Right now, Fintech is one of the hottest areas in all of Startupdom. It’s like a gold rush for entrepreneurs looking to get rich quick. Why? How did it start? Is this just a trend or will it last?
Well, the reason we have Fintech at all is that Financial Services sucks big time. It’s largely run by soon-to-be retirees that mostly care about protecting their last paycheck without rocking the boat. Digital transformation is a real thorn in their side. The industry is known for inefficiency and high costs. High salaries. High fees. Poison pills clauses hidden in the fine print. End-of-year bonuses. Terrible customer service. Also generally low ethics, greed, and profiteering. All that good stuff.
These people know the ruse is up. The first waves of layoffs have already started. The first to go where the inflated expat packages enjoyed by generations of European bankers to risk life and limb in less civilized parts of the world like Hong Kong and Singapore. Those same bigwigs are now jumping ship to reinvent themselves as entrepreneurs and angel investors in Fintech startups. From cricket clubs to hackathons. Exchange the tie for a hoodie, and you’re good to go.
Fintech is all about cutting out the fat. Axing the middleman. Introducing efficiencies. New channels. New business models. Mostly through simple digitization and the internet. Also not hiring bankers.
Disclosure: I’ve been in Fintech now for about five years. Fintech has been kind to me, or at least I’ve taken advantage of the opportunities it has afforded me. It’s also been enough time for me to get to know the ecosystem, the people, the culture. It sucks.
On the payments highway to hell.
The current state of play is that most Fintech startups are still in the payments or credit space. Now, there are many reasons why that may be the case, but the obvious ones are volumes and fat. These are both gigantic in daily global volumes, and the incumbents are charging arms and legs for ridiculously simple transactions like money transfers.
Now I’m all for making payments easy and cheap. That’s a service to humanity. Everybody wins. The problem starts when driven by dollar signs, you go from simply enabling payments to encouraging more payments.
Buy now, pay later. I’m sure you’ll be in a better financial position later. Let’s not worry about that right now, and pack up this curved LCD TV for you. Maybe you should also buy some stocks because that makes you a smart investor, right? Don’t forget crypto. Only fools aren’t buying Bitcoin!
Disruption was always just about stealing your customers and your margin.
Are all bankers inherently soulless husks of humans looking to milk the wallet of financially illiterate consumers to enrich themselves? Maybe. Probably. But the main driver for the apparent lack of purpose and ethics is simply that humans are feeble innovators.
For humans, something better than what we have now is enough. Why struggle with leaping when half a step will do the job? So if the old Financial Services industry was basically a cesspit, then Fintech just needs to lift one toe out of the sludge to be cool.
Let’s remember, these are mostly the very same people just moving from banks to startups. Old dogs who learned their ways, but want to cash in because they can. There’s really no fundamental reason to rethink anything. You can make millions by just doing a little better, so why bother? It’s that simple, and also that sad.
Right now, Fintech is shorting its own user base with no regard for the sustainability of impoverishing your own customers.
We all just want to win. At any cost.
The culture within the ecosystem applauds winners. More funding. More awards. More revenue. More, more, more. The few odd ducks trying to make a difference get a chuckle from the old dogs. They’ll learn the ways of the world and pivot into profit-seekers soon enough!
The herd-mentality is reinforced by investors. Nobody really wants to discover the next big thing. It’s easier to just get on board the gravy train with everyone else. Saves you a lot of hard work doing real diligence. While Fintech funding is going up, it’s also going to fewer startups as the “mega rounds” suck up the majority. We must think of the starving unicorns.
There is a lot of focus on customers. Which you would think is a good thing. But so are mobile casino games and social media platforms. It’s about psychology. Tricking users to do what we want, not what they need. We want acquisition. Conversion. Engagement. We’re trying to bag your cash, we don’t really care about you at all. Would be great if you didn’t call us so much, we’re so focused on execution right now.
Besides that, we care about shareholders. If we don’t they’ll use the board to fire us founders. Not much time and energy to care about employees. The less we pay, the better, really. It’s a promised land for opportunists and mercenaries to walk away with a few scalps and a bag of gold, leaving bodies and smoldering ruins behind. Well, on to the next one! #serialentrepreneur
What is the smart money doing about it?
So if bankers lack any real motivation to do good, then what happens when you add venture capitalists on the other side? It’s gasoline on the bonfire of ethics. I’ve probably met at least 200 VC’s over the past few years, and I would say less than 5 showed any real purpose behind the financial motivations of early-stage investing. Ain’t nobody out here making no damned difference.
This puzzles me somewhat, but I can sympathize. The VC’s are feeble humans, too. They need to sell an investment thesis and show returns to their customers, i.e. the people who put money into their funds expecting to get richer. Even in the odd case, you may find ethical institutions as limited partners, they still engage the VC looking for a return. Say like pension or endowment funds. Those guys may put the returns from venture capital into good use, but rarely, if ever, do they care where it comes from, really. This isn’t philanthropy.
Something else I’ve noticed is that within my network, quite a few former entrepreneurs are moving into venture capital. I suppose for many, having pitched them for years, there is a sense that the grass is greener up the value chain. Maybe they can finally pass it forward by rejecting other hopeful entrepreneurs. But the few honest VC’s I know would debunk that. If anything, there’s even less of a sense of purpose, because you don’t get to really build anything. It’s a spreadsheet business. You just sign checks and cross your fingers. #unicornhunters
What I’m after is somewhere in the gray area between venture capital and philanthropy. I believe venture capital could be a particularly efficient form of philanthropy, as startups are typically driven and lean, whereas NGO’s are not. But it starts from a motivation for something else other than pure financial returns. Some kind of theme to drive change around. More like return to society, or return to humanity. Social Enterprise? Meh. Maybe. The jury’s still out.
For now, venture capital is just more dumb money.
Unicorns could change the game but are drunk on their own Kool-Aid.
So what about the guys that actually made it? The unicorns. Pockets lined with cash. Private planes. Personal brand consultants. Beards. Many beards. Several leather jackets. The darlings of the Fintech keynote circuit. Idolized by the thousands of wannabes, hoping someday to catch a few rays of that sunshine and take a place on stage among the hallowed figures of the Fintech Pantheon.
You would think that. But the reality is, that the guys who made it that big, and that far, are way way deep into their own Kool-Aid. It’s not greed. It’s just that it’s worked so amazingly well, that whatever you do becomes truth. You can’t deviate from the plan now. You gotta stick with what works. Stay on brand. Brand matters.
Recently we’ve seen a lot of the early Fintech unicorns expand into other product families. From Robo to Credit. Banking to Savings. Remittance to Crypto. Is this a sign of an awakening giant, ready to change the world? Nah.
The product expansion we’ve seen is purely driven by unit metrics, not purpose. It simply broadens the use-cases and audience. More reasons to sign up and fork over more dough. To keep the investors at bay. And it’s working a treat. Revolut, Wealthfront, N26, and many unicorns have had record years in 2019 using this strategy.
Convergence through M&A is a natural next step that we’ll be seeing much more of in the next few years. Neobanks buying Robos. Payments buying Credit. But those Super Fintechs will use that leverage to squeeze everyone else, not drive change. I’ll remain cynical until proven wrong.
Will the Tech Giants swoop in to save us all?
You wish. Well, I held out some hope for a while. Now it’s clear that they’re just out to get it on the sweet volume gigs by leveraging their brand. There are economies of scale that are still out of reach for even Fintech unicorns, which makes the Tech Giants dangerous. Proud of your million users? That’s cute, says Facebook and Google. We got billions, bro.
So we now have the Apple card. It’s a credit card from Apple, not a bank, as they make clear. So please spend more. Extra rebates on Apple products, of course. I don’t hold out much more hope for Amazon of Facebook, either. Amazon has always been about undercutting everyone else on margin through scales of economy and a rather forceful culture of frugality. Somebody’s gotta pay for Jeff’s rocket money, after all.
Facebook’s Libra play is bold, but yet again motivated by defensive strategy, not the democratization of financial services. Pfft. They’ve seen everyone else get in on the payments train, but they can’t replicate what Tencent did in China because the U.S. has pretty much made that legally impossible. So you gotta go crypto, brah.
Your data is mine to milk.
Now that I’m warmed up, we can talk about Machine Learning. Obviously, if you aren’t doing it, you aren’t really a startup at all. That’s like playing golf without a driver. No real man would do that. Let’s face it, we’re among white men here as women and other such minorities shouldn’t be left to make big decisions about big money.
So anyhow, what use are we making of our highly overpaid data scientists? Are we using this 21st-century sorcery to empower the customer? No, we used to save on customer service by firing our low-cost outsourced staff in the Philippines for a f*cking chatbot.
We also took all your data. It’s in the fine print, sucker. But since you’re lazy and you know it, you just signed in using Facebook to avoid a few extra clicks. So know I know everything about you. Now we can use that data to cherry-pick the healthiest people for life insurance. Only give credit to those our model picks to be credit-worthy. I’m sure it’s not prejudiced towards minorities or the underprivileged, surely. Not that we checked. Or cared, really.
Now we’re using machine learning and data to erode the one thing that was good about financial services: social equality. Because bankers were too lazy to gather any data, they had to price in the sick and poor people, subsidized begrudgingly by the wealthy and healthy. Now there is finally a tool to single out the good clients and leave everyone else to die on the street. Yay! Wait till the investors see my new unit metrics! #disruption
The challenger banks have a lot of power here. Once you have spending data, including categories and locations, you know a lot about a person. Bought diapers? Maybe you’d be interested in a larger car. Paying for rent? Maybe save for a mortgage deposit. Shopping at Tesco? Maybe get this rewards card. It could all be used for good. But I’m willing to bet we’ll take the low hanging fruit and use it to sell whatever shitty financial products bag the highest margin. Loans and credit, baby. Annuities and unit trusts all day. Because we can.
Phew. Thank goodness for Blockchain.
Yeah, don’t hold your breath. Maybe Satoshi Nakamoto wanted to change the world. That hasn’t happened yet. He did make himself exorbitantly rich. So did many others that followed. How do you create money from nothing? Well, by creating an artificially low supply for a virtual commodity. As long as demand is not zero, then it will snowball. If you get in early, you are at the top of the pyramid. But it’s not a pyramid scheme, of course. No. No! No…? It’s the democratization of currency. Decentralization of monetary policy. I’m sure that’s why noted economic scholars like Floyd Mayweather got in on the ICO racket. We should be expecting his Nobel nomination soon.
For what it’s worth, I think Vitali Buterin is one of the good guys. Maybe the best of us. I have faith he will deliver Blockchain out of the mire of money laundering and pyramid schemes.
Wait, but at least inclusion is good, right?
Did we forget about Financial Inclusion? Is that the saving grace of Fintech? Aren’t these social entrepreneurs the angels of ethics, setting aside lucrative careers in finance in order to bring about social justice and change? Shouldn’t they be sailing with Greta right now onboard the S.S. Righteous?
Let’s face it. Most companies working on #financialinclusion are again focused on the transactions. Payments and credit. Because the people of the world must buy more things. It is the way of the world, now. The natives deserve same-day delivery, it’s a basic human right in 2019. They need Yeezys, not financial literacy. It’s the ultimate blue ocean strategy. There’s literally no competition. Banks can’t serve people with no ID’s or money. Enter Fintech. Yeezys shipped.
Where does China fit in?
In some ways, a lot of the recent movements around and into Fintech by Silicon Valley have been triggered by the masterful plays by China’s Tencent and Alibaba. Both have engaged in various forms of financial services for years, creating a template that is hard to replicate in Western legislations and regulations. You’ve all seen the highlights. Highest single-day online sales. World’s largest money market fund. Et cetera.
Have they totally gone green with money lust, then? Despite the rapid Westernization and rampant consumerism of China’s middle class, the Little Red Book still carries weight in some circles. One recent and radical example of this is the no-premium Xiang Hu Bao health plan from Ant Financial. Tens of millions of migrant and rural workers living outside the shining lights of the Chinese economic engine are now covered for healthcare. Instead of paying any membership or premium, they simply share the cost of each other's healthcare costs, one claim at a time. This is a real service with a purpose! Who’s doing that outside China? Who’s even thinking that?
Maybe we do need some Communist oversight to create real change in this harsh Capitalist society. Perhaps Big Brother will be super nice and take good care of us. Hmm. Raincheck on that. Let’s give Capitalism a little more time before we enroll for mandatory Mandarin 101.
Does ANYONE actually care at all?
Yes, of course. Yes! Lots of people care. Lots of people see how bad the industry is, and want to do more. Change is hard in any endeavor. So many lay dormant in the wilderness like the Jedi, keeping quiet, playing along to the Emperor’s fiddle until the shackles are broken.
Here’s to all you masked Fintech crusaders, struggling to survive the Fintech saloon fight. Choosing to bootstrap. Getting rejected by VC’s. Getting no traction with customers who don’t want to worry, and just want those damned Yeezys. I salute you!