Fintech has captured everyone’s imagination and is in the news a lot more now. My conversations with fintech companies, banks, securities firms, vendors and investors has spiked in the last year on this topic. This interest was quite evident in the crowded Money20/20 conference in Las Vegas recently. Few of my observations on recent movement in fintech are below. Neither do I claim to know the exact direction of the fintech market, nor do I believe there is will be a specific one that is applicable to all of its aspects. The below is not an exhaustive list supported by analysis of data, but all the same, here they are:
- There seems to be more activity in b2b fintech now – solutions that cater to other companies that offer consumer-facing products and/or services. I consider this a healthy sign that can strengthen the foundation of fintech.
- I worry about groupthink setting in among those in fintech, both companies and their investors. This is along the lines of ‘Banking is inefficient, outdated and convoluted. Technology companies can dramatically remove these issues, and most banks are doomed.’ The first part of this belief was a reason for many to enter fintech initially, but it appears that many are taking all this as an inevitability now. I am not fully certain why all aspects of this belief will occur for sure and that too in the near future, since this is not a new issue. Yes, there are a wave of technologies that will lead to innovative financial services, but that does not automatically mean that banking is doomed and it is easy pickings for anyone getting into fintech.
- While I think that many in fintech have an exaggerated notion of the scope and speed of fintech’s impact on today’s financial services, the incumbents suffer from the opposite – too little doubt in threats to the current products and services. This manifests in their fintech focus being heavily tilted in favor of solutions that augment their current products over ones that can cannibalize them.
- There has been an increasing focus on lending compared to payments and I am pleased to see that (see cautionary note next as well) as this can lead to better credit solutions for consumers and businesses. Payments has captured a lot of attention and part of it is due to it being used by everyone and the involvement of big tech companies such as Apple and Google. In my view, lending could have a larger impact as internet and other technologies can fundamentally alter how we get money to where it is needed from who has it and is willing to lend for some compensation. I do not imply that payment innovations are not important or unimpressive though.
- The growth in fintech has occurred at a time of low-interest rates, stable economy and a reduction in unemployment rate in the US. The new fintech market and some of its participants have never experienced a large shock to the system, such as the technology market meltdown or the financial market crisis. Increase in interest rates and/or unemployment can have a negative effect, an effect that can be further amplified on fintech areas such as lending compared to other non-fintech growth markets. I observe some acknowledgement of this among fintech companies, but the scale of preparation seems low. Yes, we cannot prepare for the last war, but it is not wise to assume peace all the time either. There are investors who are smart and cautious, but the increase in volume and variety of fintech makes me wonder.
Fintech remains an interesting area and we should see many ideas blossom into large and useful financial services, may be not all of them and may be not always in a smooth predictable way. I look forward to the growth of this market. What do you think of the future of fintech? How can you balance innovation and caution in such a new market?