We had to finally come to Silicon Valley. All other innovation centers measure themselves against Silicon Valley. This is the biggest Unicorn breeding ground in the world. Silicon Valley breeds so many Unicorns that the bragging rights now only go to those who build Decacorns ($10 billion) and the only Fintech Decacorn contender is Lending Club from Silicon Valley.
Ed: OK, enough of the breathless hype.
You cannot treat Silicon Valley like any other innovation center. In other innovation centers, if you take a niche like Fintech, you can find one Tour Guide who really understands what is happening locally and who is wired to the local Fintech scene.
Silicon Valley is too big for that.
Also Silicon Valley is not thinking about Fintech. Silicon Valley is thinking about big waves of change that as a bye-product will change Banking, Finance, Securities and Insurance (BFSI) and every other “vertical market”.
There is a blockchain for that
This is why Silicon Valley is obsessed with Bitcoin and Blockchain. These are disruptive to everything not just money. The first big venture win in Bitcoin could be Coinbase (from Silicon Valley). It is – as always – unclear where the next big investment win in Bitcoin and/or Blockchain is coming from. The big platform plays at the bottom of the stack – such as Ethereum – are open source. The way to make money with Ethereum is to build apps. The big Silicon Valley VC bets in Bitcoin/Blockchain have most people (including me) scratching their heads:
- Blockstream; $21m avowedly without any commercial agenda.
- 21: $116m on something that could be so brilliant that they won’t reveal till ready or that could be the mistake of thinking that a lot of money can make Bitcoin cross to the mainstream ($116m will be a drop in the bucket for that).
Bitcoin maybe an obsession, but all the talk of changing the world should not distract from the fact that Silicon Valley is about making money on a massive scale. Today Silicon Valley is making money on a massive scale by changing the business of local transport (Uber) and hospitality (AirBnB). The obvious retort is that these are travel e-commerce ventures not payment ventures.
Yet the reason that both sides in the transaction use services like Uber and AirBnB is that they enable payments in a relatively low friction way. They are payments networks dressed up as travel services.
What else excites Silicon Valley today related to Fintech?
In London, New York, Zurich and other financial centers you can quickly assemble both Fin and Tech talent in the same room.
Silicon Valley does not have that advantage. It is a tech center, not a financial center. That has never stopped Silicon Valley producing the big winners by focusing on platforms and network and letting other firms add value on top. That is the story of Microsoft, Google, Facebook and, in Fintech, Lending Club (their API can be used for all kinds of innovation at the application layer).
It is easier to think big in Silicon Valley because the investors want to back big ambitious plans. In fact thinking small is a recipe for not raising money.
Silicon Valley has this uncanny ability to find the big winners through a fiercely meritocratic, technically focused ecosystem that “floats the good stuff to the top”. So I needed to find somebody who lives and breathes that fiercely meritocratic, technically focused ecosystem as well as deeply understanding Fintech. So I reached out to Quintin Gomez who I have had the pleasure of working with as CTO in two ventures. Rather than sing his praises, I will simply point you to his LinkedIn profile where I have already done that along with many others.
I asked Quintin the usual question I ask Fintech Global Tour Guides – where is the buzz in Fintech in Silicon Valley? What are people working on now that we will all be talking about in a few years time? Quintin pointed me to three areas: wearables, mortgages and KYC.
The impact of wearables on banking and insurance.
In August 2014, a panel of experts assembled by The Financial Brand took a view that the impact of wearables on Banking was too far over the horizon for any practical planning. As it impacts payments I would agree. The combination of Apple Watch and Apple Pay may make it slightly faster payment process, but using your watch is only marginally easier compared to using your phone and there are bigger issues to resolve before disrupting the current payment rails.
If you want to get excited about Apple Watch, read this superb Wired article on the story of how it was created. I am convinced that in a few years time I will be using Apple Watch more than my iPhone, but that is not the same as being convinced that Apple Watch is a big improvement on iPhone when it comes to payments.
However the data from wearables could be a big deal in Health Insurance. In this view, wearables is one part of the Internet of Things and the data from that could change auto and home insurance as Daily Fintech’s Rick Huckstep explains in this post.
The impact of Google on Mortgages
Buying a house is the biggest financial decision for most people. With reasonable Loan To Value ratios, mortgage lending is low risk and highly profitable. So far there have not been any big Fintech disrupters in mortgage lending (although we are tracking a few early stage ventures in Fintech 1,000). Quintin pointed out that the quantity of data that Google can put together around the marketplace, trends and personalization could completely change the business.
KYC and Digital Identity
Know Your Customer is one of the toughest challenges for both established banks and Fintech startups. Quintin pointed me to a new player called Trunomi that enables consumers to manage their own Personally Identifiable Information (Pii). The current KYC process is a nightmare for Banks and Fintech startups alike. Something radically new is needed and that could be Trunomi. The never-ending arms race between fraudsters and the cyber security forces can only end when we can easily prove our digital identity online. However that digital identity is so powerful that as Ethereum’s Vitalik Buterin pointed out:
“10 years from now it may be harder to change identity providers than it is to change countries”
That means we have to own and control our digital identity and release our Personally Identifiable Information when and how it suits us – you can have my driver’s license but not my passport and you can only have it for this one transaction. We should not have to trust our digital identity to any institution – whether that institution is in the government or private sector.
Trunomi is also interesting because it an example of a born-global startup. They were only founded in 2014, but show 3 offices – in Bermuda (where the Founder is based), Silicon Valley and Ireland. Silicon Valley could be where the big early stage decisions are made on Sand Hill Road, but the HQ decision is not tied to that and the team should be wherever the tech talent can be assembled cost effectively and close to the market (and the market is much less American dominated than in the past).