Reflections on the 7th Annual Financial Technologies Summit

15 October 2015
By Alexei Miller, Managing Partner

Once again we gather to debate over notable challenges and opportunities that the next generation of technology holds for the financial sector.

One panel zoomed in on the non-bank lending. Small businesses need money to grow their business. Although banks do offer small business loans, their people-intensive and bureaucratic processes just aren’t lean and fluid enough to be cost effective on smaller loans and to provide a swift and flexible service to small business owners. This great demand for alternative sources of funding created a market opportunity for tech start ups who provide easier, more flexible, lean and tech-intensive ways to get more funding to a wider range of small businesses. Moreover, FinTech entrepreneurs are of similar age to small business owners and thus shaped by the same rapid technological progress, allowing them to be best positioned to create most relevant solutions.

The mere numbers of FinTech start ups led to the birth of small business loan marketplaces which allow experience similar to that of searching for an airline ticket on Expedia. I expect to see consolidation of this market in the next 3 years as more small loan providers merge or become acquired by traditional banks.

While there is no doubt that FinTech start ups have much potential, it is also clear that traditional banking is unlikely to be disrupted in the same way as taxi business was disrupted by Uber, there is just more human intelligence, reputation, trust and regulation involved in the service. Some balance is essential between bureaucratic, people- intensive process and a purely technological one.

This panel was full of optimism and solutions – "use technologies in smarter ways", “automate" and "give access to marketplaces so people can make informed choices". Alternative finance companies, small business lending marketplaces, and companies providing various tech solutions to the alternative small business lending industry were showcased.

The second panel addressed and framed the need to modernize traditional wealth management and brokerage business models to satisfy the new demand for empowered personal decision making and easy access to relevant information.

Millennials are the largest, most diverse generation in the U.S. population already in control of $1 trillion in assets, expected to control $7 trillion in 10-15 years. They demand control over their decision making based on immediate access to information, structured to their needs and suggesting rational decisions based on relevant factors… at their fingertips, anytime they like. In contrast to this, traditional wealth management involves personal communication and a decision making process heavily shaped by a personal advisor. Understanding the shift in emphasis, embracing the new technology and adapting it’s business models are all strategies that will allow wealth management companies to take a bite of this multi trillion-dollar market.

Various solutions were presented at the panel. Alternative wealth management platform, a system that identifies hidden fees you pay to the banks for their management services, cloud based platform that serves providers, advisors, developers and individual investors, platforms to educate the public to use complex financial instruments… All are valuable contributions to dealing with the challenge, yet they inspire much speculation as to their ability to address the broader issue of adapting financial services industry to the Brave New World of technologically connected and open minded Generation "Y".

Towards the end of the conference there were discussions focused on more ’traditional’ elements of the industry, such as trading and compliance. Perhaps unsurprisingly, compared with the other discussion this one was largely devoid of excitement. Yes, regulatory pressure is increasing and yes, market is working hard to squeeze every last bit of efficiency from existing infrastructure, but the sense was that innovation, such as it is, is driven mostly by ’traditional’ market participants, not ‘outsider’ fin tech startups.

Overall, exciting times in fin tech. Amount of investment and talent being poured in it is unlike anything we’ve seen before. There will no doubt be many failures, but all this new energy will not be for naught. Large chunks of finance will look very different, very soon.

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