John Biggs is CEO of stealth bitcoin startup Freemit and a former editor at TechCrunch. His work has appeared in publications such as The New York Times, Gizmodo and Men's Health.
In this opinion piece, Biggs takes aim at out-of-touch banks and timid FinTech investors for what he argues is the way they are disrupting innovation to the detriment of consumers.
In speaking with FinTech investors and the companies they’ve supported, I’ve found one thing to be true: FinTech in the US is an incremental game of kick-the-can populated by entrepreneurs who are incessantly stymied by frightened bankers and investors.
If there is any one place ripe for disruption, it is the milquetoast world of financial technology.
In building Freemit, we met countless entrepreneurs who walked a similar path. They wanted to change the way something worked in an implicit way, whether it was through a new way to manage payments, a new way to send money or a new way to create contracts.
These entrepreneurs had pedigrees far beyond what is expected of the average team building the latest Silicon Valley darling, and they were aware of the limitations of FinTech and the perils that awaited them.
When we began our process, we were told again and again that the road would be hard and we would be stopped at every turn.
This is absolutely true and endlessly frustrating. The US FinTech space is timid, timorous and inbred, and the room for disruption is defined by how best to wedge yourself into existing scams.
Innovation in US FinTech is not rewarded. It is considered suspect.
Anything that upsets one person in a big bank is immediately scrapped. Ideas are neutered and spayed with abandon and all that’s left are "software solutions" that entrepreneurs hope to sell for a few million a year to an IT director who didn’t say "No" that day.
The result? The winners are me-too widgets that make one trader’s life better in one building in one office on Wall Street. Entrepreneurs essentially give up and fall back to status-quo ideas that are software-only and perhaps make trading easier.
In short, they abandon real innovation in order to kowtow to the banks, regulators, and whoever else is having a bad day because their golf game was interrupted by a server fault.
Sure, there are folks out there trying mightily to change the way things work, but they are not being rewarded. Sit down and talk with some old-guard financial types and you will see that improvements to their creaking ships are unwanted and seen as too difficult or frightening to implement.
Amazing ideas – ideas that will pull the banking industry out of the coming doldrums – are suspect.
Make no mistake – the banking industry is in trouble, and millennials want no part of the old regime.
"They have their own tools and their own rules, and the traditional legacy scheme that we've set up for doing things in certain institutional sectors doesn’t really matter to them," said Donna Sabino, senior vice president at Ipsos MediaCT, in a recent Forbes article.
The report goes on to note that Millennials can expect a $41tn wealth transfer "through mid-century".
"Their financial behaviors have the potential to redefine financial services and transform how financial services companies interact with their customers," writes Laura Shin.
To some degree, the improvement over the status quo can be as simple as slapping a prettier face on an old system. But even this is fraught with backwards thinking. I mentioned chatbots to a Chase executive who said they already had chat in place. He meant a way to request your balance via text message.
Who is doing it right? The only (former) US person I can think of off-hand is Erik Voorhees, who abandoned the US entirely and holds no customer money.
By playing it completely safe – no regulator can touch his business even though they’d love to – he has proven that there is no benefit to incorporating a FinTech company in the US. He is even transparent about being hacked. Considering the average bank would only admit defeat months after an attack, his is a bold path.
Folly of 'blockchain'
How can US FinTech survive?
Primarily through acceptance of some risk as well as by embracing new technologies on the terms of those technologies. And that doesn’t mean co-opting the tech and paying lip service to its value.
"They started with denial," said technologist Andreas Antonopoulos. "'Heh, Bitcoin. Go play you little hackers.' Then they noticed it wasn’t going away. So they started getting angry. 'Err, Bitcoin… Criminals! Pedophiles! Terrorists! The world will end if we allow normal people to control their own money.'"
Further, pretending to support innovation is silly.
"'So that nice open, decentralized, borderless, peer-to-peer, open-innovation, open-access system you built,'" said Antonopoulos. "'Well, we can build one that is not open, not decentralized, not borderless, not open-innovation, and not open-access that we control completely… blockchain!' And they’re missing the point."
No one will deny that the stewardship of great wealth is a frightening responsibility.
But by abandoning innovation for safety, that stewardship is done in half measures. Like the parable of the three servants to which the master has given out money, we find that Europe and Asia are the first two servants and the US is the third.
The two wise servants invest the master's money and make the master a great profit. The foolish servant buries it and returns with nothing more than the perception of security.
That this is the case is a true shame and leaves the US in the dust – to the benefit of every other region in the world.
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