The Fintech Manifesto

With all the excitement surrounding the potential for significant change in the financial industry, we thought it would be time to get a little perspective. There's good reason to be excited: fintech upstarts are creating some really cool technology and building new financial platforms. To a certain extent, banks now get the message and they're responding by drafting internal teams to develop new products. Incumbent financial institutions are investing in some of these startups and they're buying others. We're starting to see new, more transparent and better priced options as clients of these organizations. But for those of us who've been in the game long enough (I started Tradestreaming in 2007), we know it's not enough. Today's environment feels bubbly and we're starting to see some of the fissures in the new structures we're building while we remake the financial services of old. So, we thought we'd set the record straight about fintech and how we think we can get from here to there. This fintech manifesto helps to codify our thoughts about the future of financial services.

• The fintech movement is an evolution and not a revolution. This narrative will be played out over years and decades, not days and months. It's a marathon, not a sprint.
• Not everything is disruptive. We tend to call every shiny new thing in finance a disruption and that does a disservice to the companies and services that really do find a way to shakeup the market.
• The road to better financial services will be littered with the corpses of companies that had genuinely good business models and ideas. It's really expensive to build a standalone B2C and just because a firm failed, didn't mean it wasn't on to something.
• Contrary to many opinions (and wishes), the incumbents win at the end of the day. This doesn't mean every incumbent will be successful, but as a whole, the large financial institutions should continue to command much of the market.
• The path forward is an amalgamation of financial industry incumbents, fintech startups, and service providers. Incumbents bring the resources and customers, upstarts move quicker and aren't encumbered by large organizational structures, and service providers can help companies big and small play nicely together. In this partnership ecosystem, everyone wins, including customers.
• It will take a lot for a bank to remake itself into a technology firm. There's not really a will to do so at the highest levels. Instead, banks have tried to externalize innovation, which also doesn't really work. Incubators and accelerators that give startups three month access to limited APIs and a little internal mentoring do little more than allow a bank executive to check the innovation box. For a firm to be innovative, it must be in the corporate DNA. Incumbent banks come from another world in this respect.
• Unlike in the technology sector, venture capitalists do not sit on top of the fintech pyramid. They provide necessary monetary plumbing to the fintech startup sector but beyond that, successful investors will be integrators of sorts, helping to position their portfolio companies alongside the incumbents.
• OK is frequently good enough. New products and services that provide incremental changes pave the way for more products and services of the same kind.
• Cryptocurrencies and their underlying technologies are not nearly as exciting as their fanboys think nor are they as likely to fail as their main detractors position them. Bitcoin and blockchain are indeed one of the most transformative things to appear on the financial horizon in decades but there's a long way to go to making them happen.
• Expect bitcoin and blockchain to be hacked, robbed, and exploited multiple times. We really should stop being surprised. If 5 years from now they're still getting violated, we should.
• Let's not overreact to failures at the product level. Failures are part of the technology roadmap and for the industry to advance, firms have to take on some risk.
• Smart economies and regulators will find a way to balance protecting customers and the integrity of the system while also encouraging competition and development of new technologies, products, and firms. The best regulators could do is take an active, yet silent, role.
• Bigger than competition from fintechs will be competition from massive technology firms that move laterally into financial services. Firms like Amazon, Google, and Apple have the scale and skills to develop and roll out new financial products that customers want. They have strong brands, lots of cash to invest, and have demonstrated a desire to enter into financial services. The banks and fintech startups should keep their eyes on these guys. These firms can certainly be the -tech in fintech.
• "Innovation is about taking risk. Running a financial services business is about managing risk." - Pascal Bouvier
• China will be a major player in global financial services and especially in fintech. In many ways, the country is much more advanced along the fintech roadmap.
• Roboadvisors are, for the most part, a good channel for distribution of passive investment products, like ETFs. They're not really standalone businesses. Unfortunately for them and the industry, robos became the flag bearers of fintech, but in reality, most of these will be digital arms of firms like BlackRock.
• There are more good ideas than there is liquidity in new B2C investment platforms. Building a community of investors is a huge hurdle to success for these types of business.
• Marketplace lenders veered from their original roots in P2P lending, choosing easy hedge fund money over the long slog of building an organic investment platform with multiple sources of capital. They would be served well to do the hard work.
• Crowdfunding isn't the godsend that some pundits expected it to be. It's also not nearly done tapping out. It also doesn't work for fundraising of every kind. But when it does, it's really powerful.
• Apple and Google may have their sights on mobile payments but Visa and Mastercard are the ones growing. It's extremely hard to do an end-around of these guys.
• Banks will provide the licensed pipes for innovations in savings and lending, as will credit cards for mobile payments.