What FinTech Means?

"When you think of FinTech, do you think of it more as a product or a service?" It was a question asked by a member of the audience at the Incubate Illinois FinTech panel sponsored Wednesday by the Chicago law firm Freeborn & Peters. It occurred to me that I take it for granted professionals in finance and technology understand what FinTech means.

They do not. Most look at it through the lens of a financial services industry segment they know, use, and understand. In the case of the questioner, FinTech is "a fancy word for high-interest loans over the internet."

Kind of hard to argue with that.

But I look at FinTech more broadly as the application of internet, mobile, and data-analysis technologies in financial services, which I divide into the following market segments: payments, lending, wealth management, capital markets, insurance. I also include new technologies designed to make banking and regulation more efficient, as I described in an earlier article, What Is FinTech?

That's a market and ecosystem focused description. I liked the consumer-focused description put forth by Incubate Illinois panelist Colleen Wilson, founder & CEO of FinTech product consultancy Collaborate Chicago. Traditionally, financial services are delivered directly, one-to-one, over the phone or face-to-face in a bank branch or agent's office.

FinTech seeks to make that traditional marketplace one-to-many so that it's automated, repeatable, and scalable. "It's more of a business model that scales the traditional face-to-face model," she said.

"How do you replicate the personal connection?" the audience member asked.

"That's the billion-dollar question," White said, "and the closer you get to that, the more you are likely to succeed."

Now to the week's links.

5 reasons why consolidation of the FinTech ecosystem may be inevitable

With more than 100 challenger banks in the market and more launching every month, "the future of the banking industry could be driven by consolidation and cooperation between fintech challenger banks themselves, and between traditional and challenger banks," writes FinTech strategist Devie Mohan for The Financial Brand. Consolidation may be inevitable because challenger banks need to achieve scale, traditional banks need to improve customer experience, challenger banks lack product diversity, challenger banks redefine operational structures, and the importance of digital banking.

OCC report highlights strategic risks from FinTech, operational risk from third parties

"Banks are facing strategic risks associated with decisions to expand into new products and services, delivery channels and M&A activity," reports Banking Technology in its coverage of a recent report by the U.S. Office of the Comptroller of Currency (OCC). Although banks face competitive pressures from FinTech firms, "strategic risk remains elevated," the OCC notes in its Semiannual Risk Perspective for Spring 2017.

Tales from the Money 20/20 Crypt (the 2017 Copenhagen edition)

FinTech philosopher and analyst extraordinaire Pascal Bouvier went to Money20/20 Europe and reached a simple conclusion: "Banks are dead." The evidence is worth reading, as is the payoff to his conclusions: "Although I am now certain most bank executives are convinced a bleak future lies ahead for the complacent ones, there is no consensus for what needs to be done, no universal truth to follow. Succinctly put, the astute observer will have fleshed out two lines of thinking: a) build better with new technology or b) build something radically new. The former line is equivalent to a wall building exercise – shiny new walls. The historians amongst us will quickly point to the folly of such endeavor. The latter line is equivalent to building bridges, a more exciting endeavor, full of promises shaped in the forms of platform strategies, network effects, “as a service” and so on and so forth. I am inclined to favor the bridge building exercise."

The FinTech 250: the tech startups redefining the financial services industry

At its Future of Fintech conference this year, venture-capital research firm CB Insights released the FinTech 250, a list of the 250 most promising companies that integrate a mixture of software and technology and have contributed to the transformation of the financial technology industry. The chosen companies were hand picked out of a pool of 2,000 applicants and nominees based on data submitted by the companies, the company’s Mosaic Score, and CB insight’s proprietary algorithm which measures private companies’ overall health and growth potential.  

Traditional wealth management challenged by robo-adviser boom

Survey after survey show that millennials are more likely to place their trust in an automated financial advisor than a traditional financial advisor who charges thousands of dollars for their services. The use of robo-advisors, while still small, is rising for up-and-coming wealthy professionals. Yet even as the increased trust placed in technology points to a bright future, "the problem facing the robos isn’t technology, building cool stuff, having good ideas, or even managing money, it’s finding customers. And the cost of acquisition per client in that sector is way too high," writes Ian Fraser, author of Shredded: Inside RBS, The Bank That Broke Britain. 

Seven signs of over-hyped FinTech

Listed here are the seven signs of a FinTech company that will most likely not live up to their advertised hype. In the FinTech ecosystem, technology is constantly created and enhanced. Because of this, it is easy to be swindled by financial technology companies that will boast ambiguous functionality without following through on their promises. These seven signs of over-hyped Fintech are what to look for when attempting to discern which Fintech companies are not reliable.  

BLOCKCHAIN WATCH

When blockchain stops being a big scary word. It seems we are nearing the point where blockchain won't be explained as a technology but accepted simply as a business tool, writes London-based investment writer Vered Zimmerman. Today, it takes more time to convince stakeholders of the benefits than it does to deploy the technology, and the discussion is starting to shift toward the business benefits. In six words, blockchain enables multiple organizations to "agree on the state of data."

As interest in blockchain booms, Ethereum gains ground. As the popularity of blockchain technology increases, the Ethereum digital currency has begun to move ahead of bitcoin. The interest in Ethereum stems from its usefulness in coding business logic into blockchain-based systems. The substantial growth of Ethereum can also be explained by the technology’s ability to be malleable in the interworking of the software. This allows for a company to decide how they want to specifically use and regulate blockchain technology within their respective company.  

Delaware House passes historic blockchain regulation. An amendment has been made to the Delaware state law which marks the stocks to be traded on a blockchain. This amendment will allow Delaware to be a leader in enabling the use of "distributed ledger shares,” and at the forefront of corporate law. The passing of this amendment will also allow for the cutting out of middlemen between buyers and sellers of stocks causing quicker and more efficient settlements.