Techfoliance was at Finance Disrupted London last 25th of January. Here is what you can take away from top experts and entrepreneurs who gathered to discuss about future trends in the sector.
Where will the FinTech finance disruption come from?
Banks are massive institutions. They have a lot of customers and have been on top of this business for years. Nevertheless, FinTech do not need to replace banks to disrupt finance. They can build an interface around them. Let’s take an example: what if a FinTech company would offer you to switch bank in a matter of days? No paperwork, no hassle, everything is taking care of. This hypothetical company would become the interface between you and your bank(s). You need a loan? One can definitely imagine another FinTech being the interface between you and all the mortgage offers on the market. But this already exists! There are multiple websites that offer to compare mortgage offers. True, but FinTech do not necessarily need to invent new services. The key is in the customer experience. Choose one service that the banking industry currently offers, use already existing networks and databases, just focus on the service itself and maximize client satisfaction and user experience. That’s it, you have the business model of the next disruptive fintech.
What can existing financial institutions do to protect their business models against FinTech?
Of course a lot of discussions about this topic took place. To summarize what has been said: financial institutions will have to collaborate. Resistance to change will not do any good to banks. They simply cannot fight all FinTech on every fronts. FinTech are fast and adaptive. They are using the latest technology and are building their platforms from scratch. Banks are definitely slower by default. Their structure is more complex and they need approval from different departments to implement change. Even once all necessary approvals are obtained, updating an existing platform is always more challenging than starting from the ground-up. Yet Banks are not really threatened by FinTech in the sense that they could be replaced. They are threatened because they could be isolated from their customers. In that regard, it seems all conference’s participants agreed in saying that existing incumbent financial institutions will embrace change by partnering up with FinTech rather than fighting them.
What about Brexit? Will London lose its FinTech crown?
What makes London a great fintech center? Talents are available, capital is available and the regulator is aware of its crucial role and is trying to keep up. What will Brexit change? The regulator will probably do its best to keep the financial sector happy but apart from that nobody really knows… Attracting talents is closely linked to people’s freedom of movement and we still have no clue as to how this freedom will be constrained after Brexit. London being the capital of finance is another key but here again, we don’t know how Brexit will affect the financial sector. What about the UK not being part of the European Union (EU) anymore? Will fintech still have access to the EU market after Brexit? Once more, nobody really knows… However Eileen Burbidge, HM Treasury special envoy for FinTech, mentioned that only 20% of FinTech actually need an EU financial passport to do business which seems quite reinsuring.
How do big data and the blockchain fit into the picture?
Big data is not only about storing all available data, it is also about making the data talk. Banks and insurance companies already have huge amount of data but databases are often segregated by business department. Hence, the real challenge is not necessarily to obtain new data but simply to make better use of the data already collected. Another challenge with big data is to avoid duplicates. Your bank has your name, address, date of birth and phone number. So does amazon, Facebook, the tax department, the water supply company and so on. Why so many duplicates? Wouldn’t it be more efficient to have just one database with all the information needed? That would save a lot of time to a lot of people! Yes but, what about privacy? Nobody wants to see its data available to anyone. That is where big data meets the blockchain. With the use of smart contracts, one could imagine a smart blockchain, capable of recognizing who has the right to access some specific data about you. Banks, insurance companies, phone companies or even social networks would only see what you allow them to see. For now, this is science fiction. There are still lots of challenges to overcome in order to be able to use the blockchain to its full potential. But what a potential! So when will we see blockchain applications other than cryptocurrencies? The short answer is: why would you migrate an existing and well-functioning service to the blockchain? It is way too complex and costly to be worth it. However, take a brand new service that cannot be efficiently run on an existing infrastructure and yes, chances are the blockchain will be at the center of it.
What about the tech giants? Are they going to disrupt finance?
Facebook, Amazon, Google and Apple are massively powerful but finance is not their business. Fintech companies focus on niche markets and try to do business around the finance institutions already in place. Tech giants are taking the fight directly to the incumbent dinosaurs but they are missing the experience. Google wallet, AndroidPay or even ApplePay are not getting the expected traction. Due to their size, Tech giants cannot be as dynamic and evolutive as FinTech players hence their strategy has to be different. If they cannot build something new to compete with big financial industry players, they still have the power to buy them and change them from the inside.