Entrepreneurs are optimistic by nature. They have to be. When pitching VC’s or talking to the media, the potential of one’s solution is always in the forefront. The risk, go to market strategies, and costs of user acquisition usually do not make it to the soundbite.
But a good entrepreneur knows how to be cautious. It seems that fintech entrepreneurs suffers from over optimism.
Almost 250 European fintech companies were asked recently by consulting firm Roland Berger which segment of the industry they believe is most likely to grow in revenue by 2020. Ironically, fintech firms that operate in crowdfunding, lending, and cryptocurrency or blockchain segments made the most optimistic projections about revenue growth.
Why ironically? Because 2016 was a horrible year for marketplace lending. 2016 saw a funding crunch, higher delinquencies, huge operational losses and declining originations. The fact that marketplace lender Zopa recently applied to become a bank highlights the weakness of the business model.
Let’s not even go there on blockchain. Though big banks are experimenting and testing various application of private blockchains, no solution has passed the proof of concept stage yet. Wide adoption and profitability are way, way away. It’s not just a technological issue — it’s a business model issue. Who exactly is going to profit from blockchain technology? Blockchain vendors maybe? Perhaps the banks will choose to build and maintain the technology in-house?
The truth is that nobody knows how financial services will use blockchain technology, if at all, let alone estimate its revenue growth.
Another interesting point this survey makes is the complete disregard for regulation, an element so central to financial services. Regulatory know-how was ranked among the five most important factors by only 27 percent of respondents. Flipping that: 73 percent of fintech entrepreneurs underestimate the role of regulation in financial services.
Come on people. This is not how you disrupt an industry.