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Why are we talking about FinTech as if it's something new?

Author: 
Nigel Morris-Cotterill

I hate buzzwords. I hate management-speak. And I really, really hate trends that appear to be one thing when really they are another. And more than all of those combined, I hate marketing-hype bubbles where everyone talks in breathless terms about the means instead of the ends or, even, the process.

So it follows, even though I've been fascinated by technology for decades, I'm irritated by the growth of so-called "fintech."

And I'm watching all the signs of a bubble.

There a company called Metromile that's been quietly plugging away at developing a new pricing model for car insurance: it's such a brilliant idea that it should be the norm. Simply, it separates the value of the car when it's parked from the risk to the car and others when it's in use. For four years, the company has plugged away, un-noticed, even though it's raised USD200 million in venture capital for its development. Un-noticed, that is, until someone decided that the company should be considered as "FinTech." Why? It's about car insurance, not about technology, even though it does rely on interfacing various non-financial technology products and services. Now it's being talked about in glowing terms. It's ludicrous and it's the kind of thing that happens in bubbles.

Remember how we were all going to be on-line shopping overnight and thousands of millions of dollars were pumped into clunky and generally crappy websites and how that led to the .com meltdown of the late 1990s and early 2000s?

Regulators and others are anxious to be seen as supporting "FinTech." They compete to provide so-called sandboxes to persuade companies to do development in their country.

The grand-daddy of FinTech applications is crowdfunding, but somehow that doesn't seem to feature, probably because it's not driven by mobile apps. How, then, is Tilt considered "FinTech?" It's just an advertising platform that allows peer-to-peer payments. How that differs from facebook ads and PayPal transfers, except that it's all handled in one app, I really don't understand. The buzz is about the fact that you can advertise a party, distribute invitations, receive acceptances and get a pre-payment for entry. Apparently, it's becoming trendy on US college campuses. The question as to whether the company has any features that cannot be replicated by other means is, it appears, one that no one wants to ask.

Oh, and look at Eventbrite: it's been doing all of those things for more than a decade. So there isn't even anything new in that so-called FinTech product.

Don't get me wrong: I'm all for things that provide easier, cheaper access to services but what I don't understand is why the tech is now more fascinating than the underlying purpose. That's how we get bubbles.

Bubbles grow when too much money chases too few ideas, and where those with the money are involved in what amounts to a self-generating share manipulation scheme. I am not, suggesting that the investors or designers of these products are engaged in any illegal nor, even, immoral conduct. I am simply drawing a parallel between the nature of activity in the legal and illegal sectors.

In the illegal sector, the pump and dump artists buy shares, issue false statements to encourage the unwary to buy shares in the company to "pump" up its price, and then sell out, or "dump" before the truth becomes known and the price collapses. That's, ultimately, what venture capital is about: putting money in at an early stage, getting others interested in the company and realising that investment when the company has reached a reasonable RoI, and whether it succeeds or fails after that is someone else's problem.

In every bubble, investors try to get in early and sell out before the masses find out what they have bought.

In tech, companies are nearer to being in a bubble than many other enterprises: they have few if any assets, they rarely make a profit in the early years and so the owners are spending someone else's money. True, these days VCs are rather more likely to be paying attention to where the money is going than in the .com boom but even so, companies with nothing tangible to sell in the event of failure are priced at values that are simply insane. Shares are traded at prices that have nothing to do with the underlying asset value or, even, profitability of the business. And we are heading that way, back to casino markets, in the case of FinTech companies.

But there are other aspects: FinTech companies are being given a free ride in so many respects that established competitors are not. They are getting unfair advantages for no valid reason except fear by governments that they will appear to be Luddites.

If FinTech companies are to be allowed to undertake parallel banking functions, then they must be subject to a regulatory regime that is similar to banks, unless there is a way of tying their regulatory performance to that of banks and credit card companies, for example. Of course, KYC can be minimal where transactions are for minimal amounts but if the FinTech company is providing insurance services, or acting as a broker, then it must be regulated in the same way as any insurer or broker.

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