When I became a banker, in 1984, the financial world was well organized. In the City of London there were clear rules as to who did what, fixed commission the easy life; then Tatcher's government decided to tip over the apple cart and implemented the Big Bang of financial reforms. Big American brokers set up shop in the City covering the globe with their knowhow.
In no time the old City was swept away -- the Americans with their speed and capital took over and impose their rules -- granted the American learned their share of new stuff, foreign currency were a no mans land, I was privileged to "assist" as a very very junior banker, as the first European interest rate swap was written (we didn't think we were doing something that would change the world). It was just a contract. The Americans could be amazingly obtruse; one back office guys in New York, decided that Sterling could not be worth more than the US dollar -- and for months booked F/X trades upside down...
Now the gasumper is being gasumped!
Last summer the Economist published a survey that showed that crowdfunding is now providing as much capital as the venture capital business. Fintech as they are known are killing the banks, making full use of the internet they are often more nimble and have fewer of the legacy problems that large financial institutions have to take into consideration. Crowdsourcing is the first proof that things are changing. Obviously, there will be fraud -- if money is involved they will find a way. But already the early seeds are paying off;
- Want to send money abroad?
- What to have a receivable tracker (attached to your accounting system) and a financing option?
There are Fintech for that. For years accounting software has been available on line. but imagine allowing all your invoices (received electronically) to be auto scanned and filed and processed without human touch -- great when you have a few a day, amazing when its a few hundred. The processes are scalable, and they are killing the established players -- thank God! Over the past 25 years the financial industry has become the biggest rip-off there is, in 1984 financing activity accounted for less than 2% of GDP, today its nearly 8%. Little value added -- considering all the fraud we have encountered (market rigging) etc.
My guess is that when the next financial crisis occurs (no I have no idea!!!) a lot of these fintech will have a wide open field as the banks retrench "non-core" activities. Because that' how they work. They look at divisional performance take no account of changing market views and then cut!
On a final note winter has finally arrived in Canada. Whereas Christmas eve was a balmy 15c this morning the temperature in Montreal was -16c. The snow has also showed up, with nearly 70cm in the past week.