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A long pointless rant about Fintech: Blockchain Adoption, Regulation, Cash, Classroom and Disruption


Beware of compelling ideas that are too logical...

The story has been told over and over. Steve Jobs looked at Segway and said... I want 10% of this action for $63 million. The inventor Dean Kamen said, forget it.

Jeff Bezos and John Doerr joined in shortly. The hype was insane. The failure was spectacular.

Next time an expert tells you that something's going to be successful just because everyone, or Jamie Dimon thinks it's going to be successful, give the biggest smile you can offer, kiss both their cheeks like a proper French or Arab host would, and run in the opposite direction, as fast as you can.

Beware of stuff that's too logical.

What's stopping Blockchain? Three paths to Adoption

I have sat down with sector experts and looked at market after market after market and studied a number of industry value chains in detail over the last year. I have not seen a financial service that'd not be more efficient with Blockchain. Insurance, Payments, Settlements, Real Estate... Blockchain seems like a force of nature.

Then I drill down deeper and ask the question, so who's going to pay for Blockchain? That translates into two questions

1. Whose ship is on fire?

2. Who stands to make a lot of money by using blockchain and within their lifetime?

... and then the answers start to not quite flow in so smoothly. Blockchain is an industrial infrastructure product that benefits individual consumers. That does not help. When you have a consumer app that benefits consumers, a startup can sell to consumers and consumers pay. When you have an industrial app that benefits big industrial institutions, they buy and benefit. With blockchain, the benefits in some cases can be very diffuse and the costs fairly concentrated.

  1. Adam Smith meet Daniel Kahneman. We have seen time after time in politics and financial markets that equilibrium is derived not from the rational pursuit of collective good by rational econs, but from the pursuit of individual self interest by partially rational actors. For Blockchain startups, the challenge is to appeal effectively to the greed and fear of such partially rational participants. That is a particularly difficult when these participants have to bear the cost of blockchain for the sake of everyone's benefit. As public choice theory shows, in a quasi-market-failure scenario like this, the government needs to step in and do some upfront investing. The government is the only bank that has the public good incentive so that's the one bank that's gonna have to wire up some blockchains before we see blockchains in greed and fear markets like clearing and settlements etc.
  2. The second path to adoption is the case of ASX... if your last generation systems are worn and up for replacement, chances are that you probably aren't going to replace them with mainframes, are you? That's when blockchain starts to enter the dragon. Unfortunately, that may be too long for 40 year olds jumping head over heals into Fintech-startup-la-la-land.
  3. The third scenario is where someone or a small group of people have a dramatically more efficient offering and everyone hops on to prevent going out of business. That's kinda like what we might see in syndicated loans settlements. Unless you, the fintech startup have 50-60 million in the bank and no more than 15 employees, this is the future you must make happen. Otherwise, go join the denist training night school before it's too late.

Regulating Fintech Now Will Perpetuate The Banking Oligopoly

I have a really good feeling about regulators getting excited about Fintech. I have an equally bad feeling about regulators getting all excited about regulating fintech.

Look, there's nothing wrong about regulation. Anything that can hurt people should be monitored and controlled. Fintech is about financial services first and when people get defrauded or lose money, that hurts. So yes, that shiny new toy called fintech does need some rules eventually.

But not now... not now. Not now because Fintech doesn't exist yet. Yes there's a lot of hope, buzz and noise but the amount of money aka millions of USD that Fintech as a category makes is still nothing to talk about. Now take a flash back. If civil servants and bureaucrats had started walking into google's offices and demanding detailed paperwork while Page & Brin were trying to web-scale Google, Google would have died in its infancy. In fact, we'd still be using Altavista or some god-awful search engine that compares well with the commonly used big-bank mobile apps and internet banking.

So when I hear that the CFTC and the OCC and ... are all getting excited about something new they can regulate, my heart sinks. For the last five years, the financial industry hasn't been a place full of happy, excited, creative people and Fintech is the one source of hope for the employee, shareholder and consumer alike. 

Regulating fintech is like teaching a baby to breathe through a pillow... just don't. Not yet. Let the baby makes some mistakes first. Otherwise all that the paperwork to protect will achieve is forcing consumers to keep paying the existing ciruit of intermediaries and oligopolists the same high prices they have paid for a whole generation or two.

No one learns anything in class

The most annoying announcement last week was none less than the hallowed MIT offering a course in Fintech. How the mighty have fallen. A great institution of learning that gave us the world wide web, the transistor and the human genome project has now stooped to taking commercial advantage of random market hypes to apparently make some money on the side. Again, the trouble is with the word, FINTECH. It just sounds cooler than let's say GROCERYTECH or COSMETECH, but fundamentally, there's no new tech in FINTECH. All we FINTECHers are doing is using technology that's been around in the valley for 20 years to offer consumers a better experience of the painfully overpriced and inefficient financial services they endure every day. We didn't invent mobile phones, touch ID, cloud, social, digital signatures, encryption or the internet... it was Al Gore.

Yet, when the mass-e-rati talk about Fintech, they make it sound like something dramatic and revolutionary is around the corner. As if aliens will come around and do something beyond our imagination.What's really around the corner? A better way of delivering the same old financial services using new technology that isn't exactly new. So MIT... alright, you just lost a little of my respect, not that you should care.

Just offer that next course on tweet design patterns...

Learning by selling

My advice to startups in Fintech is to try and sell fintech. Learn by selling. All learning is on the street. Build a product or a service or an idea quickly and see if someone will pay for it. If not, you are an armchair thought leader and you sould quit the world of fintech that's about to run scary and painful for a lot of startups that have popped without any real skill or team. The dot com crash cleaned up e-commerce and sooner or later, the Fintech venture capital crash will clean up a whole swarm of Fintech startups.

In my experience, talking to someone who has to stake money on your big bold bright idea immediately clears up a confused mind. Every time I sit with a real consumer or customer to talk about them spending on a promising Fintech idea or product out there, clarity is achieved by everyone in the room rather quickly. The prospect of having to spend real money focuses the mind like nothing else.

There is no teacher like the market and no purifier of ideas like capital.

 Why do you want to disrupt banking anyway?

One thing I have got from working in Fintech is the friendship of incredibly cool people. Some of the most original and creative minds in big banks and startups alike make for amazing company and conversations. Especially since I straddle the worlds of necessary (regulation) and possible (fintech), mixing with the fintech-ers provides a different and valuable perspective about the future of financial services, and a lot of hope that the financial industry is not yet all about documentation and fine-prevention.

Fintech as a social system comprises of two sets of people: talkers and doers; sort of the same as life at large. You can generally tell the difference by what they talk about. When I hang out with those that are writing real, useful software like the folks at itBit, DAH,  Eris, Consensys or LIBRA, I don't hear much talk of disrupting banking. That disrupt this, destroy that kind of talk generally comes out of talkers, typically the ones who haven't read Clay Christensen and don't get the precise mechanism of disruption that prof talked about.

The productives on the other hand are generally focused on better UX and efficiency. These doers are almost always looking to make the product or service better rather than kill x or kill y. The self styled Djangos and the Quentins are typically the type that write  long articles are regulars at talking circuits and have literally no money or life in the game.

Bottomline, you wanna make a good silicon valley/fintech kid, give the lad minecraft, not call of duty. Playing too many stupid video games as a child can ruin a promising starter-upper in their adulthood. 

 What have you done Brett King...

All of last month was peppered by headlines of branch closures all around. Deutsche bank, Santander... this is what the Nostradamus of retail banking, Brett King foretold in his prophetic book, Breaking Banks a few years ago. The book was too logical, and as logical things go, you often don't want to believe em but they come true anyway - sometimes, too late... but eventually.

Yes dear reader, don't believe most things you read in Fintech land. Brett is a little different in that he talks to real bankers, starter-uppers and consultants alike and broadly tends to form a logical, evidence based opinion. Brett is very different breed of Fintech specialists than the likes of a gentleman who predict the death of audit by Blockchain without actually talking to an auditor. Brett runs a fantastic radio show and I generally listen to his podcasts at bedtime.

Cash is dying too slowly

Yet, Brett can't always be right. He's predicted the death of cash sometime back though cash is dying a lot slower than a lot of us thought. I think the UX of cash is grossly underestimated.

  1. First cash runs without batteries. When the ATMs fail and my iphone runs out of batteries, cash is there for me. 
  2. Second, cash is totally anonymous... way more anonymous and censorship resistant than the much maligned Bitcoin. Yes, cash is the best tool for all manner of financial crime. Yes it sucks at a distance but most crime is local.
  3. Third, cash comes with that physical, evolutionary feeling of safety... it generates the same nice loving warm feeling that my cat feels when she sees a bowl of milk.

So yes, cash is dying but its dying a lot lot slower than Brett seemed to indicate. Keep fighting cash, we love you cash... Brett's King but Cash is King-er.


These days, I am reading a fantastic book by Sheryl Sandberg... the Originals. As it turns out, reading an NY Times Bestseller is just as original as predicting how Blockchain will transform everything from mother's milk to cremation overnight. Is the book very original? Not really. Yet it has some good insights. One of the most comforting insights was that generally, successful entrepreneurs are those that take the risk out of risk taking. There's a widespread misconception that people in big firms are bore-on-s and all the cool kids are taking insane risks out there. Honestly, that isn't even the point! The point of entrepreneurship is to build something of value... something that people want to use and are willing to pay for. Now that's not an original insight but most truths aren't original anyway.

As fintech-ers go nuts after this cool tech or that cool tech and really feel like disrupting banks or killing audit, I'd remind them to kinda wake up, un-drink that whole keg of kool ade, and make sure that the stuff they are building survives the market test. I'd also recommend that they ask at least a few people to pay for their stuff before they stake their mortgages into the la-la-land of startups.

Of London and San Francisco 

 Last week, I was talking to a VC friend about Fintech and life at large. This person has lived in the valley for years and moved to London last year to take advantage of the hot steamy fintech sauna that London is turning into. So I asked her, what she thought about all the claims of my fellow Londoners that London is the fintech capital, and SFO can go love itself (Beliebers, please note).

So my friend here, she gave a big laugh and said, 'not until you Brits learn to tolerate failure a little better'. 

Indeed, as professor Benoit Leleux of IMD has documented in gory detail, European PE and VC has generally underperformed the valley by a mile and this underperformance has been quite sustained. I do suspect this sustained underperformance has something to do with the tendency to pull out cash at the first sign of trouble; and the fact that one's ever critical relatives are never too far...

long live Sir Branson... we will get there.

to be continued...


Comments: (3)

Brett King
Brett King - Moven - New York 08 April, 2016, 00:54Be the first to give this comment the thumbs up 0 likes Even Nostrodamus didn't get 100% right ;) BK
A Finextra member
A Finextra member 11 April, 2016, 13:56Be the first to give this comment the thumbs up 0 likes

A good dose of realism. Given the number of subjects and attitudes you've tackled I imagine your might need to re-load that gun. Once you've done so I look forward to more straight shooting. 

A Finextra member
A Finextra member 12 April, 2016, 18:20Be the first to give this comment the thumbs up 0 likes

Indeed Brett, you are closer to the truth than Nostradamus who spoke in riddles. Richard... fintech is real but so far it's more gunpowder than C4. After the bubble blows and the dust settles, we will see the Amazons and the Googles of Fintech emerge.

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