If you have been following fintech, bitcoin and consequently the blockchain, you would know that the underpinning technology is one of the most exciting things to emerge from the connected world since the internet itself. Why? Well the following question might give you a hint (one I was asked recently).
“What regulatory regimes are needed in a financial world where national sovereignty is increasingly bypassed?”
In other words, “How do we control and, of course, tax our citizens that are using bitcoin?” Legitimately, our nation’s leaders are asking, “How do we pull economic levers to put more or less money into the system, and how do we apply and affect fiscal and monetary policy in a world of bitcoin and new fintech business models where our people are leaving the reservation as it were?” Of course, they are also endeavouring to counter the funding of terrorism and money laundering.
The two key questions for me were:
Why bypass the current system? and
If leaving the financial reservation does equate to anarchy, what does that actually mean?
So I did what we all do and ‘googled’ it, and found an interesting definition of anarchy: “anarchism is a political theory which aims to create a society within which individuals freely co-operate together as equals”.
Not really what I expected, but as I am sure most people would agree, a very welcome concept and one that would resonate well with an open, democratic and pluralistic society.
As we know, this type of decentralised financial democracy is the underpinning rail that bitcoin was built on. I am referring specifically to of course to blockchain.
So why leave the reservation? In my view, the answer is either trust or cost. Greece’s recent financial woes resulted in a failed financial system. Not being able to access money meant more than just sustaining citizens in terms of food, fuel and shelter. It resulted in an evaporation of trust and had an immense impact on the cost of living across the country. Trust not only in the now, but in your future ability to meet your needs. If you don’t trust the financial system you operate within, and your Government’s ability to manage it, you need to find another way to feed your family or sustain yourself.
Bitcoin underpinned by the blockchain and all its elements – especially it’s decentralised consensus of ‘one source of truth’ meant that an underground of Greeks who understood Bitcoin opted to start using and living off it as a way to work, get paid and trade. Not many people know this happened, and I suggest that this will continue to be the case across more and more financial jurisdictions as we face more financial instability in the world, and not just in poor old Greece (land of my Grandfathers).
Of course, cost is a key driver in fintech startups. When it costs me $40 to send $100 to my cousin in Greece, that’s a clear and compelling reason to innovate. The financial service market is exposed mainly because of its lack of innovation, and arguably regulations that are out of step with the way modern business is being done.
When you are paying 1-2% on money and lending it out at 14-25%, you are ripe for new business models to ‘cut your lunch’, and they will have no shortage of customers.
Interestingly, most of the top fintech startups (according to KPMG’s 2014 report) are in the wealth management, capital raising for small business and microfinance, online broking, and payment solutions for ecommerce.
In their collateral they use terms like democratisation of working capital, purposeful remittance, peer to peer lending and of course blockchain.
I suggest that the fintech startup space is the hottest thing to hit the internet since the internet itself for one simple reason; the third ingredient of innovation, money or capital. To explain; the accepted underpinning elements of innovation are underpinned by three key things
1. Ideas – we have had a plethora of ideas bubbling up through VC’s and incubators/accelerators for nearly two decades or more. Ideas are abundant, but action around those ideas may need work.
2. Knowledge; the http protocol combined with smart search algorithms like Google democratised knowledge and continues to do so at an accelerating rate. We link to what we need to know now, we do it fast and we do it easy; that includes via video, written documents and individuals with expertise.
3. Capital; money to buy the resources and assets to realise the value of our ideas and get things done.
This third ingredient is where massive opportunities are. It’s the capital space that has been sitting there doing ‘not a lot’ in terms of innovation over the last five decades and I believe it is the missing ingredient to true innovation where radical and disruptive ideas are needed.
Blockchain is (I believe) the tool that will, with some serious disruptive business model innovation, underpin what our societies will look like commercially, legally and societally into the next two decades.
Combine that with what’s happening in software development at the moment where API’s are rapidly enabling instant capability that would normally take tens of thousands or even millions of dollars and months to build (I am referring to developers rarely code now, they assemble and integrate third party systems that use service as a software business models).
In a world where 30 million new devices are being connected every week, and the internet of things and indeed everything, is emerging on the horizon, fintech and blockchain startups are what I see standing out.
Furthermore, described as the democratisation of money, the emergence of an army of fintech startups rolling out new business models is a revolution not only in the the nature and system of money, but the democratisation of everything (for another article).
I am currently working with some leading organisations including Novatti (www.novatti.com) a global payment innovator to support ground breaking fintechs both from a technology and capital perspective, and continue to look for others (so reach out if you think you have something worthwhile), I may be able to help.