Decentralised Finance (DeFi) is the recreation of financial products (e.g. derivatives) and services (e.g. lending). DeFi will innovate far faster than traditional finance, but will be unable to break out of its niche without the trappings of modern FinTech.
What has FinTech achieved in the last decade?
I am extremely grateful for FinTech. Aside from providing me employment for the last years, the use of banking and financial services are far more enjoyable now than they were a decade ago. When I first moved to Berlin, getting a bank account was a bureaucratic nightmare of paperwork and bad German. Now I use N26 as my bank account, TransferWise to send money abroad and PayPal to settle up, all from my phone.
Despite all that, I would like to pose the question, what has FinTech really achieved in the last decade?
There are still some very big problems left to solve in finance. The 1.7bn unbanked should certainly be mentioned, probably alongside the extortionate fees paid by those remitting money. If you want something closer to home, then think of the financial crises which mean that we now earn 0% (or less) on our deposits.
In a world where we can send a WhatsApp message anywhere in the world instantly and for free, why can we not do the same with a bank transfer?
I would argue that FinTech has disrupted the distribution of financial services, rather than the underlying financial infrastructure. While this has created incremental improvements, to solve the biggest problems we’re going to have to change the infrastructure rather than just the facade; there’s only so much painting lipstick on a pig can do.
I would categorise FinTech into three different buckets:
- N26 — Disrupting the interface of banking, but the same old banking underneath
- TransferWise, Venmo — building a ‘layer 2’ solution because the underlying banking service doesn’t work well (SWIFT, Interbank payments)
- Unbundling & Rebundling — modern insurance apps like GetSafe are providing a service that was previously wrapped up in to a big company. Other FinTech’s wrap up these services into a platform like Revolut.