or simply buy their fintech competition.
We ask the question, has fintech really made a dent on the banking world?
The answer for now is no. Not yet.
But perhaps we were thinking about it all wrong to start with. Rather than fintech taking over banking, they never really intended to. What we are seeing is that fintech companies are going for areas of business that existing banks left alone.
These areas, remittance, payments, micro lending, banking the unbanked, these are all unprofitable areas for a bank like Bank of America Merrill Lynch or Citi. They’re not areas they focus on, because they can’t generate a profit from them.
But a small nimble fintech with a team of five or 10 can capture those markets. They can build out mobile-only bank services to small countries. They can help reduce the cost of remittance to near zero. And that’s exactly what they’re doing.
Except now we’re reaching a critical juncture where some fintechs are building out from their early successes. A fintech that perhaps has focused solely on current accounts for clients has now reached the scale to do more.
Now they can offer other services like lending, insurance and investment. They have the runs on the board, and now they can really start to affect change.
Importantly these fintechs have been able to build a foundation on data. They realised early on that the currency of the financial system going forward is data. And it’s data that helps money flow better, and create more value and wealth for customers.
All the big, existing banks have data too. But they’ve traditionally locked it up. They’ve kept it in-house. They treated it as their data, not their customers’ data. But that’s all changing.
The real point of change is now
Take for example the new ‘open banking’ laws coming to the EU and UK in 2018. This will mean all banks have to open up customer data to third parties to provide everyone better choice in how and where people can manage their money.
This gives fintech companies like Starling Bank — a mobile-only UK bank — an opportunity to be a single point of call for a customer’s full financial needs. It will potentially allow them to be the ‘Amazon’ of the banking world. Like a marketplace within their mobile ecosystem to give customers choice and freedom with their finances.
That’s real change. And while it’s taken a long time to get to this point, I think we’re finally here.
What’s most exciting about all this is the continuing growth of the parallel financial system. The financial system cryptocurrencies and crypto assets are building. We’ll end up with two parallel systems, in the short term. One still centralised but in the midst of complete upheaval. And another, decentralised and allowing people to take full control over their financial power. What the crypto world also does is allow people to finally monetise the most important asset we all have; data creation.
What it all lends itself to is one outcome.
A new financial world radically different from the one we operate in now. And that’s creating immense opportunity in both the existing world through companies like Starling Bank, and the new crypto world through currencies like bitcoin and assets like ethereum.
Editor, Australian Small-Cap Investigator