Betting On Marginal Advantage
A Look At The State Of Financial Technology (FinTech) Today
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We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run — Roy Charles Amara
Change, like growth, is rarely linear. While technology has continued to eat the world, financial technologies are yet to mature and scale up. As Robinhoods’ foray into deposit products in 2018 revealed, it is not easy to enter regulated markets. Understandably, regulations are designed to protect the common man. In December 2018, Robinhood communicated the roll out of a high yield deposit product (3%) which wasn’t insured by the Federal Deposit Insurance Corporation (FDIC) as is the case with deposit products offered by most banks. In its communication, Robinhood stated that the SIPC (Securities Investors Protection Corporation) insures its deposit products up to $250,000. SIPC responded by saying Robinhood did not contact it prior to roll out and that it insures deposits only if they are placed with a broker for the ‘explicit’ purpose of investing in securities.
As Financial Technology companies mature, they have entered into partnerships with incumbent financial services providers to learn to scale and deal with complex regulations. One thing is missing though — experiencing a complete business cycle from boom to bust and back. The incumbents, on the other hand, are shying away from out rightly buying FinTech startups.
This article looks at the state of FinTech today and their uneasy partnership with incumbents as both parties try to take away each other’s marginal advantage. It ends with a simple and profound challenge that both FinTech and incumbents alike need to tackle to gain the ultimate advantage.
“We’ll eat your lunch!”, said many a FinTech CEO to their counterpart within the banking and financial services industry. That proclamation has yet to come true as the incumbents deliver strong growth and continue to partner with FinTech companies to bring their technologies into their fold. On the other hand, FinTech companies need to scale, learn to deal with complex regulations and regulators. Finally, they need to stress test their business model…
