This blog is usually about Emergent Fintech; in this post I looked at Traditional Fintech. However, that breakdown may be too simplistic. So here is my shortened history of Fintech divided into 4 Eras (call them Version numbers if you prefer).
Each era builds on the previous era. It is like going to an ancient monument and seeing the layers of history. One era does not stop when another starts, it is just that the new era is where the innovation is happening and when the venture money is flowing.
- International Banking
- Driver: Bretton Woods, end of fixed exchange rates
- Years of innovation: 1972 to 1984
- Technology: multi currency accounting
- Winners: Midas + Kapiti + Kindle = Misys and Temenos
- What’s next? There are two scenarios:
A. These systems will need to be upgraded to real time for the modern era, leading to a boom in core system conversions.
B. Innovation will be external to these core systems which will be moved to end of life maintenance (and that will favor the outsourcing firms).
This is a subject for a different post, but I incline to the latter view.
Personal note: I worked for Misys after they acquired Kapiti (which had acquired Aregon). Returning back to Fintech in recent years, I have been shocked to see how little has changed in the world of core banking.
- Digital trading analytics
- Driver: market data in digital form
- Years of innovation: 1984 – 1994
- Technology: event driven analytics, real time, in-memory, message bus
- Winners: TIBCO, Reuters, Markit
- What’s next? Bringing these tools to the masses aka Low Cost Active Alpha or Democratizing Wall Street.
Personal Note: this was how I came into Fintech, through a company called Aregon which was a pioneer and did well but lost the market leadership position to Teknekron which became TIBCO (a story and what I learned from it that I relate in this chapter from my book Mindshare to Marketshare).
The first two eras where B2B or Traditional Fintech. The next two eras are B2C or Emergent Fintech.
- Social Mobile Analytics Cloud (SMAC)
- Driver: Internet
- Years of innovation: 2004 – 2014 (note, while fundamental innovation maybe in the past, there are still many years of rollouts, implementations, incremental innovation and benefit realization – the big money making phase is still ahead of us).
- Technology: Social Mobile Analytics Cloud (SMAC)
- Winners: Lending Club + Angel List
- What’s next? Lending and Equity investing bypassing the Bank intermediated model gets to scale. In other words, more of the same but when this really goes mainstream it will have big impact on all business and on society. I don’t see many new big winners emerging from this era, because it is defined by network effects. However there will still be lots of add-on innovation that is big and valuable. For example, while we might refer this as the Facebook era, companies like Twitter and Spotify are big and valuable.
- Driver: Consumers becoming producers
- Years of innovation: 2014 – 2024 (guess, most past eras have had about 10 years of rapid innovation)
- Technology: Blockckain
- Winners: Too early to tell.
The name for this era is still up for grabs. It could be the Blockchain Era. That is certainly the name that is popular today. However, that is like calling the Dot Com Era the HTTP Era, or the Social Media era the HTML Era (as it democratized HTML). It is too tech centric.
I have called this era:
“Consumers Become Producers”
The reason I chose that name is that the the social media (SMAC) era still rested on the notion that the world is full of consumers with traditional jobs that need to be marketed to. Social Media (as a business) just delivered those consumers to the companies that made stuff. The reality is that over half the population globally (maybe 40% in America, less in Europe, more in the developing world) are free agent micro business entrepreneurs. They are Producers before they are Consumers, for the simple reason that until they produce and sell something they have no money to buy & consume other stuff.
The “sharing economy” (lousy name, it is really the “rental economy” or the “squeezing cash out of spare resources economy”) recognizes this shift. It is no accident that Blockchain entrepreneurs look towards offering cheaper intermediation for sharing economy services as one of the early use cases.