Courtesy: Business Insider
Welcome to the marriage of Technocracy and Finance. It looks a little bit like the financial equivalent of In-Q-Tel, the DARPA/CIA funded startup platform for Silicon Valley. The question is- is this the future of global finance? According to Technocracy News, it could become bigger then ATM's, PayPal and Bitcoin combined. If so, where does this leave cryptocurrencies? It looks as though Bitcoin, Ethereum, Ripple and a few others already have a seat at the table- along with exchanges such as Coinbase, Kraken, Bitstamp and Circle. A cursory look at the Fintech ecosystem tells me that a lot of financial power in being channeled into a centralized location... and that is never a good thing.
"The fintech industry no longer stands clearly apart from financial services proper, and is increasingly growing embedded in mainstream finance. We’re now seeing the initial stages of this transformation."
"For instance, funding is growing more internationally distributed, and startups are making necessary adjustments to prove sustainability and secure a seat at the table. Most fintech segments in the ascendant a year ago have continued to rise and grow more valuable to the broader financial system. Meanwhile, several fintech categories have had to make adjustments to stay on top. New subsegments are also appearing on the scene — such as digital identity verification fintechs — as new opportunities for innovation are discovered." This fits fine with cryptos such as Ripple, a coin that allows currencies to be transferred around the world... but it still looks like too much power in the hands of too few. If the bank you use isn't a part of the ecosystem, your funds are left out in the cold- frozen and unable to move with the same fluidity as the Fintech "insiders." In fact...
"As fintech’s power grows, incumbents will have no choice but to change in order to stay relevant and competitive. All around, fintech is becoming embedded in mainstream finance." Another troubling aspect is that the global financial technology sector is being run almost exclusively out of the City of London... "The nascent financial technology industry in London has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of the City of London's workforce is employed in financial and technology services."
One reason for the recent activity in this sector of the financial world is the threat of blockchain technology... in particular the decentralization. This appears to me to be an attempt by the legacy financial services entities (banks etc.) to maintain control of the world's money supply in a world that is heading toward decentralization. Here are the four key aspects of Fintech.
The fintech industry is far more than a group of digitally native, consumer-centric startups, although they are, in many ways, becoming the new face of financial services. It’s increasingly clear that fintech no longer stands apart from financial services proper, and is morphing into an integral part of the financial system.
To secure their position in the mainstream economy, some of the main fintech subsegments have had to adjust their business models. These include neobanks, robo-advisors, and alt lenders. Other fintech categories, meanwhile, have instead found that current conditions are well suited to their original models, and are seeing largely smooth sailing, like regtechs, insurtechs, and payments fintechs. Innovation and dynamism is still alive in fintech too, with new categories still emerging.
The rising influence of fintechs is having a dramatic effect on incumbents, from banks to insurers to wealth managers, pushing them to respond proactively to stay relevant. Incumbents are reacting to changes wrought by fintechs on three key fronts: the front end, the back end, and in their core business operations. As such, incumbents and fintechs are converging on a digital middle ground.
As this happens, the fintech industry is on the cusp of becoming an integral component of the broader financial services ecosystem. But it will likely first have to go through a complete credit cycle, and survive an economic downturn like the one that set the stage for its arrival in 2008, for this to happen.
One of the philosophies driving cryptocurrencies is an inherent mistrust of the global banking system. This seems to be an attempt to do an end run around cryptos, controlling which cryptos will be "allowed" into the Fintech system. I've never trusted Ripple because it's a "banker's coin." As Fintech becomes bigger and more systemically adopted, it will push many coins out of the market. This will allow the institutional investors to control the cryptosphere. Whether or not this is a "good thing" depends on what sort of investor you are... for small fry like me- this is anathema.