While we all watch in awe at the meteoric rise of the FinTech sector in London over the past few years…
The truth is that the real disruption hasn’t really begun. Even the most famous disrupter in the consumer space, Transferwise, still uses a traditional bank to help process their currency transactions. But as more and more challengers chip away at consumer financial processes, it’s time to start looking at the beating heart of financial services – investment banking.
The complacency, stagnation, and nepotism which has served as a catalyst for the disruption of other industries is nowhere more prevalent than in wholesale finance. For hundreds of years, investment banks have controlled access to the financial markets for investors, companies, and individuals. These bottlenecks are well established across multiple services, including securities trading, corporate bond allocation, and even fund management. With banks now playing catch-up in the technology race and having to deal with shareholder, regulatory, and reputational pressure, the time is ripe to break the gates open.
The benefits of disrupting wholesale finance are enormous. A handful of institutions are in control of literally trillions of dollars of capital; yet that capital isn’t flowing into the ‘real economy.’ The costs are huge: the US Federal Reserve estimates $10-12 trillion loss in output due to the financial crisis. There are SMEs and individuals who still have limited access to credit seven years after the financial crisis. Central banks globally are spending trillions of dollars to try and jump-start stagnant economies and help these people and their businesses. Harnessing technology to rebuild the market’s core structure can go a long way to solving the problem.
Technology has the ability to democratise the financial markets and get rid of the favouritism that unsettles it. And it’s a market-based solution: crony-capitalism becomes free-market capitalism.
Are all the ills of our financial system a product of poor technology, a lack of blockchain, not enough crowd, no social? Or is it the case that the human condition is the problem, good old fashioned greed, selfishness and corruption?
For all the hype that currently surrounds FinTech, it’s people that drive change, not technology. Tech is just the enabler. Upgrading our tech without upgrading ourselves will not necessarily bring about the positive change we all hope for.
Many of the same actors from the old world are building in the new, how is this going to be any different, will it be the enlightened self-interest that Entrepreneurs often demonstrate that saves us? Or is it that technology always creates better services at lower cost regardless? We’ve certainly experienced better services in other industries that have taken the tech plunge, there’s no doubt that retail, travel, fashion, are all better for it, will this necessarily happen to Finance too?
We’re currently in a difficult growth stage, a Wild West even, there’s a lot of hype, regulation lags behind the technology, new untried features are legion as tech allows rapid experimentation, and there are a lot of newbies entering the market who are just at the start of their learning curves, see Silk Road for an unintended negative effect.
Is the transparency and clarity that comes with new technology a strong enough force to override the moral hazards in this Wild Web West? Or are we just churning the existing world into new tech version of the old? Technology offers us a new opportunity that can create wins for all of us, but I believe it requires a counter-intuitive shift towards altruism that will benefit us all. The disruption of finance will not happen again anytime soon, so let’s make sure that we get it right and upgrade our ethics and not just the tech.