My north star(s) for philosophy, management, and politics are Star Wars, The Sopranos, and Game of Thrones, respectively. The Iron Bank (GoT) is a metaphor for today’s financial institutions, if present-day banks didn’t need bailouts or to invent fake accounts to juice compensation. Regardless, it was well known throughout Braavos that The Iron Bank will have its due.
If you failed to repay, they’d fund your enemies. So today’s Iron Bankers are the venture capitalists funding (any) incumbents’ enemies. If this makes VCs sound interesting/cool, don’t trust your instincts. Lately, I’ve spent a decent amount of time on the phone with my bank in an attempt to get a home equity line, as I want to load up on Dogecoin.
(Note: kidding.) (Note: mostly.) If Opendoor and Zillow can use algorithms and Google Maps to get an offer on my house in 24 hours, why does it take my bank — which underwrote the original mortgage — so much longer? How ripe a sector is for disruption is a function of several factors. One (relatively) easy proxy is the delta between price increases and inflation, and if the innovation in the sector justifies the delta.…Continue reading…
By: Scott Galloway
Source: Fintechs Are Zeroing in on Everything Big Banks Aren’t | by Scott Galloway | Marker
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Fintech companies use a variety of technologies, including artificial intelligence (AI), big data, robotic process automation (RPA), and blockchain. AI algorithms can provide insight into customer spending habits, allowing financial institutions to better understand their clients. Chatbots are another AI-driven tool that banks are starting to use to help with customer service.
Big data can predict client investments and market changes in order to create new strategies and portfolios, analyze customer spending habits, improve fraud detection, and create marketing strategies. Robotic Process Automation is an artificial intelligence technology that focuses on automating specific repetitive tasks.
RPA helps to process financial information such as accounts payable and receivable more efficiently than the manual process and often more accurately. Blockchain is an emerging technology in finance which has driven significant investment from many companies. The decentralized nature of blockchain can eliminate the need for a third party to execute transactions. Financial magazine Forbes created a list of the leading disruptors in financial technology for its Forbes 2021 Global Fintech 50.
In Europe there is a list called the FinTech 50, which aims to recognise the most innovative companies in fintech. A report published in February 2016 by EY commissioned by the UK Treasury compared seven leading fintech hubs: the United Kingdom, California, New York City, Singapore, Germany, Australia and Hong Kong. It ranked California first for ‘talent’ and ‘capital’, the United Kingdom first for ‘government policy’, and New York City first for ‘demand’.
For the past few years, PwC has posted a report called the “Global Fintech Report”. The 2019 report covers many topics of the financial technology sector, describing the landscape of the fintech industry, and some of the emerging technologies in the sector. And it provides strategies for financial institutions on how to incorporate more “fintech” technologies into their business.
Finance is seen as one of the industries most vulnerable to disruption by software because financial services, much like publishing, are made of information rather than concrete goods. In particular blockchains have the potential to reduce the cost of transacting in a financial system. While finance has been shielded by regulation until now, and weathered the dot-com boom without major upheaval, a new wave of startups is increasingly “disaggregating” global banks.
However, aggressive enforcement of the Bank Secrecy Act and money transmission regulations represents an ongoing threat to fintech companies. In response, the International Monetary Fund (IMF) and the World Bank jointly presented Bali Fintech Agenda on October 11, 2018 which consists of 12 policy elements acting as a guidelines for various governments and central banking institutions to adopt and deploy “rapid advances in financial technology”.
The New York Venture Capital Association (NYVCA) hosts annual summits to educate those interested in learning more about fintech. In 2018 alone, fintech was responsible for over 1,700 deals worth over 40 billion dollars. In 2021, one in every five dollars invested by venture capital has gone into fintech. In addition to established competitors, fintech companies often face doubts from financial regulators like issuing banks and national governments.
In July 2018, the Trump Administration in the United States issued a policy statement that allowed fintech companies to apply for special purpose national bank charters from the federal Office of the Comptroller of the Currency. Federal preemption applies to state law regarding federally chartered banks. Data security is another issue regulators are concerned about because of the threat of hacking as well as the need to protect sensitive consumer and corporate financial data.
Leading global fintech companies are proactively turning to cloud technology to meet increasingly stringent compliance regulations. The Federal Trade Commission provides free resources for corporations of all sizes to meet their legal obligations of protecting sensitive data. Several private initiatives suggest that multiple layers of defense can help isolate and secure financial data.
In the European Union, fintech companies must adhere to data protection laws, such as GDPR. Companies need to proactively protect users and companies data or face fines of 20 million euros, or in the case of an undertaking, up to 4% of their total global turnover.In addition to GDPR, European financial institutions including fintech firms have to update their regulatory affairs departments with the Payment Services Directive (PSD2), meaning they must organise their revenue structure around a central goal of privacy.
Any data breach, no matter how small, can result in direct liability to a company (see the Gramm–Leach–Bliley Act) and ruin a fintech company’s reputation. The online financial sector is also an increasing target of distributed denial of service extortion attacks. This security challenge is also faced by historical bank companies since they do offer Internet-connected customer services.
Many fintech technologies have very high start-up costs but very low marginal costs for adding additional customers, effectively necessitating many fintech companies to act as natural monopolies. European Regulation on Fintechs refers to the body of laws, directives, and guidelines that govern the operation, development, and innovation of financial technology (fintech) companies in the European Union (EU).
As the fintech sector has rapidly evolved in recent years, the European Commission and European Parliament have introduced various regulatory frameworks to maintain financial stability, promote innovation, and protect consumer interests. These frameworks aim to create a single market for fintech services, while also addressing the emerging risks and challenges associated with new financial technologies.
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