Soooo, you want a loan?
Usually this ends up being a short conversation with those seeking to finance their dreams. There are good reasons for this; flawed business plan, no real thought of cash flow or even worse -- seeing a new business as "just a thing to do".
However, for the thousands of false dreams there are the real MacCoys, the fully thought out business plan seeking financing. Until recently, many of these ideas went unfunded -- some had a real objective of profits, others didn't -- but funding was difficult. The first alternative platform of any significance was Kickstarter, and it produces some "winner" and some rather amazing funding projects.
After 25 years as an investment banker, I can tell that most prospectus are a formula, sure there's some hard work by really really smart bankers but as the saying goes: "Garbage in garbage out" maybe not the most elegant saying but what it lacks in elegance it more than makes up in its truth. How many time did I see great models "polluted" by the client's unrealistic assumptions (e.g. That the unprecedented growth of the past 3 months will persist for the next decade). Sometimes, the prospectus doesn't reflect the real value of a business: Google's Adsense that didn't even exist as a revenue stream when they IPOed.
What the whole "Fintech madness" is about is changing the fundamental business model of finance; starting with inventory financing, all the way to fund raising. The fundamental problem in all cases is that the business is complex and reflects a substantial portion of risk assessment. As an example a number of start ups were created to replace the "lumbering" receivable financing business -- the problem is that businesses are in constant flux, and that a change in the business model can have huge impact on the quality of receivables. Understanding these variance is expensive --it takes skills and foot leather!
Clearly certain aspect of the finance world are overdue for a change. The reality is that in most OECD country you rarely visit your bank branch, even getting a mortgage or other financial products can be executed via the internet. The same holds for F/X transactions that can be far more efficiently concluded with new non-legacy systems.
OECD economies: Further disintermediation from the legacy players -- car loans, mortgages peer to peer loans are all seeing massive restructuring. The biggest shift will be automation (I just don't want to use AI) of process. Already trading rooms are depopulation and back and middle office are near the end of the economic life. Soon accounting will be a thing of the past, and simple legal requirements too. However, these changes are cosmetic and do not fundamentally change the system (as far as the users are concerned).
Other areas will do much better -- by skipping the legacy players entirely:
Emerging Economies: Where Fintech will shine the most is in emerging economies -- that suffer from very primitive financial systems. Already using telephones as the basis of payments between people is a massive change providing basic financial services to area that had zero access to financial services -- or only access to usurious systems. Here Fintech can bypass the Western financial models entirely. Jumping directly, with no legacy costs, to the next level of financial services.
Blockchains: The new "big word" but in reality what it means is that it is possible to create financial platforms that are secure and easy to access for many participants. Fraud risk (via intermediary) is greatly reduced. Centralized blockchain platforms will help facilitate this by affording firms a consistent technology infrastructure to underpin their solutions. This will make incorporating solutions with one another easier and enhance working together across sectors.
Usually this ends up being a short conversation with those seeking to finance their dreams. There are good reasons for this; flawed business plan, no real thought of cash flow or even worse -- seeing a new business as "just a thing to do".
However, for the thousands of false dreams there are the real MacCoys, the fully thought out business plan seeking financing. Until recently, many of these ideas went unfunded -- some had a real objective of profits, others didn't -- but funding was difficult. The first alternative platform of any significance was Kickstarter, and it produces some "winner" and some rather amazing funding projects.
After 25 years as an investment banker, I can tell that most prospectus are a formula, sure there's some hard work by really really smart bankers but as the saying goes: "Garbage in garbage out" maybe not the most elegant saying but what it lacks in elegance it more than makes up in its truth. How many time did I see great models "polluted" by the client's unrealistic assumptions (e.g. That the unprecedented growth of the past 3 months will persist for the next decade). Sometimes, the prospectus doesn't reflect the real value of a business: Google's Adsense that didn't even exist as a revenue stream when they IPOed.
What the whole "Fintech madness" is about is changing the fundamental business model of finance; starting with inventory financing, all the way to fund raising. The fundamental problem in all cases is that the business is complex and reflects a substantial portion of risk assessment. As an example a number of start ups were created to replace the "lumbering" receivable financing business -- the problem is that businesses are in constant flux, and that a change in the business model can have huge impact on the quality of receivables. Understanding these variance is expensive --it takes skills and foot leather!
Clearly certain aspect of the finance world are overdue for a change. The reality is that in most OECD country you rarely visit your bank branch, even getting a mortgage or other financial products can be executed via the internet. The same holds for F/X transactions that can be far more efficiently concluded with new non-legacy systems.
OECD economies: Further disintermediation from the legacy players -- car loans, mortgages peer to peer loans are all seeing massive restructuring. The biggest shift will be automation (I just don't want to use AI) of process. Already trading rooms are depopulation and back and middle office are near the end of the economic life. Soon accounting will be a thing of the past, and simple legal requirements too. However, these changes are cosmetic and do not fundamentally change the system (as far as the users are concerned).
Other areas will do much better -- by skipping the legacy players entirely:
Emerging Economies: Where Fintech will shine the most is in emerging economies -- that suffer from very primitive financial systems. Already using telephones as the basis of payments between people is a massive change providing basic financial services to area that had zero access to financial services -- or only access to usurious systems. Here Fintech can bypass the Western financial models entirely. Jumping directly, with no legacy costs, to the next level of financial services.
Blockchains: The new "big word" but in reality what it means is that it is possible to create financial platforms that are secure and easy to access for many participants. Fraud risk (via intermediary) is greatly reduced. Centralized blockchain platforms will help facilitate this by affording firms a consistent technology infrastructure to underpin their solutions. This will make incorporating solutions with one another easier and enhance working together across sectors.
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