The next wave of Fintech will be a tsunami against the first wave of Fintech
This is a high-level analysis that may not be suitable for radical financial technicians. Don’t worry, we’ve got more for you in the following posts.
In the past, financial services intermediaries were largely immune to external innovations. Although entire industries have been eliminated or revamped in the past 30 years by waves of technological innovation (such as retail, entertainment, or travel), financial services have remained relatively intact. Yes, electronic exchanges have replaced physical trading assets, online brokers and ETFs have replaced stockbrokers, and cards have largely replaced paper checks. But even today, despite the excitement surrounding fintech, the major systems, operations, and (reward) actors remain essentially the same. We don’t think this will be the case for the next ten years today.
The enchanting existence of financial services in an analog world is unsustainable. Technology is poised to overcome regulatory and capital constraints as an engine for fundamental change. The transition from end-to-end digitalization will completely transform the sector – the primary role of participants, products, services, prices, regulation – on the basis of business models. The breadth, depth, and intensity of changes over the next decade will be drastically different from the past, with far-reaching implications for the future. Which is going to be great, really great.
Digitization is at a critical point, where increased penetration will accelerate adoption rates and enable waves of innovation at an unprecedented scale and speed, creating new businesses and a range of products and services around those businesses. As liquidity is more liquid in previously illiquid capital markets, digitization will lead to more digitization, increase access, reduce costs and shorten the maturity. The innovation will redesign the middle and back office and enable the advancement of technology and services within institutions and across all platforms. And, in turn, streamlined workflows will allow newcomers to compete. This will reshape the way financial institutions interact with each other and with their customers.
Sectors in transition are devastating for (most) leaders, but they enrich creative entrepreneurs. Our new fund aims to invest in the best companies in Europe and North America that will reshape financial services over the next decade and beyond.
Great market opportunity
Global financial services account for between 11% and 19% of total GDP, which will exceed $ 15 billion in 2019 (see here). It is worth mentioning that the second-largest economic sector in the world is just starting with the digital transformation. The sector already invests huge sums (about $ 500 billion a year) (see here), mainly in maintaining old technological accumulations. Being the backbone of the underlying technological changes, technological additions will become cheaper and easier, paving the way for accelerated innovation. Current spending on branded technology will turn into new digital platforms, tech in (first technology), or deep technological solutions (innovation or advanced technology). The result is the best winners among many vertical and financial fans. (According to the Gartner Group, 80% of cardholders die in 12 years.)
Product innovation largely supported the status quo
It promises revolutionary change in the financial services industry, one step closer to the incremental and evolutionary product development that has broadly defined the industry so far. We are doing a masterclass on financial innovation, the story of which starts with a module on creating money and banking. Despite endless innovations over the centuries, the vast majority were financial innovations in products, not services or business models (although payments – with Square and PayPal as two prominent examples – are a notable exception). Therefore, innovation was largely incremental rather than transformative. Stocks, bonds, derivatives, commodities, mortgage loans, credit cards, debit cards, prepaid cards, stocks, mutual funds, ETFs … we can list a product innovation page.
As a result, in the world of analog financial services, activities, and processes that depend on people, functions, and places, a large amount of capital is managed and controlled under strict regulatory regimes. Owners have become lucrative backyard lodges with safety and regulations.
Innovation in service/business models is a revolution
You are about to change your style. Service innovation and business models, powered by comprehensive digital tools, will far surpass product innovation in the next decade as one of the key drivers for change. We are starting to see the first steps towards innovation in this sector:
• Loan (p2p, market, credit score, alternative credit institutions)
• Payments (electronic payments, overpayments)
• Resource management (strategies / quantitative data, robot consultation)
• Insurance (p2p, purchases, consulting machines)
These (and other) examples illustrate how technology reduces friction to provide dual benefits (and possibilities): better access and lower costs (capital and operating costs).
They were there. ever. . , largely unregistered. People, functions, and places still dominate the business processes of established companies. Industries, face-to-face KYC, wet signatures, complex cleaning/construction processes, compliance workflows … the industry is still a creature in the analog world.
Think of the entertainment industry as a comparison in a silly illustrative example. Redbox and Netflix came on the market with different tools (remote access or online ordering by mail). After customers saw the power of a digital front-end (order), the demand for fully digital entertainment became inevitable. Netflix has perfected the complete digital streaming model with the advent of key technologies (cloud computing, Ai / ML, high-speed internet, smartphones, online payments). Result: Blockbuster is bankrupt and the cinema borders on zombie countries.
This is extremely important to financial services for three reasons:
What started as a simple and harmless online catalog was actually the first attack on digitization.
2. Initially the front is fixed, the front in the middle and the back.
3. A complete and continuous digital service (including a new business model) has eliminated the analog world.
We have already seen major innovations in the financial world (for example, adding the catalog to a web page in the Netflix view). The fruits flying low are serving consumers through new business models (e.g., P2p lending) and through an improved customer interface for the mobile age (e.g., Neobank and now chatbot).
4.The strike involves risks and opportunities
In the next decade, all participants will have to use financial technology, ie the development, sale, or implementation of techniques adapted to industry, or to develop new products, services, or business models that were previously difficult or impossible.
It’s easier said than done and what’s at stake