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I was recently interviewed by Emerging Markets Review just before travelling to Korea in July. The interview lasted a while, but stunned me when they produced the magazine with yours truly front page and centre. Rather than saying anything more, here's the interview which you can download as a PDF if you prefer.
I can’t attend every conference everywhere, but I have just found an interesting one I missed recently in New York on July 28. This was American Banker’s Digital Currencies and the Blockchain Conference, previously known as just Digital Currencies. It’s gained quite a lot of coverage, with a great summary of the whole day over here at Coindesk.
One of the big draws on the day was Blythe Masters’ opening keynote speech.
I’ve been stunned by the rise of P2P lending and crowdfunding, with Goldman Sachs (download their PDF white paper) predicting that it’s going to eat 7% of bank profits from the credit markets over the next five years and 14% over the next ten.
Goldman Sachs states ‘We see the largest risk of disintermediation by non-traditional players in: 1) consumer lending, 2) small business lending, 3) leveraged lending (i.e., loans to non-investment grade businesses), 4) mortgage banking (both origination and servicing), 5) commercial real estate and 6) student lending. In all, [US] banks earned ~$150bn in 2014, and we estimate $11bn+ (7%) of annual profit could be at risk from non-bank disintermediation over the next 5+ years.‘
That’s a good prediction, and one founded on fact.
One of the readers of the Finanser saw my write-up on asset and wealth management, and asked if I could talk about what’s happening in investment banking. Answer: yes, I can.
It’s more difficult to see the Fintech stars and unicorns in the investment space however, as it’s more opaque having been disrupted by technology fundamentally over the past twenty years. The rise of program then algorithmic and now high frequency trading created a strong move to low latency, server farms co-located along with the Exchanges. The Exchanges themselves were attacked by new Fintech firms like BATS, Chi-X, NASDAQ and more, and these companies are now dominating much of the equities trading areas. Trading on BATS in the USA now represents 20% of all equities, doubling their market share in just two years by acquiring Direct Edge. Pretty good for a ten-year old garage Fintech start-up based in Kansas. Similarly, in Europe, BATS Chi-X trading now exceeds the London Stock Exchange and Euronext, not bad for an eight year old start-up.
Yesterday I said something better change, and it is.
This blog has covered extensively how things are changing in payments, retail and commercial banking, but I haven’t covered investment banking or asset management as much.
So here's an insight sourced from yesterday's Financial Times. According to a poll of 400 senior executives by State Street, the custodian bank, four-fifths of senior asset management staff expect the fund market to be disrupted by an outside participant in the same way Apple upended the music industry with the introduction of iTunes. 79% fear they will face direct competition from a non-traditional entrant to asset management.
I was upset to be unable to join the recent debate in New York on digital banking. The debate was framed around the theme: "This House Believes Fintech Will Eat The Bankers Lunch", and I was going to oppose the motion. It ended up that I was conflicted and had to defer to a far mightier second man, Ron Shevlin.
Ron obviously was a stand-out star of the discussion in that not only did he win the debate with Michal Panowicz as his tag team partner, but he also got a lot of coverage of his rap:
Don't be a fool, Fintech don't rule. No doubt they're cool. But they're just a bank's tool.
Sam’s article in particular resonated as it focused upon Paul Revere’s Midnight Ride alerting the rebellious colonials to the fact that the Brits are Coming. Ron Shevlin likened this to Jamie Dimon’s comments that Fintech is Coming and we know how this ended – the Brits lost, as will Fintech in Ron’s view.
I often sit and think about the claim from my bitcoin friends that they’ve invented money without government. I’ve blogged about it quite often too.
The reason it is of so much interest is that if the blockchain and bitcoin can circumvent the financial system and the banks, then we really are in transformational times. A world of self-regulation on the net run by the global digerati and managed by no-one would be amazing. I just can’t see it happening however.
For example, unlike just a year ago, the banks are now saying how can we use this technology? NASDAQ, NYSE Euronext, USAA, BBVA and more are all turning their radar onto the blockchain and saying it’s good. Industry heavyweights like Dee Hock (founder of Visa) and John Reed (former CEO and Chair of Citigroup) are saying it’s good. Even governments are saying it’s good.
As the internet reinvents commerce on this planet, it’s interesting to see the two things that enter the innovation mix: simplicity combined with connectivity. When you think about the Uber, Airbnb, Facebook, Google, Amazon and more, you realise that they have all simplified some complex things from sharing to finding. Google’s home page has stayed pretty much the same since day one.
Clear, clean and simple, it’s a SEARCH engine. It helps you find stuff. It’s easy.
One of my good connections via social media is Huy Nguyen Trieu. Huy writes a regular blog at Disruptive Finance, as well as being a Managing Director for Macro Structuring at Citi. He posted something in the last week that I felt was worth re-posting here as a guest blog. Read and weep.
We think we’ve come a long way with technology, but we haven’t really. Sure we can now ping a message between a router in Hong Kong and London at the rate of 0.239 seconds speed; we can wear a watch that not only tells the time but takes photos, keeps our diary and tells us to stand up every two hours; we can store 1,000s of photos and keep a lifetime of memories on a drive that costs less than $100; we can travel around the world and back as easily as our forefathers travelled the next nearest town; and so on. But it’s nothing yet.
Building on the discussion of data being key to disruption, I often use the phrase ‘digital core’ in this context. Therefore, I was intrigued when someone asked for a definition of a ‘digital core’ and one of the replies was there isn’t a core anymore.
I wondered what they meant and, in explanation, they referred to the idea of a central point of systems – a mainframe – is no longer the way the markets operate. Systems should instead be spread across server farms in the cloud so there is no single point of failure. I totally agree, and therefore felt it worth a little more explanation of digital core as so many misinterpret what this means.
First, I have defined my terms several times before:
I’ve written a lot about incumbents versus startups lately and noted with interest that Jamie Dimon’s annual letter to JPMorgan shareholders picks up on this theme (not as a direct result I’m sure?). He talks about “hundreds of startups with a lot of brains and money working on various alternatives to traditional banking” and that “the ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and — these entities believe — effectively by using Big Data to enhance credit underwriting.”
I hosted a dinner the other night, talking about how technology has changed banking. We had a great conversation and I wrote down 26 points from the 14 contributions made in the opening round robin. These points are summarised below and may be summed up by one word: change. Things are changing fast and, as one person stated (bearing in mind Chatham House Rule), if you think things are changing a lot today, you ain’t seen nothing yet!
I’ve been thinking quite a bit about corporate treasury lately and the supply chain, and wondered what would happen if and when 3D printing really took off. By way of example, you can now 3D print your own car or house if you want, and that means that the whole supply chain collapses, as does the value of the corporation that manufactures goods. Will there even be manufacturers in ten years? What if nothing needed manufacturing? What if all you needed were blueprints electronically that, with just the right ingredients, you can print and assemble at home for a fraction of the price? Is this the future of manufacturing?
I had a fascinating discussion about fintech yesterday, and was intrigued with the briefing note for the meeting which said the following:
“Fintech is the R&D function of financial services in the digital age….less to do with technology more to do with business model reinvention and customer centric design. Fintech can be categorised as:
Traditional fintech as ‘facilitators’ with larger incumbent technology firms supporting the financial services sector; and
Emergent fintech as ‘disruptors’ with small innovative firms disintermediating incumbent financial services with new technology.”
Fascinating. Particularly fascinating as, a little like the debate around what is a digital bank, it begs the question: what do we really mean by ‘fintech’?
I think of fintech as being a new market that integrates finance and technology. This new market is a hybrid of the traditional processes of finance – working capital, supply chain, payments processing, deposit accounts, life assurance and so on – but replaces their traditional structures with a new technology-based process.
I’m wrapping up predictions for 2015 with a touch on technology in banking, as that’s my space.
Although most people are talking about the internet of things and wearables as hot, hot, hot, they’re not. In fact, I was reflecting upon the fact that the biggest game of 2014 was Candy Crush. Before that was Angry Birds. Before that was the Crazy Frog.