Rise of the Fintech – Coders vs Bankers
Remember videostores? A few years ago, every shopping street seemed to have a video store. Who could have predicted that within years they would disappear from the face of the earth? The first disruption was e-commerce, the second video downloads and the third video streaming. The lesson isn’t simply about new technology. It’s about how to sense the future and respond accordingly when this sort of disruption has become a permanent fact of life. It’s the result of everything from automation to outsourcing, deregulation to globalization, personal computing to the Internet. These changes have vastly improved productivity and connectivity, paving the way for tremendous business innovations and consumer benefits.
The first innovations in the financial world are already there and the Authority for the Financial Markets (AFM) and the Dutch Central Bank (DNB) rightfully consider innovation essential for a healthy market economy. Last week the Authority for Consumers and Markets (ACM) expressed itself in similar terms. The AFM and DNB have turned words into action and recently launched the so-called InnovationHub for innovative initiatives.
We live in a Fintech world. A large part of the financial sector is very concentrated and competition is not effective. Fintechs could help to improve this. For instance, digitisation increases the ability to interact with the customer. Following the example of technology companies such as Google and Facebook products can be continuously and incrementally improved based on real-time user experience.
According to a recently published PwC report ‘Blurred Lines: How Fintech is shaping Financiel Services’ all financial parties expect to be hit by innovative technology. Traditional market players fear to lose more than 20 percent of their business to new entrants.
London has successfully developed as the most powerful European hub for Fintech and other innovative start-ups in recent years. However, the Continental European hubs are catching up. In 2015, a Roland Berger study put London in 6th place among the top 20 start-up ecosystems worldwide. Newcomer Amsterdam ranked 19th on the list. Since then we’ve seen more and more enterprises using technology for an innovative business model in the Netherlands. Amsterdam, with its many financial services and software start-ups, has great potential to be part of the cross-European Fintech dynamic.
In this present environment of accelerated change, it is important that there is a climate in which Fintechs can freely share their ideas and where the regulator has the ability to reduce the red tape during the start-up phase. A good example is bunq, an innovative tech company with a banking license. It is the first Dutch greenfield bank since decades, however populated by Generation Y, coders and here and there “the odd one out” banker. I was involved as an adviser in bunq’s license application as well as during their start-up phase. The license application wasn’t a walk in the park. An InnovationHub or Regulatory Sandbox would have been welcome.
Now there is this great initiative of the Dutch regulators; the InnovationHub. Although they are not the first (that award probably goes to the UK), their effort is highly appreciated. Dedicated teams of supervisors will help innovative businesses to understand the regulatory framework and how it potentially applies to them. The InnovationHub will also identify areas where the regulatory framework needs to adapt to enable further innovation. Furthermore, the AFM and DNB are exploring ways to facilitate a so-called Regulatory Sandbox; a kind of testing ground that amounts to a controlled environment to test innovative financial products and business models.
According to the aforementioned ‘Blurred Lines’ report Fintech companies see the most problems in conjunction with traditional financial institutions in the differences in management and culture, operational processes and regulatory uncertainty. I strongly believe that initiatives like the InnovationHub can reduce the regulatory uncertainty Fintechs are facing during their R&D and startup phases.
Therefore, I am proud that I’ve been asked to advise on and contribute to the InnovationHub.
“Innovation distinguishes between a leader and a follower.” – Steve Jobs