On 8 November, I attended this CFA-organised unconference (defined as “a loosely structured conference emphasising the informal exchange of information and ideas between participants, rather than following a conventionally structured programme of events”). The event was structured as an introduction, followed by a series of “pitches” of business concepts by a number of small firms with innovative, fintech-related ideas. The pitching organisations were all start-ups – indicative of the opportunities for new business models that fintech offers. While some of the business propositions were interesting, none seemed likely to revolutionise or significantly disrupt financial services (although I stand to be proved wrong on this).
In introducing the event, Marco Jean Aboav (fintech entrepreneur and head of asset allocation at MoneyFarm), gave an overview of how fintech has developed to date. He described three waves in the evolutionary process, namely:
- 1.0: pre-2008, mainly in the areas of online and mobile banking
- 2.0: 2008-2011, which saw a proliferation of online products and platforms in wealth management and asset management
- 3.0: happening now, in which companies are forming networks to essentially replicate the functions of a full-service bank
The fintech business environment is highly competitive. There has been significant investment by incumbents, but their legacy cost base makes them inflexible. Aboav estimated that they incur costs of roughly twice that of new entrants for similar offerings. It was not clear whether established financial firms are better able to leverage their existing client base, or whether they are concentrating their fintech marketing on new customer segments.
Five major sub-sectors to the fintech “industry” have been identified, which together cover the entire consumer life-cycle:
- Payments (including emerging market payment solutions)
- Insurance – currently the fastest growing sector, attracting the bulk of new investment
- Deposits and lending (including peer-to-peer, crowd-funding)
- Analytics
- Asset and wealth management – Marco observed that wealth managers are becoming the “new asset managers”, ie there is convergence between WM and AM
The sector is spawning numerous new entrants, who are typically legacy-free, consumer-centric entities, with simple, scalable business models and propositions. Profitability for new entrants is less of a concern than penetration (measured by active users, hits, etc) – the primary priority appears to be building a customer base, with the understanding that profitability will follow.
Offerings are differentiated by whether they are B2B or B2C – firms in the former category deal in large contract sizes and hence depend on an established track record, whereas those in the latter deliver a mass market offering and are typically less pedigreed.
Eight fintech new entrants gave an overview of their business offerings, summarised below.
Neudata specialises in sourcing, customising and re-selling unstructured datasets (not available through mainstream data providers) that can be used for trading, mostly to hedge funds. Their data sources include social media sites, transactions data (current accounts, credit/debit cards, receipts data), transport data and location data.
StockViews is a platform that connects asset managers to a network of vetted analysts, thus offering a cost-effective alternative to traditional bank-dominated buy-side research. Analysts operate independently, and are therefore more objective (so the logic goes).
FundApps offers a cloud-based service for monitoring regulatory compliance. Their platform mirrors the legislation in place for 87 countries, and they operate in partnership with a major established law firm.
Obsidian Solutions has created an interface that helps asset managers build their understanding of, and hence relationships with, retail investors. They use social media sources to obtain additional personal data to learn more about investors. Their offering is also capable of generating automated, bespoke reporting and CRM.
The Syndicate Room is an equity crowd-funding platform for HNW and sophisticated investors.
Closir facilitates corporate access in EM and frontier markets. Through a tech-enabled interface, they help connect investors and target companies.
ZeroFlows helps asset managers look for liquidity information in emerging and frontier markets, and assess the potential market impact of proposed trades. They help directly connect sellers and buyers in these markets to reduce trading costs in a potentially illiquid trading space.
Bondit provides algorithmic advice for fixed income portfolio construction. The software is being marketed to bond PMs, banks and HNW advisers. Their platform enables construction, rebalancing and stock selection in fixed income portfolios.
The unconference was concluded with a telling anecdote: in 1975, while an employee at Eastman Kodak, Steven Sasson invented the first digital camera. However, the company was unwilling to develop the technology for fear of cannibalising its existing, highly profitable, print film business. As we know, Eastman Kodak is no more. To what extent is this a salutary tale for the investment industry? It certainly seems worth bearing that story in mind as we continue to explore the applications of technology in financial services.