Digital Waves & Financial Services

Even though the digital age finds its root in the 1950s with the rise of computers, we had to wait until the mid 1990s and the rise of the internet to witness a first wave of tectonic shifts and the creation of what many defined as the New Economy. Innovation, characterized by the application of technology to productive means and resulting in driving down costs relentlessly over time, was hard at work. This first wave did not escape the rule and we saw the cost of “discovery” plummeting. By discovery I mean the ability to find any type of data. Google benefitted from this trend and built an empire based on hyper efficient search. We also benefitted from another wave that saw the cost of “communication” dropping and the rise of various forms of connecting between humans. Facebook can be viewed at the intersection of discovery and human connections. Apple benefited from the connection/communication wave. Finally, Amazon mined the decreasing cost of discovery in the e-commerce field.


More recently, we have benefitted from the wave of “personalization” where a myriad of applications have unbundled past needs, uncovered needs we did not know we had, or disintermediated needs that were poorly serviced. Again, this wave resulted in the cost of personalization plummeting.

Crucially whenever costs plummet, demand grows in both expected and unexpected ways. The New Economy and our demand have certainly exploded.

It is interesting to observe that the financial services industry did not immediately espouse these waves, nor did it find itself materially impacted by them, or at least it appears so to the naked eye. For example, banks were not particularly diligent in their internet banking efforts at that time. Even though new technology companies won the early stages of the New Economy and even though the financial services industry did not register any “win”, we also can categorically state that banks or insurance companies did not lose. They still command, to this date, market share and dominance in all five sectors  – lending, capital markets, insurance, asset management, payments – in every geography.

The fintech movement, in its first two phases, the “direct to consumer” phase and, once that first phase failed, the “partnership pivot” phase were essentially driven by the necessity to play catch and for the financial services industry to capture the lower costs of “discovery” and of “connecting” with users. Much needs to be done as most participants have not completed their digital journey. Even though startups and incumbents alike are still mostly focused on digitizing front end processes – on-boarding, distribution, sales, underwriting amongst others – we have now seen a broadening of the digitization movement towards middle and back office processes.

Still this has not resulted yet in a dramatic lowering of costs in financial services and an increase in demand. To be clear, the cost of lending will never “decrease” below an incompressible cost of capital. The cost of delivering a loan should decrease, and in other sectors, the cost of of a payment (be it domestic, p2p, mobile, cross border, b2b) has yet to decrease across the board.

Meanwhile, the technology world is busy reinventing itself and as the waves of discovery, communication, connection and personalization are flattening, new waves are engulfing us. I will focus on two technologies which I believe are the leading candidates to usher the next wave – again characterized by reduced costs and demand explosion: Artificial Intelligence and AR/VR

Artificial Intelligence holds the promise of bringing our decision making to the next level. Any of the AI vectors – machine learning, deep learning, nlp/nlg/nlu to name a few – will drive down the cost of “decisioning”. By decisioning I mean the ability to arrive at optimal decisions via superior analysis of mountains of disparate data and in the absence of clarity. Most technology companies are locked in an epic arms race hiring the right talent, developing their own AI tech stacks and applying their technology breakthroughs to their fast evolving business models. The next wave may indeed see the rise of cognitive enterprises and cognitively enhanced individuals.

AR/VR holds the promise bringing our interaction with the world to the next level. I understand there are differences between AR and VR and for the purpose of this post will assume them away. AR/VR will drive down the cost of “immersive discovery”. By immersive discovery I mean discovery in action, using the full capabilities of our bodies in movement, in our three dimensional world;  as opposed to the discovery we have done to date from behind a laptop or a smartphone. Given the explosion of supply and demand ushered by the plummeting cost of “discovery”, I leave you to imagine what this wave may be able to bring about.

Although it seems AI holds a slight edge over AR/VR currently based on maturity and traction, I do not definitively know which wave will be dominant first at scale, either in the enterprise or retail world. Suffice it to say that either wave will pose unique challenges to the financial services industry. Challenges inherent to customizing, designing, implementing and integrating each new technology paradigm. Challenges inherent in making use of and making sense of these new technologies with the right human skills. Finally, competitive challenges in the face of what we can only assume will be renewed pressure from non financial services enterprises ever more willing to capture poorly defended margins in lending or payments.

Although  threats from fintech startups or tech companies have not been successful in eroding meaningful market share yet, many industry analysts believe that up to half and sometimes more of incumbents’ revenues are under threat. I believe this analysis does not fully include the implications of the lower cost of “decisioning” or “immersive discovery”. As such financial institutions may be under even more threat than we realize.

Be that as it may, a reasonable and well educated practitioner will healthily push back and raise two objections to the demise of financial institutions at the hand of the potential dislocating effects of the above digital waves. One is articulated around regulation, the other around core systems.

Regulation is tedious, complicated and costly and serves as a defensive moat. In some instances it can be a drag as financial incumbents cannot act as flexibly or nimbly as non-regulated entities. Still, regulation acts as an effective digital fire retardant. Regtech not only holds the promise of lowering the cost of compliance, it also holds the promise of lowering the cost of developing and disseminating regulation to the market. Should regtech lower the cost of compliance to such an extent that fintech startups become more competitive or non-regulated tech companies become less averse to regulation, then regulated financial institutions will come out weakened, all else being constant. I am not predicting this will happen, yet the likelihood should not be discounted altogether

Core systems in the market today are cumbersome, expensive to build, expensive to maintain. Even though financial institutions – banks or insurers alike – dislike their vendors with the intensity of a thousand suns due to the woeful inability current core systems exhibit operating in a digital world, the fact is not everyone can afford core systems. Imagine a world where the cost of building, provisioning or deploying a core system would plummet and you are one step closer to another incumbent competitive advantage vanishing.

Although the future of regtech and core systems is more difficult to predict than a presidential election, the trends clearly point towards cost and complexity reduction and even though the full effects of either the lower cost of “immersed discovery” or “decisioning” are still be be felt, they cannot be avoided. These new digital waves hold the potential to drastically lower the cost and complexity of “building a bank” or “building an insurance company”. Obviously, regulatory capital, liquidity and solvency issues will still hold, but picture a world where building a core stack will be as easy as building a web site and where the cost will be a fraction of what it is now – to the dismay of the entire value chain of third parties currently feasting on any implementation, from consultants to systems integrators – and you can start grasp the monumental changes afoot. Digital waves keep coming and most financial institutions are still standing. How will they respond to the coming waves is an important question to ask. How will incumbent service providers cope is equally intriguing. How fintech startups exploit gaps will be fascinating to witness.

ps: no blockchain was harmed while writing this post.




We know the next POTUS but we do not necessarily know what his policies will be at a granular level, although we know some of his pronouncements at a high and vague level. I will refrain from passing judgement on some of Trump’s promises, how he managed his campaign, some of his specific messages and the various forces that helped him get elected, such is not my purpose with this post.

We know, for example, that part of Trump’s platform is to create more US based jobs, which he intends to do partly via tax cuts, partly via the renegotiation of trade deals and potentially erecting trade tariffs, partly via smart infrastructure spending and partly via deregulation.

Without going into budgetary and economics details, a combination of tax cuts and increased infrastructure spending sure looks to me like a recipe for larger federal deficits, i.e. more government borrowing and the potential for inflation. Indeed, financial markets expect just that as the yield curve started steepening with long term rates spiking up immediately after the election.

Bank stocks also rose after the election, which is great news for bank investors as well as bankers. I believe this can be explained by two factors: the first being renewed expected inflation which I just explained and the second being potential deregulation. The former seems a foregone conclusion, the latter needs further examination.

Trump is no fan of regulation and has stated it on many occasions. We should expect many federal initiatives to be toned down, de-fanged or outright destroyed, based on how POTUS and Congress will collaborate. Think of the EPA, the Clean Air Act, Obamacare as being in the immediate line of fire. Trump has also indicated he is no fan of financial regulation, although his pronouncements have been less clear, and we have heard pundit chatter focused on repealing Dodd Frank in whole or in part – the Volcker rule comes to mind – or even bringing back Glass Steagall. He also has stated he is no fan of the current Fed Chair. Further, some of Trump’s supporters have also publicly criticized the recent DOL fiduciary rule intended for the asset management industry or their profound dislike for the CFPB. I am sure I am missing other financial regulatory flash points. At the same time, Trump needs to fill many positions for his incoming administration and the rumor mill is already hard at work, with industry insiders and/or lobbyists names being circulated to help with the transition effort or as outright candidates for prominent positions.

I venture that the complex system that is Trump’s vision and gut decisions on the one hand, his transition team on the other hand, and the influences both will be subjected to will flesh out exactly how populist the Trump administration will be or how friendly to the private sector, financial services firms included. Let’s take one example: the CFPB is one of the few entities that has battled banks’ wrongdoings. We also know that banks are still deeply unpopular due to their role in the great recession. Will a Trump administration rein in the CFPB and in so doing risk alienating part of their electoral base which is surely not pro-banks. As far as this example is concerned I sense a tension between Trump and his inner circle and a Republican Congress and Wall Street. In other words, how will “drain the swamp” will be interpreted and applied. The same lens can be applied to all other financial regulations which are deeply unpopular with the Republican establishment but may be interpreted as rightful banker punishment by the electorate.

Be that as it may and given that the Trump administration will be busy with dismantling other regulations and that the DOJ may be focused on other targets than the financial services industry – based on Trump’s goals – it is safe to say that in the most benign case, financial regulation will not increase and enforcement will move into neutral, essentially hitting the pause button, or in the most extreme case, deregulation will be actively sought. In either case, financial institutions will breathe a sigh of relief – small win vs major win – and will enjoy the fruits of renewed inflation expectations. Indeed, the more reliable story here is that of rising interest rates, obviously far out on the yield curve – this has already happened and will continue to happen I believe – and at some point also with short term maturities when the Fed will stop signaling and start raising. Even more so if the Fed Chair is replaced?

Rising interest rates is good for banks bottom lines. A fatter net interest income does wonders to the income statement and return on equity. The important question here is whether renewed profitability will halt further digitization of the industry or further enable it? Will fintech suffer or go from strength to strength? Will banks, which have resisted change up to only recently, use the excuse of increased profits to stop investing or collaborating in/with startups, stop rolling out ambitious innovation plans and return to a conservative stance? I suspect that in the aggregate the answer may be yes, the more so if return to profitability is swift and material. I also expect leaders to accelerate their plans to reinvent themselves, knowing that secular trends are too important to ignore and that tech giants are the real threat. Thusly a relative retrenching of US fintech related investments may be expected – arguably a continuation from the recent retrenchment – especially in the direct to consumer space. I also expect the third fintech wave to accelerate: deeper digitization via the adoption of enabling technologies sold to incumbents by new b2b startups.

This aggregate vision gives us only partial clarity though. What will be the impact within the fintech sector?

Banks have a natural competitive advantage against alternative lenders or marketplace lenders. In a low interest rate environment this competitive advantage was blunted. In a rising interest rate environment this competitive advantage will be used with ruthless efficiency. Thusly, I expect fintech startups in the lending space to come under pressure – natural outcomes would be further bank collaboration, mergers between alt lenders, acquisitions by incumbents and the inevitable bankruptcies of the weaker platforms. Should regulatory pressure on lending practices abate, this will further strengthen banks. Either way I expect banks to increase their domestic lending activities.

From a capital markets perspective – and to some extent in asset management too –  less enforcement actions coupled with potential outright repeal of complex legislation or regulation and the introduction of simpler frameworks will reduce compliance pressure as well as regulatory dislocation. From that perspective some regtech business models may end up having a hard time finding traction. What is clear though is that any regtech solution focused on fighting fraud, illegal activities, tightening AML/KYC and identity verification as well as strengthening security and cybersecurity will remain strong given the broad consensus towards doing more rather than less in that space.

Based on my current understanding, I think the net effect of Trump administration will be neutral for the insurance sector and insurtech – not including health care obviously. I do not have enough data points though so I might be completely off the mark.

We also must deal with the payments sector. Considering an extreme deregulation scenario, might we see further changes targeted at interchange fees, on the credit card side, or more particularly on the debit card side? One cannot discount this entirely – again think of the interaction between a Republican Congress and President Trump. Needless to say that payments solutions that address infrastructure spending, directly or indirectly, will be potential winners. Incumbent cross border solutions that process or finance trade may be hit by a populist Trump bent on renegotiating trade deals and starting a tariffs war – trade finance or supply chain finance platforms come to mind given they cater to onshore/offshore manufacturing/trade value chains.

Switching back to higher level concerns, we should also keep in mind the potential for a global recession. Should the actions and choices of the Trump administration hurt the US economy and via domino effects trigger a deep recession, the financial services industry will be the first to be hurt: weak $, lower growth, less payments to process, less investments to make, less lending, increased risk. “Mainstream” fintech would definitely suffer if this were to happen. I believe this to be a remote event but one cannot discount it entirely.

Based on the last two points, it is therefore logical to infer that cryptocurrencies, blockchain solutions  and bitcoin in particular – due to their disintermediated nature – may become even more attractive as alternative modes of payments, stores of value and means to build new exchange rails; whether new policies have a benign negative effect and especially whether we head towards more sever outcomes.

On another note, even though a majority of the tech industry did not support Trump, it is hard to imagine his administration being directly hostile to the technology sector, fintech included, and in so doing hurt job creation – indirect and unintended consequences of supporting “made in USA” and threatening the intricate global supply chains of most tech companies aside. Yet it is far from clear what Trump’s stance is with regards to Silicon Valley and on advanced technologies such as AI, robotics, blockchain, advanced analytics, IoT. Although these have the potential to augment humans, they also have the potential to eliminate them too. How would self driving cars play to his electoral base and his theme of creating mainstream jobs? What about the knowledge economy, the sharing economy, digital natives, digital workers, p2p networks, AI chatbots that would displace bank tellers. All these themes are imbedded in fintech, from payments to helping with lending, to capital allocation, to new financial services.

The above thoughts are focused on US fintech which is somewhat disconnected on the tech side from Europe or Asia. Domestic US payments is a beast in and of itself for example. European or Asian fintech is linked to US fintech via the $. Should Trump’s impact be a net negative on the $ and reduce confidence in the US economy, I would expect an acceleration towards decoupling away from the $ for international trade, international settlements, international payments. Alternative solutions such as a new basket of currencies, the rise of one to one currency settlements such as Euro-Yuan or in the more extreme case relying on a cryptocurrency as proxy for a new standard would de facto re-align global financial exchanges in a drastic new way and global fintech business models accordingly.

In summary I see several potential paths:

1) Extreme populism and no material financial deregulation lead to a global recession:  fintech startups and financial services incumbents will suffer; crypto currencies and blockchain will get a major boost.

2) Benign populism and some financial deregulation lead to a slight positives and a middle of the road path: some fintech startup models will suffer and financial services incumbents will be stronger, all else being constant.

3) Watered down populism aligned with major financial deregulation lead to strong growth, at least in the short term: financial services incumbents to be the clear winners along with fintech startups tightly aligned with incumbents’ needs.

The fact that we are faced with such a divergent array of paths speaks to the unique and quasi-quantum state of Trump as a politician and businessman, exhibiting potentially pragmatic and radical intents simultaneously. I will even go further and state – Nassim Taleb who I respect immensely already made this point – that Trump was the ultimate antifragile candidate and that he may reveal himself to be the ultimate antifragile President. (Antifragility works up to a point, see path 1 above with clear winners and losers.) As such, thinking about fintech investment/operating strategies also need to be antifragile. I have already re-aligned my investment themes accordingly.

Trump’s administration picks as well as the decisions he will make in the first 100 days in office will enlighten us as to which is the most likely.


Identity is the new Black



I was invited to a one day event on Identity at the US Dept. of Treasury this past Friday. Treasury officials had invited a healthy cross section of identity management and solutions practitioners ranging from startup founders, technologists, scientists involved with standards settings, officials from various US governmental entities such as the Dept. of Justice, the IMF, the World Bank, FinCen, USAID, several bank representatives, executives from telecom, payments or social media companies, academics from various universities, current or former representatives from the governments from Estonia, the European Union, Pakistan or the United Kingdom, lawyers, institutions such as Brookings or the Pew Charitable Trust and the Treasury of course – I am sure i am missing a few. Who would have thought Identity was such a sexy and trendy topic. All in all, and from my own count, we were shy of 90 in attendance.

I was seated next to an official from the Dept. of Homeland Security and another gentleman with a buzzcut and no identifiable badge for the first part of the day. Needless to say I was on my best behavior, ready to flash on command my ultimate proof of identity in the US – my green card. Given the convivial atmosphere I realized my identity had already been vetted and I started to relax and soak in the proceedings.

The event was masterfully organized with a variety of panels that touched upon what legal identities were both from an US and a global perspective, the role of international standards when building identity solutions, the technology solutions at hand to make optimal identity solutions a reality, the issues around identity as currently experienced and the ways government and the private sector can collaborate to bring to market viable digital identity products and services in a compliant and legal way.

I took away the following points from the day’s proceedings:

1) Identities are as diverse as human beings, their cultures and modes of social organization. Therefore digital identity solutions will have to be as diverse as possible given the contextual nature of what an identity means both from a structural and dynamic point of view. In other words, there is no one size fits all identity solution.

2) Standards are crucial if we have to have the appropriate level of interoperability both within a country and between countries, assuming there will be more than one identity solution brought to market.

3) Cooperation and coordination between the private sector, not for profit organizations, standards setting organizations, consumer advocacy groups and the government is a must. Digital identities and their related data sets – legal, static, dynamic, social, digital, in real life – are too sensitive for one group to take the lead without any cooperation.

4) Digital identity solutions are by definition multi-faceted as they have to take into account how an identity is created, its baseline, how it evolves and is managed over time, how it can be kept trustworthy throughout the lifetime of the human being or entity it represents and how a framework is built to enable its assurance and verification in context.

5) Digital identity solutions have to empower either individuals – retail solutions – or entities – wholesale solutions – and allow them to retain control in legal and compliant ways. Any identity solution that does not have the needs of its users at its center is not an adequate and appropriate identity solution. One of the logical paths towards identity solutions that empower individuals/entities leads to self sovereign identities constructs. (My personal views here.)

6) Fraud, theft and all kinds of illegal activities are being combatted vigorously by several US entities. the battle is far from being won, but we are well protected by US govt entities that fight the good cause.

7) Our current means of assuring one’s identity, authenticating one’s identity belong more to a universe of misfit toys than to a rational and organized approach. Much can be done to make our identities safer. Much is available too. Why is the private sector, as well as us as consumers, so complacent is a mystery though.

8) Advanced technology solutions are being developed or have been developed – biometrics, various blockchain technology stacks, cryptography amongst others. Few are live and operational as of today. Only a matter of time I guess. Yet, I could not shake the fact the advanced technology solutions are neither a silver bullet nor should be an excuse for us to wait to see solid identity solutions come to market in the US.

9) Indeed, it was clear that various identity solutions have already been deployed to great effect in countries as diverse as Pakistan, India, Estonia, the United Kingdom, seemingly without the use of advanced technology solutions. Except for the United Kingdom, most of these countries have national identifying schemes such as a national identity number, or national identity card. The cultural and genetic aversion for such a scheme within the US may explain why this country is behind when it comes to digital identities. The fact that the United Kingdom is also working very effectively towards government enabled digital identities shows there is no excuse for the US to remain a laggard.

10) Natural identity solutions providers are financial institutions, banks or fintech startups.

11) Two strong themes emerged towards the end of the day. First, there is a natural tug of war between the yearning for protecting privacy and the craving for transparency and disclosure to combat illegal activities. This natural tug of war is exacerbated by the sensitive nature of identities in commerce. Indeed, the private sector stands to monetize data – our data – in myriad of ways in the digital age, which renders the issue of privacy, ownership and legality even more important. Second, especially in a country like the United States, the private sector both dislikes overt government interference and abhors uncertainty. As such to the question of how government could help which was asked by one high ranking Treasury official, most in the room, a cappella and in perfect musical harmony declared it important the government help the market create a framework to foster identity solutions. I interpret this pleas as the quest for the right governmental nudges and an active avoidance of rigid mandates.

12) Finally, although we did discuss a variety of subjects ranging from privacy concerns, legal and compliance issues, enforcement, technology solutions, identity vs data, the plurality of identities, one subject was notably absent from the proceedings: Identity rights. By identity rights I do not mean the right to an identity. I mean rights akin to property rights. In as much as property rights have been one of the foundational blocks of economic prosperity during the industrial age, I believe Identity rights will be a key engine for growth in the digital age. One needs to know his identity and the data associated with it are secured and that one owns them outright. In this sense data privacy is not enough. I have blogged about this in a previous post already. I suspect the issue of identity rights will be settled in different ways depending on context, via the courts in an organic way in the US, via legislative fiat in Europe. Be that as it may identity rights will emerge as currently our identity and data are neither tangible property nor are they intangible property and more than not are regulated by the various Terms of Service we seldom read but often agree to when signing up to use the various digital applications we spend more and more of our time with online.

13) One parting thought: I view this one day event in a very positive light, as a proof that the thorny problem of digital identities is being taken seriously at the highest levels of government in the US. a very positive sign indeed. The private sector, along with standards bodies, now needs to come up with proposals and submit them to various US govt bodies. I eagerly await the next chapters and hope I will be invited to follow on events at the Treasury or which other entity takes up the challenge.


Platform Banking Taxonomy


Like drunken sailors swinging fists at one another, we have been hurling around various terms to describe new ways of banking, new ways to deliver banking services. This post attempts to sort out a taxonomy and clarify the meaning behind the most salient terms.

I am using these terms within the context of the banking world in this post. Do note they apply equally to the insurance, asset management or payments worlds, indeed to the entire financial services industry.


API Banking: Also called “open banking,” API banking is the ability, for third parties, to access a bank’s software system thereby enabling a programmatic integration between an external third party application and a bank’s internal application via bank-grade security, authentication and access management.

Within the context of PSD2 in the European Union, banks are mandated to provide access to checking accounts, which will most probably be managed via APIs. In the US, several banks are working on developing various APIs to interact with a variety of fintech startups to provide an enhanced service to their customers or end users.

For example, Capital One has launched its DevExchange for 3rd party developers to leverage APIs it has built for two-factor authentication, rewards, and offers.

In and of itself, API banking is a tactic, not a strategy, although there can be strategic components to an API tool such as key policies, access management, volume, pricing. API Banking can be either push or pull driven:

  • Push: a bank can integrate to a service it needs (for example an API integration with a compliance service provider, or
  • Pull: a bank allows integration for a service its clients want or need.

Certain banks have started to develop APIs and early indications are these APIs are part of a bigger strategic intent. In other words, a bank’s API initiative could be part of a platform strategy.


Platform Strategy: The deployment of a set of business capabilities to maximize value creation across a value chain and articulated around defining what capabilities are core and remain within the responsibility of the bank and what capabilities are given to platform partners when delivering services or products to customers or users.

Technology companies such as Intel, Microsoft, Facebook, Amazon have been very successful at prosecuting platform strategies where value is delivered to customers while the platform owner/sponsor and the platform partners share in the value creation.

Historically, banks have crafted what many believed to be platform strategies where they owned the entire value stack and did not share with partners, In effect, banks created single-brand financial supermarkets. In our view, these efforts did not (and do not) qualify as platform strategies, as the platforms did not truly enable value creation along a value chain.

Platform strategies come in multiple flavors. For example, the platform strategy of Intel was/is very different than the one followed by Amazon. It should be noted that based on size, technical sophistication, market dominance, certain banks will own a platform – in platform parlance, they will be the platform sponsor – and its strategy, while other banks may, having strategically decided so, be partners of another bank’s platform strategy.

Certain large banks have developed platform strategies not immediately apparent to the fintech community. One example is the proprietary software platforms owned by global banks in the trade finance and supply chain finance sector.


Marketplace Banking: A type of platform strategy where a bank creates a digital place where third parties can showcase and sell their products and services to the bank’s customers. In a sense, a marketplace banking strategy is akin to the eBay or Amazon’s marketplaces where buyers and sellers of products meet and transact. Certain banks have or are in the process of developing app marketplaces.

The platform strategy, for the sponsor, will consist in defining the rules of engagement, the selection of vendors allowed to the marketplace, the governance, the monetization, data privacy issues, the level of technology integration, amongst other things.

Successfully executing a marketplace banking strategy will require the sponsor to deliver “match-making” capabilities to help consumers find the right producers—and vice versa. This will become a hurdle for many existing banks as they may be inclined to push their own proprietary products and services. A startup bank may be better positioned to deliver this capability.

Presumably, marketplace banking requires APIs. Retail Banks as well as Wholesale Banks can implement marketplace banking platforms. In as much as lending is predominantly a banking activity, notwithstanding non-bank lending, marketplace lending should be viewed as either a subset or first degree cousin of marketplace banking.

One can argue (as Philippe Gelis from Kantox has) that marketplace banking could be delivered by new entrants, such as a non-bank or a fintech startup or by an incumbent bank. Some fully digital startup banks in the UK have signaled their intent to build marketplaces.

It is my view, and that of Ron Shevlin, that this will be quite challenging for a startup to effectively deliver. To be successful with a marketplace banking strategy, the platform sponsor must be a “magnet” – drawing a critical mass of both consumers and producers to the marketplace. As a new entrant into the industry, this will be quite challenging for a startup. An existing bank has a head start as it has already has a critical mass of consumers to feed the marketplace. In other words, many have tried to become eBay or Amazon starting from scratch and only eBay and Amazon have succeeded.

Smaller banks could participate as vendors within the marketplace platform of a larger bank. In addition, it may be feasible for smaller banks to pursue a marketplace banking strategy if it is focused on a specific consumer segment with unique needs. We should expect marketplace banking to develop and segment itself by size, geography, type of service, type of customers.


Bank as a Service (BaaS): The delivery of certain banking capabilities in a programmatic fashion to enable third parties to deliver their own financial products or services.

For example, a bank could deliver AML/KYC services, checking account capabilities, financial data storage, payment services via an API. These services would then be used to build and deploy “last mile” financial services by a third party, be it a fintech startup, another bank, a non-bank. An analogy would be the technology services Amazon Web Services provides to its clients.

The strategic intent behind a BaaS strategy is the creation of new non-interest income revenue opportunities, created by driving down the marginal cost of delivering a given service to near zero.

BaaS can also deliver the necessary drivers to enable a marketplace banking strategy. A bank, a startup or a non-bank can implement BaaS, although an entity that is not licensed as a bank will presumably only deliver a subset of services, compared to a licensed bank. It should be noted that we are now seeing new entrants intent on providing BaaS, notably in Europe.

As with marketplace banking we should expect segmentation and specialization in this space. The various banks that have lent their license and/or balance sheet to provide certain services to alternative lenders (p2p, marketplace) should be viewed as proto-BaaS. Finally, certain fintech startups have developed a BaaS for specific services targeted at equity crowdfunding companies.


Bank as a Platform (BaaP): Fancy term for a bank’s platform strategy, does include API banking by definition and may include BaaS or marketplace banking.


A few more important thoughts. The “platformification” of the banking industry, in one way or another – as per the above definitions – will necessarily mean different approaches to strategic thinking and technology. As far as technology is concerned, and we have seen this occur with different industries and technology giants, such as the ones referenced above, open source and open standards or standardization of either technology building blocks or data/meta data and its associated methodologies and ontologies, are necessary and required.

We should therefore expect an acceleration towards standardization. We would not be surprised if certain financial technology building blocks would end up being released as open source libraries, very similarly to what has happened to the AI world (machine learning, deep learning) thereby helping the platformification process. Whether incumbents, new entrants or technology minded third parties with an interest in market optimization and social mandates do so is anyone’s guess.

I will also note that regulatory trends in the US may force banks to pursue platformification if banks are required to provide some kind of fiduciary responsibility for providing financial services (beyond just investment services).

If you want to learn more about the subject I recommend you revisit the following posts:

Articles written by Ron Shevlin:
The Platformification of Banking

Full Stack Banking: How Fintech Will Fuel API-Based Competition

Article written by Philip Gelis:
Why “Marketplace banking” is better for newcomers while “Platform banking” fits incumbents

Articles written by David Brear & myself:
Exploring Banking as a Platform (BaaP) model

Making Bank as a Platform a reality

Finally, I owe a debt a gratitude and special thanks to Ron Shevlin for pushing me to think through my arguments as well as having provided his thoughts and comments to this article.

As usual, thoughts and comments are welcomed and highly encouraged.


The Banker Men (Lyrics)

“The Banker Men” Lyrics
heavily borrowed and distorted from Sammy Davis Jr.’s “Candy Man” song


(chorus in parentheses)

(Banker men)
(Hey, Banker men)

Alright everybody, gather ‘round
The Banker men are here
What kind of banking do you want?

Sweet banking?
Sour banking?
Long or short banking?

Anything you want…

You’ve come to the right men
‘cuz we are the Banker men


Who can take the fed rate, push it oh-so-low
Then wonder why the rate of GDP growth is so slow?
The Central Bank can, any Central Bank can
Who makes monetary easing, oh-so-very pleasing
The Central Bank plan, the Central Bank plan

Who can take a yield curve, sprinkle it askew
Shower it with rate cuts and a miracle or two
Kuroda-san can, Kuroda-san can
‘cuz he floods us all in yen, then he floods us all again
The Kuroda-san con, the Kuroda-san con


(The Central Banker makes everything he monetizes satisfying and delicious
Now you talk about your retirement wishes, better hope for loaves and fishes…)

(Yeah, Yeah, Yeah)


Who takes the interbank rate, smashes it to rubble
To fertilize and monetize a bloated asset bubble?
The Bernanke man can, the Bernanke man can
He waves his magic wand and he floods the world with bonds
It’s the Bernanke man scam, the Bernanke man scam

Who can take the Euro, prop it up just so
Relax a bit, and then the bloody Brits decide to go
The Draghi man can, the Draghi man can
His yield curve is inverted, and policies perverted
It’s the Draghi man flam, the Draghi man flam


(The Central Banker makes everything he monetizes satisfying and delicious
Now you talk about your retirement wishes, better hope for loaves and fishes…)

(Yeah, Yeah, Yeah)


Who can take deposits, give interest close to naught
Keep the party going, and just hope that she’s not caught?
The Yellen-melon can, oh the Yellen-melon can
Doesn’t matter what we save, our pensions still get shaved
It’s the Yellen-melon slam, the Yellen-melon slam

If revenue’s a dollar, who can borrow three?
Then pass the bill to you, your kids and all your family.
Your Congressman can, your Congressman can
No point in getting angered, his district’s gerrymandered
It’s the Congressman sham, the Congressman sham


(The Central Banker makes everything he monetizes satisfying and delicious
Now you talk about your retirement wishes, better hope for loaves and fishes…)

(Yeah, Yeah, Yeah)


Give us a safe haven, please who can it be?
Forget our indiscretions and protect us while we flee
The Swiss Franc man can; the Swiss Franc man can
Zurich has its faults, but there’s gold in them thar’ vaults
It’s the Alpine-man band, the Alpine-man band

By punning on an old song, I‘ve bored you all to tears
But still, this took more effort than the Fed has made for years
‘cuz Alan Greenspan, Alan Greenspan
From boom to bust to boom, he’s the smartest man in the room?
It’s the Greenspan-man scam, the Greenspan-scam


(The Central Banker makes everything he monetizes satisfying and delicious
Now you talk about your retirement wishes, better hope for loaves and fishes…)

(Yeah, Yeah, Yeah)


(a-Central Banker can, a-Central Banker can, a-Central Banker can)
(a-Central Banker can, a-Central Banker can, a-Central Banker can)


Entrepreneurship and the Id Machine



Slavoj Zizek coined the term Id Machine to describe an engine that allows for the materialization of one’s desires. Id is the unorganized part of one’s personality which contains one’s most instinctual drives. The Id contains the libido which is the source of energy that is unresponsive to reality.

Zizek applied the Id Machine to two movies by Andrei Tarkovsky: Solaris and Stalker.

In both movies, protagonists are faced with an “area” – in Stalker the area is called the room, located within the zone – where their desires are materialized. Zizek names this “area” the Id Machine. The Id Machines are different in each movie. In Solaris, protagonists do not have any control over which desire materializes itself once they are in the Id machine, thus leading to terrifying realizations. In Stalker, protagonists need to figure out what they desires. The realization they sometimes do not know what they desire also leads to terrifying realizations.

Tarkovsky’s philosophical musings, as interpreted by Zizek give us one Id Machine that reveals the perils of our passive nature and another Id Machine that reveals the perils of our active nature. we get tripped by the unknown parts of our desires, by what we think are our desires and by our inability to formulate our desires.

I think parallels can be drawn with entrepreneurs, startups and venture investing. VCs and entrepreneurs all enter an Id Machine at some point, where our desires materialize. Outcomes are never certain. Some outcomes are unexpected, others should have been expected, very few come out as expected.

A Startup’s main protagonists – entrepreneurs and venture investors – need to go through much introspection to sift through their desires. By desires I mean goals, visions, strategy, tactics. Clarity and transparency are paramount. Paradoxically, as the libido is the source of energy unresponsive to reality; the entrepreneur – and to a lesser extent the venture investor – also needs to be “unresponsive to reality”. In other words, the entrepreneur needs to be unshackled from the constraints of reality in order to achieve his dreams. However, she should not make complete abstraction of reality. Complete abstraction from reality leads to either Solaris or Stalker’s Id Machine, with suboptimal results.

I was recently asked what I actively sought in blockchain startups when investing. My answer was interoperability with the real world, pointing to the necessity for a blockchain startup to take into account the realities of the law, especially in the context of securities law in the capital markets space.

I thought further about my interoperability answer in light of Tarkovsky’s movies and Zizek’s interpretation and believe I apply it to all startups. Further elaborating on interoperability, I define it as the quality to will a new reality while understanding the constraints of a current reality, incorporating these constraints within one’s thought processes, and using them to the best of one’s advantages. This is the quality I seek in an entrepreneur and in a startup. In Freudian terms, I seek an entrepreneur who can apply the right ego touches to her id. Too much ego touches and the id’s desires never materialize, too little ego touches and the traps of the Id machine come in play. The right ego touch is also essential in regulating the id’s tendency for instant gratification. Organic growth with the right tempo is often not recognized as one factor of success with startups. There are many pitfalls with fast growth and/or high valuations within short periods of time (too little growth also being a killer). This I view as being part of a certain interoperability with the real world, or with certain natural laws of organic growth.

I find the above amusing on a personal note as I have always been more Jungian than Freudian in my interpretations. That may provide me material for another post.


Financial Services Productivity


It’s a funny thing, productivity. Very easy to define – producing more with less – but more difficult to measure. Productivity is easier to define for a given company (revenue per employee for example), somewhat easier to compare amongst like minded companies in the same industry, more difficult to use as a metric across industries, complex when applied to services as opposed to manufacturing industries and utterly bewildering when taking into account qualitative factors.

Productivity occurs when firms “innovate”. I use quotation marks because there are so many different ways to segment and qualify innovation. At meta level, innovation is the application of better technologies to an economic process – a technology being a technique or collection of techniques invented by man.

The narrative unfolds as such: a) we invent new technologies, then b) we innovate by applying these new technologies, and as a result c) we become more productive.

Over long periods of time this cycle benefits societies as goods and services in a given industry become better and cheaper. As an example and as a result of productivity gains, there are now less individuals engaged in food production and the cost of food in our daily budgets has plummeted. In other words agriculture has become vastly more productive.

Contrary to what many may think, the financial services industry has always been a heavy user of technology. To name but a few, advanced telecommunications applied to financial services have facilitated cross border transactions, advanced computing has helped the securitization industry, advanced data science has helped intricate trade and investment strategies. I would therefore state that financial services firms, on the aggregate, have always been innovators.

Have they become more productive though? In absolute, or relatively speaking?

Looking at revenue per employee and operating income (OI) per employee as crude productivity metrics for 2015, Bank of America delivers $392k in revenue and $104k in OI per employee vs Facebook which clocks $1.24m in revenue and $435k in OI per employee. On the face of it, Facebook is vastly more productive than Bank of America. The comparison gets more interesting when adding Goldman Sachs with $1m in revenue and $240k in OI per employee and Visa with $1.23m in revenue and $796k in OI per employees. Obviously some financial services firms are more productive than others and rival tech giants such as Facebook. These comparisons are unfair though as the business models are vastly different. Still, firms like Visa – other likes MasterCard or the CME Group come to mind –  are more technology-intensive companies while any bank – with the exception of Goldman – are less technology-intensive.

From an empirical point of view, we know a majority of consumers and entreprises are dissatisfied with their financial institutions. Quality of service as well as user experience are poor, services are slow and inefficient, products and services are costly. Even if it is difficult to gauge the qualitative and quantitative impact Wikipedia has had on our productivity, it is undeniable there has been a positive impact. Even though it is difficult to gauge the qualitative impact of the financial services industry on financial wealth and health in the aggregate, it is undeniable the impact has been in certain instances negative.

From a macro-industry point of view, Thomas Philippon, a professor of finance with NYU Stern School, recently wrote that, as per his analysis and research, the unit cost of financial intermediation had remained constant at 2% from 1886 til 2015, see here. This means that any intermediated asset has cost users 2 cents for every dollar AND has remained constant for well over a century! This is actually the greatest indictment of the financial services industry one could every come up with. Arguably, during this period the costs of many products and services in other industries have dropped while quality increased. Not so for financial services.

To be clear, financial services firms have been innovators and they have become more productive as evidenced by the massive profits the industry has experienced. Shareholders and employees have benefited. (Even after the 2008 financial crisis, financial services profits have reached record highs. The banking industry alone hit a record of $1 trillion in profits worldwide in 2014.) The costs of financial products and services has not decreased for the end users. Further, as profits were more than adequate, the costs of delivering products and services did not decrease either.

Innovation and productivity did occur, only for the industry itself though.

When taking into account the massive scale of the financial services industry – between 15% and 17% of total GDP depending the economic cycle and the exuberance of financial markets – this has to result in major challenges for any economy. The primary function of financial services is to optimally allocate capital. In other words the industry needs to help us spend money, send money, receive money, invest money, save money, insure, in the best possible way. If the process whereby all these activities is essentially “rigged”, economic activity suffers. There are obviously high level considerations – fiscal, monetary and political – when analyzing the efficiency of financial services, especially from a macro point of view. I only focus on technology, innovation and the resulting business models that can emerge once “real” productivity takes hold, as opposed to “rent-seeking” productivity.

One can argue that Venture Capital is one of the enablers of sea-changing innovation with the systemic application of new technologies. Indeed, the first wave of fintech, emanating from the Silicon Valley and focused on backing direct to consumer models bent on competing against financial services incumbents was based on the oft successful VC/Entrepreneur strategy applied to other industries. That this first wave was not as successful as it was originally thought does not mean “end-user centric” productivity will not finally permeate financial services. On the contrary, it was a necessary first wave that shook the industry into action.

Whether incumbent will successfully reinvent themselves, startups will win meaningful market share or partnerships between incumbents and startups is the way of the future is opened for debate. What is not open for debate, is the unavoidable imperative towards finally lowering the marginal cost of delivering financial products or services and eventually lowering the cost of products or services (within reason as one cannot lower the cost of borrowing for example).

All the narratives unfolding under our very eyes – digitization, platform as a service, chatbots, roboadvisory, alternative lending, APIs, cognitive banking or insurance, blockchain, faster payments… – are emanations of this unavoidable imperative.

I recently checked US financial services payroll on the Bureau of Labor and Statistics’ website. Interestingly enough the US financial services industry employed approximately 8.5m people prior to the 2008 crisis. Employment stands now at around 7.9m and is expected to grow to 8.4m by 2020. I am puzzled by this forecast as I expect financial services industry payrolls to continue to decrease in developed countries (US and Europe included) as more inefficiencies are weeded out of the system. (Facebook employs 14,500, Visa employs 11,300 while BoA employs 210,000; there is still much to do.)

No discussion about financial services productivity would be complete without mentioning regulation. Indeed, regulators can be viewed as having been complicit in the building of a rent-seeking industry. The rate of change of technology has accelerated to such a degree and consumer behaviors and expectations have changed to such an extent that financial services regulators cannot afford business as usual. Thusly the novel approach to innovation the Financial Conduct Authority has taken in the UK or the Monetary Authority of Singapore. Every regulator is now actively thinking or devising new ways of engaging the eco-system they regulate and this includes how innovation impacts these eco-systems.

The lesson here is everyone is breathing fintech, from service providers to incumbents to regulators and startups, as a vector to deliver productivity gains.

I want Thomas Philippon to run the numbers in 5 and 10 years from now, and I will be crushed if the cost of intermediating an asset will not have dropped to below 1%. How low can we go?


Differential Diagnostics, Venture Capital & Zebras


Yesterday evening I had dinner with a good friend of mine who is a world renowned cardiothoracic surgeon. I asked him if he followed a framework when dealing with each patient and he brought up the subject of differential diagnosis. At its core, differential diagnosis is a method used to identify a disease when alternatives are possible while utilizing a process of elimination. A doctor will assess a patient in context (symptoms, patient’s history) and taking into account medical knowledge, go through a decision tree, starting from most likely diagnosis, eliminating each alternative until the right diagnosis is reached.

There are two approaches to differential diagnosis. The specialist and the generalist approach. The specialist approach – used by a surgeon for example – utilizes a sharp shooter technique, selecting from the most likely to the least alternative, one alternative at a time. The specialist approach is narrow and deep. The generalist approach – used by a family doctor for example – utilizes a broad brush technique, also selecting from the most likely to least likely alternative yet considering a group of alternatives together. The generalist approach is broad and shallow (and I do not mean this in a negative way).

Medical doctors have to learn an incredible amount of historical knowledge and then have to practice extensively in live conditions, in hospitals, before becoming experts in their fields. The body of knowledge at their disposal does not change markedly – it is not like we are inventing new diseases, ailments, different ways of breaking a bone on a regular basis. The medical tools, medical drugs at their disposal, and the medical techniques do change. So there is a constant “on the job” training occurring.

The framework I use in venture capital strikes me as eerily similar to differential diagnostics. First, I  am a specialist venture investor as I only invest in fintech. It goes without saying that I need to develop a very deep understanding of the financial services world in order to be effective at my job. Without explicitly knowing – it until now – I have developed a sharp shooter approach, akin to the one used by my surgeon friend, that allows me to very quickly assess the merits of a payments startup for example. For each of the five sectors that comprise fintech – lending, capital markets, insurance, asset management and payments – I have a top 10 of “things” I look for for which the presence or the absence are a deal killer. I rarely need to go past thing 3 or 4.

I use the sharp shooter differential diagnostic approach when I first encounter a startup. it is a way for me to eliminate the noise and get to the signs fastl. If I am still interested and impressed past this first stage, I will switch to a generalist differential diagnostic approach where I bunch groups of “things” and attempt to figure out, holistically adds systemically, patterns I like/do not like or that make sense/do not make sense, repeating the process until I eliminate the startup as a potential investment or I confirm my initial positive signal.

Much like my surgeon friend who has to go through thousands of cases per year to hone his skills, I go through approximately 1,000 business models per year. This is the material I need, along with historical knowledge base I built over the years – a mix of theoretical knowledge and many years of practice as both an operator and investor – to keep current. The number of business models does not change at the margin that much, the number of ways a team should be built, how a startup should be scaled, a board should be architected – all the business aspects of building a business –  do not vary that much. What changes are the the technologies and how they are applied to specific business models. So I need to constantly learn that aspect to stay ahead.How AI, quantum computing, AR will be applied to fintech are my learning curves.

I continue to apply both differential diagnostics frameworks during the lifetime of an investment, constantly toggling from one to another.

I believe the best VCs are good at differential diagnostics. Not only because they master the framework and have built their own heuristics in their particular domains, but because they also know when to switch from sharp shooter to generalist differential diagnostics. That is a crucial skill. I also believe top VCs are more adept at applying differential diagnostics in context. By that I mean that – taking a fintech example – a US payments company may need a different sharp shooting approach than a EU payments company, while one may need the same generalist approach for both. It all depends on nuances relating to culture, jurisdiction, consumer/user behaviors, market structure. I tend to call these nuances “terroir”. Yes, I like wine. Knowledge of terroir will help you choose the right differential diagnostics approach at the right time, and load the right decision trees.

I also believe specialist VCs have an edge over generalist VCs. To be clear, both need to master the two differential diagnostic techniques. The specialist VC will always have an edge with the sharp shooter technique given the required deep knowledge she needs to operate in only one field. This is especially important considering the changing VC landscape is currently experiencing: the rise of crowdfunding and angel investing on one end of the spectrum and that of corporate VCs, sovereign wealth funds, mutual funds and large PE funds on the other end of the spectrum may force traditional VC funds to specialize in order to retain an edge. Specialized VCs may be the way of the future.

I am also well aware that medical doctors have an edge over venture capital investors when it comes to track records. On the evidence, declining mortality rates and improved longevity beat hands down VC-backed startup survival rates. This means that even with the best differential diagnostics tools and the most astute and timely ways to apply said tools and make a decision, venture investing is an extraordinarily difficult business to succeed in. There is much literature attesting to this fact. VC investing and startups building are ruled by power laws.

I do not pretend to disprove nor fight this fact. What I do is try to refine the odds ever so slightly. For me this means to always have Zebras in mind.

Theodore Woodward, a 1940s professor of medicine coined the aphorism “When you hear hoofbeats, think of horses not zebras.” He meant that if you diagnose something “normal” applying your diagnostic tools, there is a great chance it is indeed a “normal” thing and not something else, something “exotic”.

This works well in the medical field. Not so well in venture capital.

Hence, if there is one thing that keeps me up at night, it is Zebras. Due to the unfathomable emerging properties of large systems, venture investing breeds many more Zebras than horses, even though you may have correctly diagnosed a horse from the beginning. By that I mean that you may start with a horse, but due to unforeseen circumstances, you end up with something else, a Zebra. Very few Zebras end up with positive outcomes. The great majority of Zebras experience neutral to negative outcomes.

Thusly it is imperative to be paranoid about Zebras. I endeavor to excel at differential diagnostics which is a necessary requirement but not a sufficient one. Additionally I try to take risks I can measure in ways that attempt to mitigate negative Zebra effects. I shy away from entrepreneurs and startups that open themselves to fragility. I favor entrepreneurs and startups that strive to capture optionality and build antifragility. This means favoring entrepreneurs and startups that exhibit the right mix of technology, business and talent (the necessary requirements) AND that will thrive during volatile business conditions OR that do not include business variables whose rate of change increases negatively as business conditions fluctuate. Examples of fragility would be a cost of acquisition that increases as the startup increases traction, churn that increases the more clients are acquired, a loan default rate that increases as interest rates increase, a technology build that increases in complexity even as the startup matures. I picked up fragility and antifragility concepts from Nassem Taleb, and encourage anyone involved in investing and startups to read his work. Much more could be written about how one can apply antifragility thinking to startup investing; for another post maybe.

In as much as I apply differential diagnostics techniques to scrutinize the form and substance of a startup, my Zebra heuristics helps me understand the likelihood such form and substance will behave positively in dynamic situations. Not a perfect approach for sure.

The best VCs excel at diagnosing the right horses then shunning the patently negative Zebras. This still leaves the field wide open for a variety of surprises.


Fintech Food for Thought


Statement: It is cheaper to create a fintech startup today than 15 years ago, yet very few fintech startups reach escape velocity and have been able to build a sustainable business yet. There are plenty of fintech unicorns but there is only one PayPal to date.

Question(s): Does the fintech startup scene obey an even more severe power law of success or is it too early to tell?


Statement: Financial Services incumbents continue to be hurt by a low interest rate environment that hurts their profitability and severely constrains them in the marketplace.

Question(s): Would a high interest rate environment limit financial services innovation to systematic progress, to the detriment of systemic progress? Would interest rates increases limit the ability disruptive fintech startups have at competing against financial services incumbents?


Statement: Incumbents notoriously do poorly with innovation. They are beset by agency issues, inflexibility, bureaucracy. They are also the first to retrench when failures arise.

Question(s): Will incumbents exhibit the same tendencies at such a pivotal point of transition to the new digital age? Or will they exhibit more resiliency as a matter of survival.


Statement: New technologies, new behaviors, new business models are giving rise to the omnipresence and the power of networks and platforms in an industry where very complex processes are the norm and where mastering these processes require depth and breadth of knowledge.

Question(s): Which is more likely, a) disruption coming from fintech startups alone, b) fintech startups failing to dislodge financial services incumbents, or c) collaboration between startups and incumbents?


Statement: Many fintech startups are building businesses in either fragile activities (lending) or “race to the bottom” activities (remittances, p2p payments)

Question(s): How difficult will it be for these startups to build resilient businesses long term? Will financial services incumbents be negatively impacted?


Statement: Most if not all financial services operations are eminently complex, standards and regulatory rules add to the cost of doing business, even more so when cross border processes are taken into account.

Question(s): Does this mean the capital requirements to build a sustainable fintech startup at scale – and the current size of financing rounds – is too high or too low? How will financing rounds size trend going forward?


Statement: Financial services incumbents boards are light on technology gravitas and knowledge. Fintech startup boards are light on deep financial services knowledge and understanding.

Question(s): Which will close the knowledge and experience gap first? Can the gap be closed?


Statement: Innovation is about taking risk. Running a financial services business is about managing risk.

Question(s): Can these two activities be reconciled? Under what circumstances?


Statement: The financial services industry is undergoing profound change and is also under tremendous stress. Banks, Insurance, Asset Managers are faced with existential threats – real or perceived. Every participant in the industry is responding to change, even forward thinking regulators in certain jurisdictions – UK, Singapore.

Question(s): Can financial services regulators avoid further change to their own business models? Can they get away with systematic change or will they have to contemplate systemic change? Are the equipped to innovate within their midst? What will be the consequences if they do not change and adapt?


Statement: Financial services participants such as PayPal in the US, Starbucks – and others – “hold” sometimes more money on behalf of their customers than certain banks do. These actors do not hold bank licenses nor are they subjected to the same level of scrutiny as banks.

Question(s): Will this trend increase, both in terms of quantity of money held and number of participants? If so, will regulators pay a closer look at these participants and will regulation take into account the weight these participants hold within the overall market structure?


Statement: Bank or Insurer owned Venture Capital firms invest with a strategic mandate. Independent Venture Capital firms are not encumbered but such constraints.

Question(s): Which yields the best outcomes? For investors, for the incumbent parent? Is it sufficient for a bank or insurer to own its own venture fund? Should it be better for a bank or insurer to invest in an independent venture fund? Would both owning a venture fund and investing in an independent fund be optimal?


Statement: Financial services incumbent IT/IS staff are usually convinced they are better at building new products, services, platforms. Fintech Startups are usually convinced they are better at going to market first.

Question(s): Which is the most value destructive behavior? Which behavior is the easiest to correct?


Statement: Fundamental and economically productive product or service or business model innovation in the financial services industry has been scarce- e.g. mortgages, ATM, securitization. Most innovation has benefited the speculating activities prevalent in asset management, trading, capital markets.

Question(s): Will new technologies and their application via fintech further this trend or invert it?


Statement: Many seasoned and reputable venture capital investors have gone on record stating corporate venture firms do not know how to invest and incumbents have a poor record with innovation. Most corporate venture capital investors are convinced fintech startups know little about the financial services industry.

Question(s): Which belief is the most erroneous? If true, which is easiest to upgrade?


Statement: In part due to local legislative and regulatory DNA, in part due to entrepreneurial genius, in part due to the size of their market, Chinese fintech firms (pure plays or children of Chinese tech giants) are ahead compared to their Western brethren. Further, based on recent evidence, cracking the Chinese market is a non trivial endeavor for a US or a European startup. US and European fintech actors do not enjoy the same advantages Chinese fintech actors do.

Question(s): Will Chinese fintech actors expand to Europe and the US? If so, how will Western regulators and legislators react? Will Chinese financial services markets mature to the point of being opened and interoperable with the outside world?


Statement: To date, the vectors of financial services industry disruption and innovation have been technology, a change in consumer and enterprise habits, the Great Recession, strengthened regulatory oversight, entrepreneurial spirit and a low interest rates environment. These have, to a large extent been forced upon the industry and its incumbents. Notably absent has been the political sphere – executive or legislative.

Question(s): Will the political sphere engage with fintech and the financial services industry transformation? What will be the likely effects?


Statement: Fintech innovation needs both talent and capital.

Question(s): Which of talent or capital is more constrained? Are we faced with a demand or a supply issue? How will this change in the future?


Statement: Transitioning from the industrial age to the digital age induces profound implications. The way we organize ourselves, transact with one another, interact with one another are and will be drastically different. So will the skills, business architectures, mustering of resources and capital to sustain new models. Particularly so in the financial services industry. Incumbents have the advantage of political clout, access to high level spheres of power and decision making. Startups and entrepreneurs master the art of creation – sometimes successfully. Be that as it may both need to see the future differently than they experienced the past.

Question(s):  Is that transformation purely technology and business dependent? If not can either startups or incumbents transform the industry for the digital age without political leaders that understand what the digital age needs? Have political leaders emerged in any country or continent that understands the new age we are entering and its implications to the financial services industry and fintech as its enabler?


Statement: We are witnessing many changes within the financial services industry. Yet, Money, the concept of money has not changed for may generations.

Question(s): Should the concept of Money change? If not, why? If so, which is the most likely vector to effect a change; technology, politics?


You are welcome to come up with your own statements and associated question(s). Please comment and share.