Is it the gold age of FinTech or not? This week it’s all about pro and con and an unexpected driver of innovation. Read on to find out more in the latest FinTechnologist Weekly:
FinTech Praise & Criticism and What Regulation has to do with it
The Golden Age of FinTech?
In July, we discussed the record numbers of the great FinTech frenzy. In London alone, FinTech firms tapped in the first six months of 2021 investors for more money than ever before with investments up more than doubled with $5.3bn year-on-year. Globally, it amounted to a record-breaking $54bn during first half of the year. Fast forward another quarter and we’re still on track for new heights: with a record $91.5 billion in global funding so far this year, the sector is booming. And it’s not only the total amount of investments.
Forty-two fintech companies became unicorns in the third quarter alone, making up a third of total unicorn births, according to the latest CB Insights State Of Venture Report.
The report also showed exits from the fintech sector also reached a new high, tallying 723 this year, a 25% increase from last year and more than double what we saw five years ago.
Golden times then?
FinTech is a Big Disappointment?
Or even colossal if you elsewhere on Forbes. The author, Matt Hougan, argues that since its birth back in the 90s little progress has been made. While many of us were using online accounts, ATMs and credit card, many financial services had not really improved. Wire transfers and stock transactions still take two days to settle (at least), online payments sometimes even longer and let’s not get into the mortgage business. Borrowing from a book, which I’m actually reading, too, he shows that the fees associated to a wire transfer using Western Union today are basically had quadrupled since 1873. Not exactly the kind of improvement you’d expect from innovation…
The causes apparently are the usual suspects, i.e. regulation, tradition and so on, but mostly in his view due to the fact that money had never entered the digital age as “the back end of our financial system is stuck in the paper era”.
All will be different because of DeFi, the abbreviation of decentralised finance, the subject the book is talking about. Thanks to the beauty of Blockchain technology, we can already do a number of things traditional FinTech never allowed us to, including taking out collateralized loans worth hundreds of millions of dollars in seconds as opposed to weeks, trading tokenized stocks around the clock with instantaneous settlement, or sending money to anyone in the world in no time and with insignificant fees.
While I personal am a big fan of these kind of innovations in particular and very supportive of DeFi in general, it almost sounds a little bit too enthusiastic, which unfortunately has been an issue ever since Blockchain hit the lime light. And Hougan admits that it’s still early days. So, what’s true? FinTech hooray or nay? Blockchain and DeFi as the silver bullet and solution to all problems? I wouldn’t got that far but I wouldn’t dismiss the potential either (of FinTech in general and DeFi in particular), so why not have a sober conversation about it?
Regulation as an Innovation Tool?
For one thing, I don’t subscribe to statements that all regulation is hindering innovation but requires a more differentiated approach. Interestingly, in a recent article Susan Friedman, Head of Public Policy, Ripple, discusses how European regulation acts as a driver for fintech innovation.
She describes how an active regulatory environment can sour innovation. She writes that “in the last few years, European regulators and local market authorities have introduced a range of new guidance and regulations in the finance and fintech sectors. These have been designed to help fuel innovation and enshrine customer protections as the industry develops, and include landmark initiatives.
I, too, have been critical about the activities of regulators in their struggle to keep track of the technological evolution of finance. I have, however, always appreciated the importance and sometimes need of regulation to create level playing fields and protect the justified interests of all stakeholders.
Susan Friedman continues to describe the key elements in more detail and I would encourage everyone to read it. If not, at least sign up to an honest conversation, but I do, of course, understand the need of (and sometimes also rely on) creating catchy headlines.
And that’s all for this week but if you have an interesting story, please connect on Twitter. And if you would like to join me on the new FinTechnologist podcast, the same applies, of course. So, make sure you get in touch and in the meantime, have a good week!
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