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Have we stopped to ask an important question; What do we want from the Fintech industry?

Recent conversations around the healthcare reform have piqued my interest and prompted me to ask the question that politicians often do not ask, which is “What do you want from a certain regulation?” and apply it to my industry, “What do you want from FinTech innovation”?

Let’s take the case of Obamacare. If the question was asked by fair-minded politicians, the solution might have been completely different than its current design. What did we need? To solve the issue for about 20 million Americans that either had preexisting conditions, were unemployed, or simply did not think health insurance was important to them. So, we took the issue of 20 million Americans and created a solution that encompasses all 350 million Americans. This of course led to a bad solution even though the intentions were good.

Let’s apply the same logic to the FinTech bubble… yes, I said it, it seems like a bubble, a big one! What technology could help us and more importantly how?

The top 3 technologies that are getting the most attention in the FinTech space have been:

AI & Machine learning (Bots, RPA, etc.), Blockchain, and of course cutting out the middleman (Payments, P2P Insurance, etc.).

If we apply the same question to these sectors, are the solutions going to give us what we really need in the financial industry or are they not meaningful enough in our daily lives with respect to how we manage our finances?

This is a loaded question and hence a loaded answer:

AI - As with the other efforts to automate our lives, AI is and will be used extensively in the financial services arena. The rate of adoption seems rapid and will most likely increase, but are we going to see massive adoption of investment bots? I believe that AI should do two things, reduce cost (replace people) and identify opportunities (find patterns in data and act on them). To briefly touch upon a much-contested issue, I think the fear of robots replacing people is a bit overstated. Retooling and re-education of skills will ensure that people who are replaced will be needed to program or operate the bots. Again, the answer to the first question limits the immediate need to provide applications that are that useful, even if they are based on AI.

Blockchain - There are wild assessments about the success and full adoption of Blockchain. There are also numerous players and companies with different flavors of Blockchain. Which ones are needed? What applications are the best to utilize these technologies? The answer is that Blockchain (as it is used in the financial industry - there are other exciting applications utilizing this knowledge) is an exciting technology but the applications in the FinTech space are widespread and need to be focused. One example is the issues around the quality of data. Blockchain can help deal with improving the data quality by synchronizing it across financial participants, although that is easily said but not easily or practically done. Data governance, data sensitivity and data regulation might make this effort moot. If the application saves money and improves efficiency and productivity, excellent! However, I have seen several Blockchain efforts raising hundreds of millions of dollars, yet they don’t include a practical application in their mission statements, just a “me too” app.

Cutting out the middleman - This area is the most fascinating to me for obvious reasons, but it's astonishing that a macro level of the market is made up of intermediaries. What’s so interesting is that although technology advances logically should and sometimes do cut out the middleman, the actual numbers illustrate otherwise. Since the invention of the internet, middlemen have only increased dramatically in size and numbers because they are needed to facilitate new technologies. One extreme example is Airbnb. It has increased the number of rooms available to rent exponentially by connecting owners with renters, and while it continues to grow, it is still the middleman. A good example in my area of expertise are the efforts of IBM and DTCC who are cutting out the middleman around credit matching and reporting. However, theoretically, if Blockchain is implemented across the industry, why is there a need for a Trade Reporting Utility. Trades would be synchronized across the industry and would include regulators. So, are we not reaching high enough?

So, what's my point? I believe what many wise men have said; advances in technology require focus and need to answer the basic questions around use and application. For instance, if we apply the Blockchain technology everywhere at a high cost, will that benefit our advancement as an industry? As I stated in a previous blog, Quantum computers are around the corner and will signify the next major steps toward the singularity of humans and technology. However, if we blindly and widely implement technologies, we might overact and over pay. And most importantly, we might create too much legacy for new ideas and groundbreaking innovations.



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