By Neil Patrick
If you ever read this blog, you’ll know that I am frequently pessimistic about the free for all which typifies business in the digital world. That’s because for every great leap forward, a new set of problems are created. And these problems are solved far too slowly or not at all by the institutions which are charged with the protection of citizens.
Social media has become a mind-numbing addiction for millions. Online bullying and hate makes life miserable for young people, minorities and even politicians.
Cybercriminals are targeting the vulnerable and law enforcement agencies are struggling to adapt to the new forms of crime which infest the internet.
Surveillance capitalism has spawned new business models which intrude into the very fabric of our private lives, directly turning our most personal desires and fears into profit opportunities.
Online gambling apps have put a betting shop into everyone's pocket with predictable consequences.
The disruption (actually destruction) of long-established businesses is displacing millions of people from their jobs, whilst simultaneously creating comparatively few specialised jobs for a new digital elite.
But there’s one technological revolution happening which excites and inspires me more than any other. It’s called fintech. This is shorthand for ‘financial technology’.
Sounds boring right? It’s anything but. It’s potentially the greatest force for good to emerge yet from the digital revolution. And it's growing fast:
Fintech is directly challenging the global dominance and exploitative practices of some of the world’s biggest and most disliked and distrusted businesses. The banks and big financial firms.
Granted, fintech didn’t have a promising start. One of the earliest financial sectors to leverage the online world was payday loans. An exploitative and immoral financial business which brought misery to millions. So I felt genuine joy when Wonga, the biggest of these firms in the UK, was finally put out of business last year. (My post about this is here).
But Wonga wasn’t really a true fintech business. It was a just an early mover online. Before Wonga, payday loans had been available offline for decades. Wonga was merely the first payday lender to use the internet to upscale fast.
True fintech businesses are a different matter. They are redesigning the financial world with a customer focus, more than a profit one. They are throwing away financial models which for decades have ensured that innovation and customer focus have been more or less absent. Models which through their universality, combined with customer inertia, have meant that just like casino owners, big financial firms could get and stay rich by doing not much at all apart from pretty much the same thing week in week out.
Fintech founders come from a different place completely. They start with a problem and seek to deliver a solution. And that problem is usually a consumer problem. Want to reduce your energy bills? There’s an app for that. Want to get the best return on your savings? There’s an app for that too. Want to avoid overdraft charges? …you get the drift.
But these are just the least innovative fintechs. The most ambitious are seeking to redesign the whole way in which people manage their money and delivering the tools to help them do it. They are rethinking and reshaping the relationships people have with the world of finance. They are taking away the complexity, tedium and difficulties that prevent most people make the most of their money.
Basically, everyone needs the same thing with their money. We want it to be secure. We want to save some, spend some, invest some, borrow some. This is where the problem starts because most people lack the time and specialist knowledge to do this effectively. And very few people want to spend their time learning how to manage the complexity that is involved. This has been true since the banking industry came into existence. So a whole global tribe of advisors and intermediaries sprang up to service this need. Some were good. Some were criminal. Most were pretty mediocre. All charged a lot for doing not much at all really.
To compete with the sleeping incumbents and financial giants, fintechs must do things better, faster and cheaper. And because fintech founders often have backgrounds in things other than banking, they bring a fresh and creative mindset to the questions of how to make money work better for people.
Regulators recognise this revolution is their opportunity to reshape the way banking and finance works. It delivers the sort of more open, transparent and competitive markets that they have been trying to create for decades, mainly through the imposition of regulations and punishment for their breach. The money police made plenty of arrests for sure, but they rarely accomplished much else.
And critically because fintechs are bound by exactly the same stringent regulations and controls that govern the whole financial sector, there’s almost no scope for fintechs to duck and cheat as we’ve seen in other fast growth online business sectors.
The final proof that fintechs are destined to become embedded in all our financial futures is that the biggest investors in the new kids on the block are the old school institutions. It’s not quite turkeys voting for Christmas, it’s more like passengers on the Titanic leaping for the lifeboats.
But fintechs are struggling to get through the mass of regulatory red tape. Instead of the digital free for all which has allowed the unscruplulous to take advantage, in fintech we have the opposite problem of stringent regulations killing many promising and transformational businesses before they even begin.
Regulators have one last chance to prove that they can police this without killing it. They want more transparency, more competition and fewer obstacles to consumer choice. Fintech can deliver all these things and more. But as usual, the fraudsters are lurking in the mass of legitimate innovators. The regulators need to skill up fast or watch their wishes for financial market transformation evaporate.
And since regulatory failures were at the very least an accessory to the 2008 financial meltdown, here's the chance for regulators to win back a good deal of the trust that was lost.
