Fintech is entering the third wave and this will be a wild ride



Disruptive change typically goes through three waves:

Wave 1: Everybody says that this is revolutionary. This is the initial hype wave. The basic ideas are right, but the timing is way off.

Wave 2: Everybody agrees that this is evolutionary. This is when realists point out that change takes a lot longer than the original promoters of change led us to believe and this leads to the Wave 1 ideas being discredited.

Wave 3: Everything changes. Some incumbents fail, some transform and thrive and a new power structure emerges with some new players.

The Internet went through these 3 Waves

Wave 1: This is revolutionary. From about 1994 to the peak of the bubble in late 1999.

Wave 2: This is evolutionary. From mid 2000 to around 2004. After the dot com bubble burst, everything digital was declared dead and the only tech was enterprise tech and that needed to be incremental and very low-risk. Remember Intranets and brochureware websites?

Wave 3: Everything changes. From 2004 to today, when the search and social era of GAFA and BAT emerged. The change envisaged in Wave 1 took longer than forecast, but the eventual impact was far bigger than even the most wild-eyed visionaries had forecast.

The 3 Waves look like this in Fintech:

Wave 1: This is revolutionary. After the Global Financial Crisis in late 2008 to the Lending Club IPO in December 2014 and an acceleration in VC funding in 2015.

Wave 2: This is evolutionary. This is what we saw in 2016, when Bitcoin became totally discredited and the bellwether Fintech stock, Lending Club, blew up. The key belief in this wave is that incumbents control the pace of change. Nobody debates that change is needed and change is good, but entrepreneurs are told to knock politely on the doors of the incumbents and sell technology to them.

Wave 3: Everything changes. From 2017 onwards. This post explains why.


Why Fintech is a big deal and will meet a lot of resistance

Financial Services is a big % of GDP, of employment and of corporate profits. Many big companies, that are not labelled as Financial Services, make a lot of their profit from Financial Services. By some estimates, Financial Services accounts for as much as 40% of corporate profits in the Fortune 500.

This article on Bloomberg does a good job describing how finance came to dominate-the US economy and you could write a similar story about the UK and Switzerland.

Almost all of this can be digitized and is therefore susceptible to disruption.

In short, there is a lot of money at stake.

That also means that a lot of money is spent to persuade people that nothing will change and the status quo will remain. Perception does impact reality (aka mindshare leads to marketshare).

However, this is PR. The reality is that incumbents can no longer dictate the pace of change. They can benefit from change or be hurt by change, but what they cannot do any longer is dictate the pace of change.


Why incumbents can no longer dictate the pace of change

Imagine Blockbuster saying “we will decide when and how streaming video will roll out”. Or Kodak saying that about digital photography or Borders saying that about book retailing. Disruption does not happen like that, particularly if it is Big Bang Disruption.

Straws in the wind indicating change

You can wait until the change is obvious, or you can try to get ahead of the herd. To do the latter, you need to get comfortable with incomplete data that I call “straws in the wind”.  It takes guts to see a few straws blowing about and bet that this is caused by an invisible wind, but that is what the best early stage investors do. The signs of change are far from obvious, but “the answer my friend is blowing in the wind”. We see 5 of these straws in the Fintech wind today:

  • Wells Fargo fake accounts scandal. This was what happens when organic growth slows because of a secular wave of change and managers pile on the pressure to maintain the illusion of growth.
  • Funding Circle raising $100m. This indicates that P2P Lending is alive and well. P2P Lending is a disruptive model where banks don’t dictate the pace of change.
  • Lending Club stock recovering. Since the ouster of the CEO in May 2016, the stock has recovered from a low of 3.51 to around 5.50 which is an annualized return of over 100% (which makes it one of the best performing stocks of 2016). Of course you can also measure from the peak (bad) or from the pre IPO early stage days (very good). The key point is that the P2P Lending bellwether is alive and well. Disclosure, I was fortunate to buy some shares at 3.51 after writing this post. You can get insights like this in your inbox every day – its free and all we need is your email.
  • Defections from the R3CEV blockchain consortium. This indicates that a bank-led consortium may not dictate the pace of change in blockchain deployment. An analogy would a consortium of camera makers doing something with digital photography. Looking at past waves of disruption it is much more likely that a startup harnesses the pace of change that consumers want and that individual banks figure out how to transform themselves for this new reality.


Expect a lot of PR that it is business as usual

During the evolutionary wave, the incumbents see an opportunity to slow things down and control the pace of change.  They do this through both acquisitions (buying and closing down a competitor or changing how they operate) and PR.

The PR works, because people have an instinctive reaction to believe that the status quo will remain. Banks have not fundamentally changed for hundreds of years, so it is really hard to imagine a world where Banks are not at the center of Financial Services.

For example, read this view by Goldman Sachs that the third wave of Fintech will be all about “partnerships between big banks and startups.  

I don’t mean to pick on Goldman Sachs, but I think this is PR and not reflective of reality. Some incumbents will make the transition after Big Bang Disruption and I think Goldman Sachs will be one of them. From personal experience of selling technology to them, I know that they were Fintech before it was called that and that they fully understand the level of disruption that is coming.

Partnerships between Banks and Tech Startups are real and a key feature in how Fintech evolves, but what is different this time is how the world has changed from Traditional Fintech when Banks controlled the pace of change.

Today , both Banks and Tech Startups need a reality check before a real partnership can be negotiated.


Partnerships require a reality check by both parties

When Banks and Fintechs first date, it is a Venus and Mars story. If the relationship continues, it goes through three levels of maturity:

  • Level 1: Incomprehension. The other party just looks strange and it is hard to imagine a productive conversation. Whether the emotion is fear or disdain, the reaction is the same – inertia. Banks seek to overcome the incomprehension problem by funding Accelerators and Hackathons.
  • Level 2: Funding. Banks take minority equity stakes in Fintech ventures through their Corporate Venture Capital (CVC) unit. This is the level that most relationships have reached. Funding while still in Incomprehension mode is clearly dangerous.
  • Level 3: Strategic. This is where the relationship drives needle-moving revenues and profits for both parties. This may or may not include an equity relationship; the strategic relationship comes first.

As Fintech entrepreneurs and Banks seek strategic win/win relationships, they will move beyond Level 2. The Corporate VC wave of funding into late stage Fintech that we saw in 2015 was a classic sign of an overheated market. The real win/win deals will be at Level 3 and equity will not be a primary feature of those deals; they will be straightforward revenue share deals. Big Banks will have to gain the trust of entrepreneurs who might worry that Big Banks want to learn from them and then build in house or buy a struggling competitor. In other words, Big Banks could be competitors or partners. Smaller Banks don’t have an option to be competitors; they are partners that entrepreneurs can feel comfortable with.

A real partnership only happens when both parties have a clear answer to one strategic question:

  • The one question that banks need to answer is where in the stack do you want to excel? Do you want to be a platform for consumer-facing businesses? Or do you want own the customer experience? Both are great strategies, but it is a choice – it’s very, very hard to be both.
  • The one question startups need to answer is do you want to market direct (B2C) or via channels (B2B2C)? The answer can be “both”, but only if the startup is getting real traction in B2C. Without that, startups are really doing B2B, meaning they are selling technology to Banks (aka Traditional Fintech).

The difference between inevitable and imminent

During wave 2, realists point out the difference between inevitable and imminent. This has killed many startups. They understood what change was coming and how to position for it, but underestimated how long it would take – and that means running out of cash and that is the end for a startup. That is one reason startups are so hard. However, that is no consolation for incumbents. They face a relay race where the runners who give up exhausted can pass the baton (IP & team) to a new runner. Investors lose money on one runner and invest in the next one.

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Wrap of Week #2 of 2017: P2P, Cloud computing, Next Money Aussie fintechs, Lemonade, Dabbawals.


We started the week reporting from the original and genuine perspective of lenders on P2P platforms. In Back to the future of P2P Lending, we interview one of those peers, Hector from New York shares his journey.

We looked into the positioning and involvement in Fintech of cloud computing providers like AWS, IBM, Microsoft and Alibaba.

We reported on the Australian Fintech finalists that will participate next week in Next Money Fintech Finals 2017 in Hong Kong.

Don’t miss out on our thoughts on Insurtech in Parsing Lemonade PR to see if P2P insurance is game changer or a mirage.

We ended the week with a global theme around Food and Fintech. Enjoy The dabbawalas in India point to future e-commerce and payments.

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DailyFintechRocks, is a user on the Fintech Genome platform who joined just last week. We are moved by his choice of username. Check out his activity here.

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Next Money Fintech Finals 2017 – The Aussie Finalists


Next week I’ll be in Hong Kong speaking at the Next Money Fintech Finals 2017. Sponsored by Visa and a host of other technology companies, the event slots in with Hong Kong’s StartmeupHK Festival and showcases the exciting developments happening in the Asia Pacific region.

Hong Kong is quickly turning into a vibrant hub for the fintech community down under. FinTech Hong Kong boasts just under 2000 active members while the SuperCharger FinTech Accelerator is now into its second year, helping launch businesses primarily (but not exclusively) who have an Asia bent.

During the conference 24 shortlisted fintech startups will compete via a six minute pitch for the coveted title of Next Money Fintech Finalist of the year. Three of these finalists herald from Australia – Tapview, Bugwolf and Boundlss.


Based in Sydney, Tapview technology allows online media platforms to charge readers on a pay per article basis, circumventing the traditional monthly subscription. Having already landed a partnership with Fairfax Media, one of Australasia’s biggest media empires, the startup is surely a strong contender for the FF17 title.


An insurtech startup based out of Perth in Western Australia, Boundlss is positioning itself as the employers ‘go to’ for staff wellness programs. The app claims its ‘secret sauce’ is its AI powered chatbot come personal coach Loyd, who can recommend handy stretches to alleviate back pain, diet suggestions and workout plans. The platform connects to over 150 wearables and apps already tracking health metrics for a user, which it no doubt leverages to makes its custom suggestions.

Health insurers are making serious inroads into the wellness space, as they look to find ways to reduce future claims. Australian insurer Medibank has partnered with loyalty program flybuys, offering bonus points for fruit and vegetable purchases. In addition bonus points can also be accrued for every 10,000 steps made a day, measured by linking up your Fitbit device.

The insurer has also partnered with local gyms via its GymBetter program, offering a pay as you go model via the app.

Airline Qantas has also made a foray into the health insurance space with Qantas Assure, white labeling an insurance product from NIB. The service allows customer to access bonus Qantas airpoints for switching and additional points for linking health data.


The third Australian finalist is Bugwolf. The platform allows software developers to access a vetted marketplace of testers and managed tests. Alternatively they can use the platform to bring together testing communities made up of employees and customers. It sounds a little like a more specialised version of Amazon’s Mechanical Turk or Upwork.

Banks and fintech companies, like other tech companies have to test their products – which costs money – so one imagines being able to deliver a high quality testing platform for less will be an element of the company’s pitch.

If you’re in Hong Kong next week and are keen to catch up for a coffee, drink or just a chat – either email me or connect with me on Twitter. Would be great to meet in person!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Wrap of Week #52 of 2016 & Week #1 of 2017


Happy New Year. 2017 will be faster than 2016, and we will all be held accountable for managing the fast pace of change. Financial services will continue to transform in various regions at different paces.

Daily Fintech crossed the 15,000 subscribers mark before Christmas and the P2P knowledge platform, the Fintech Genome, is growing with impressive engagement in great global conversations (check out the conversations with the highest engagement rate – Replies).

For the last week of 2016, we traveled to India and covered the main reasons it has gained and will continue to maintain a special spot in the Fintech evolution – read Why India is the country to watch in Fintech. We discussed Indifi & the rise of the Indian SME lending matchmaker; covered more than one Indian mobile provider in Mobile Wallet Sumo wrestlers face off in India; and focused on Mobile Microinsurance in India.

To begin the New year with an entertaining money playlist, check out the January 1 Daily Fintech post and enjoy.

On the first business day of 2017, we could not but cover a bitcoin related subject as the unbelievable steep ascent of bitcoin continued. Check out Another bitcoin ecosystem health check as we slide into 2017 and engage in the global conversation on “Help refine this bitcoin ecosystem health check methodology” on the Fintech Genome.

On the second business day of 2017, we chose to discuss about “Our Data” as a major topic that we, the GAFA people, should be aware of. Read Fintech solutions to problems of #GAFA people.

On the third business day of 2017, we chose to highlight the unstoppable automation trend through the AmazonGo grocery store example.

On the fourth business day 2017, we reviewed Insurtech Exits enabling Claims Management As A Service.

We ended the first business week of 2017, with a look into the huge mortgageTech market mostly in the US.

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Join the conversations on the Fintech Genome. The global community is sharing insights, creating great conversations, and business is starting to happen.

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Mobile Microinsurance in India


Consider these numbers to see the scale of the opportunity for mobile Microinsurance. In a developed market like the UK, 80% have some kind of Insurance. That goes down to 10% in India and 2.5% in Africa. It is pretty clear where the blue ocean market is.

These millions of new insurance customers won’t buy the legacy insurance products. The new products will need to be a) mobile end to end (i.e. not a mobile front end that requires you to use a laptop/desktop to complete a process) and b) available in very small amounts for very low cost (“microinsurance”). Whether these new mobile Microinsurance products are delivered by Insurtech entrepreneurs or agile established carriers remains to be seen.

Like Microfinance, Microinsurance is key to the transition from subsistence farming to a middle class life. One uninsured disaster and families face financial ruin. An insured borrower is also a better credit risk, so the two markets are connected.

Insurance Comparison Sites 

Sometimes, the simplest innovation wins. In India we see a lot of comparison sites. This makes sense in market such as India, where lots of consumers are buying insurance for the first time. Compison sites also have a proven revenue model.

Examples include:

Policy Bazaar

My Insurance Club

Compare Policy

Policy Bachat

However, these comparison sites assume that the insurance product fits market needs and just need to be marketed, discovered & compared. The existing Insurance products meet the needs of those who are already in the urban middle class. This is a big growth market, but still small compared to the millions emerging from subsistence farming into the lower rungs of a middle class life (what we will call the “aspirant middle”). That market needs some innovation at the product level, not just at the marketing level. For that we need to look at Mobile Microinsurance. But first, the one product they need most – crop insurance.

Crop Insurance – the government approach

Crop insurance is what the aspirant middle needs most. One bad harvest leads to ruin. So, it is no surprise that the Indian Government is proactive on this front. In February 2016, they launched the Pradhan Mantri Fasal Bima Yojana (Prime Minister’s Crop Insurance Scheme). The premiums will be fixed, depending on the type of crop. The Indian Government clearly don’t want a repeat of rapacious loan terms from some of the Microfinance players.

Crop Insurance – the private sector approach

Crop Insurance could use some of that Blockchain & big data magic that we see brewing in startups. Something as simple as flood insurance is no longer simple, now that climate change forces a rethink on existing models. We have looked at big data ventures going after this market such as Meteo and Praedicat and then we looked at how blockchain is being used for catastrophe swaps.

So, there is plenty of innovation help for any insurance companies that want to offer crop insurance at those Government-fixed rates. It is likely that meeting those Government-fixed rates and turning a profit will need an entirely new generation of insurance, with innovation front to back. For that we turn to mobile microinsurance

An idea whose time has finally come

Mobile insurance is nothing new. It emerged in India way back in 1997, when telecom operators launched mobile based insurance (dubbed “mInsurance”). This has not been a great success story. Often an idea is simply ahead of the market reality. In this case, the market needed mass penetration of mobile – tick in the box for that today. It also needs new entrants, not just Telecom operators which have to date not been as successful as they could have been at leveraging their network and customer base and billing relationship into a big position at the application layer.

BIMA – Mobile Microinsurance but not in India

India has the ingredients to be a leader in Mobile Microinsurance, yet so far the action seems to be elsewhere. BIMA Mobile comes from Sweden, has an office in London and operates in many markets including nearby ones such as Pakistan, Sri Lanka and Bangladesh – but not yet India.

BIMA bridges the gap between Telecom operators and Insurance companies.

Given the scale of the market and the digital infrastructure being laid down by the Modi Government, one can expect to see BIMA come to India soon. Whether it will be new Carriers or old Carriers who the partner with remains to be seen.

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Why India is the country to watch in Fintech


Sure, we are all watching China, but to win in dynamic markets you need to be both right and contrarian and it is accepted wisdom that China is the country to watch in Fintech. It is, but because fewer people see India as the country to watch, we decided to spend a week shining a light on Fintech in India. While many of our readers will be celebrating Christmas or Hannukha we reach out to those who did their celebrating at Diwali or Ramadan. 

What is happening in India does not only impact the fastest growing large economy in the world – that is a big deal – it also impacts how Fintech develops around the world.

India finally has all 5 Aces

20 years ago, after spending a few years living and working in India I wrote this article. (It is no longer available where it was originally published, so I reproduced it on my personal blog).

My thesis at that time (in 1997) was that India had only one ace – low cost labor – and faced Western Competitors with 5 aces:

1. A large domestic market

2. Access to intellectual capital

3. Reliable, low cost telecommunications

4. A culture that rewards innovation and risk taking

5. A well-developed venture capital industry

In short, India in 1997 had a tough road ahead.

10 years later – in 2007 – I reviewed these 5 aces in an article on ReadWrite and concluded that India was doing a lot better. At that time, the biggest problem was risk aversion because a well-paid job in an outsourcing company looked like a better option than doing a startup.

Yet, as is usual, things take longer than we think (but the eventual change is also bigger than anybody forecasts). For the last 10 years, India as an innovation hub was far more promise than reality. Yet now, as we slide into 2017, it looks like India as an innovation hub is in great shape and that Fintech is where that innovation will happen first.

How the Fintech India story developed on Daily Fintech

When the Fintech City Tour first went to India two years ago January 2015, I found some innovation but missed the big story.

Only a few days later, the big story appeared in India’s first Fintech Unicorn – Paytm.

In May I dug into why Paytm was getting so much traction in mobile payments.

In September, I looked at the mobile payments battle in India as it relates to Uber.

Later in September came the really big news about the 11 new banking licenses.

A few months ago, I looked into the critical plank in the Fintech revolution in India – Aardhaar, digital ID at scale.

For more on the infrastructure behind this Fintech revolution we turn to one of its architects – Nandan Nilekani.

Three reasons you should pay attention to Nandan Nilekani

1 He was a cofounder of Infosys in 1981. Their current market cap is over $30 billion and they did not take a dime of VC money to get there.

2 He led the Aadhaar initiative. This is biometrics based digital ID at massive scale – over 1 billion issued in 5.5 years, making it the fastest digital service growth in history. (Android hit 1 billion in 5.8 years; WhatsApp took 7 years.) Think of the impact on financial inclusion; this is transformative for millions of people.

3 He led the Finacle business at Infosys. This is the least well known part of his story. Finacle is a core banking software product; it was unusual at that time for an outsourcing business to get in the product game. Finacle is significant as part of this story because this background makes Nandan Nilekani so well qualified to understand the Fintech revolution in India today. (I had the good fortune to meet him about 20 years ago during my Misys core banking days).

You can hear Nandan Nilekani describe Fintech is India’s WhatsApp moment in this 30 min talk.


5 enablers for the Fintech revolution in India

– Aadhaar. Already described above. It is hard to overstate the importance of this. Without this, all the other enablers would only impact the urban middle class. Aardhaar really brings the power of digital to 1 billion people. It is an incredible achievement combining vision, tech smarts and drive.

– Mobile leapfrogging. There are 900 million mobile connections and Indians spend 45% of their incomes on mobile technologies and platforms (Americans only spend 11%), because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).

– Immediate Payment Service (IMPS). This is a real-time inter-bank payment system through mobile phones that is a) net payment (unlike RTGS) and b) works 24/7. It was launched by the National Payments Corporation of India (non-profit, Government funded) in 2010.

– Payment Bank licenses. This enables entrepreneurs to deliver regulated payment services without becoming deposit taking banks.

– Unified Payments Interface. This enables Mobile wallet interoperability (read this post for why this is so critical).

This shows how positive change can come from the right mix of public policy, new technology and entrepreneurial drive.

Demonetization is the Fintech moment for India

All this was already driving rapid change, but then the turbocharger kicked in a few weeks ago when the Modi government declared the 500 and 1,000 Rupee notes to be no longer legal tender. This action was labeled “demonetization”

Sopnendu Mohanty of the Monetary Authority of Singapore (MAS) called Demonetization the “Fintech moment for India” in an interview in The Hindu Business Line.

“The Indian fintech story is different. The Indian government has a massive problem with an opaque, cash-based economy that has dominated the country for decades. With the majority of its citizens lacking access to formal banking services, India had nothing to lose by encouraging out-of-the-box innovation that would seem insane to the U.S. financial services establishment.”

Demonetisation applied a turbocharger to the already rapid acceleration of mobile money in India. According to Hindustan Times, Paytm transactions exceed combined usage of credit and debit cards in India. Paytm is seizing the day with a new ad targeting demonetization that has ignited controversy (read, free media).

Thanks to Unified Payments Interface (UPI) delivering mobile wallet interoperability, this is not a winner takes all market. Paytm is doing very well but they have plenty of competitors and UPI creates a level playing field. UPI is an example of Tech Smart Regulation. In this post on PSD2, we defined the 3 levels of regulatory maturity:

  • # 1. Paper. Created in haste by politicians and lawyers after a crisis. Result = lawyers get rich. Examples: Sarbanes Oxley & Dodd Frank.
  • # 2. Great Idea. Using a disruptive tech without implementation help. Result = uncertainty. Example: SEC Mandate for XBRL.
  • # 3. Tech Smart Regulation. Using a disruptive tech with implementation help. Result: level playing field that drives innovation. Examples: PSD2 and UPI.

Demonetization certainly creates a lot of short term pain and damage to the economy and has drawn a lot of criticism. There is a lively debate on this thread on the Fintech Genome.   Prathamesh Godbole from Mumbai expressed the negative view on demonetization very well:

“A big chunk of business is done in cash largely because its frictionless, and not necessarily to avoid taxes. This has been hit quite badly. Uber, Ola and other startups with deep pockets still process most of their customer payments in cash. On average, cab drivers, shops and small business owners I’ve spoken to said their business has dropped by 40-50% with no rebound even after a month.

The measure may be well intentioned, but it’s been pushed prematurely. Based on govt numbers, it is going to take anywhere from another 5-10 months to restore the currency supply. Personally, I’ve not seen much change in attitudes towards digital payments- small businesses have started accepting cards/mobile payments but will drop it the moment card companies charge a transaction fee. For now, most card processors and wallet companies have waived off fees.”

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Disruptive change does not happen in a linear fashion. It happens in short explosive bursts after long periods when nothing seems to happen. Fintech in India is going through one of those short explosive bursts of change.

Durinh the rest of the week we stayed with India:

Wednesday = SME Lending

Thursday = Mobile Micro insurance

Friday = Mobile Wallets

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Wrap of Week #51: Daily Fintech week of 2017 predictions


A thematic week on Fintech trends in all the areas that we track. Ahead of the New year that will be exciting and complex, we dedicated the entire week to general Fintech trends, to WealthTech and Consumer Banking predictions, to Small Business and InsurTech forecasts.

Enjoy the holiday season.

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