Sneak peek into the future of banking from the founding member of two high-profile companies: Part 1
Predictive analytics and big data concept image via Shutterstock
We talk to Eric Horesnyi, a High Frequency Trading infrastructure expert and JAX Finance speaker about the Fintech movement and the way it is shaping traditional banks’ approach. In the coming parts of the interview, Eric will share insights into unicorns’ obsession for UX, the crowdfunding movement and its growing momentum and countless other exciting, groundbreaking concepts.
Software is eating the world – according to Marc Andreessen. We are eating larger parts of the Finance cake – exclaim the Fintechs. There’s a real revolution going on in finance and it’s being driven by Technology. Fintechs inspire the market while classic banks adopt more and more practices from the Fintech world in order to stay ahead of the curve. But what are the elements of the Fintech revolution? Eric Horesnyi, the whiz kid of startups, discusses with movers and shakers from the Fintech scene and gives you an insight into this revolution.
Eric, you are the curator of the Fintech-track at JAX Finance in London. In our conversations while preparing the track we discussed about the main elements of the Fintech movement. I learned that most of the Fintech approaches are based on technology, or in other words: on the right understanding of technology and its potential.
For that you mentioned the following elements as being the key drivers for the Fintech revolution: Payment, API-oriented business, DevOps and company culture, Crowdfunding, Big Data, and Blockchain.
So, let’s go through these elements and talk about their impact on the finance industry. Starting with payment, where do you see the main movers and shakers – is it Apple, Paypal, who else?
Payment is the most mature sub-segment in Fintech, and the one that has been most covered and invested in over the past few years. There are thousands of payment-focused companies right now, including unicorns like Square or Stripe, and WorldRemit and Adyen in Europe. Maybe or certainly thanks to a regulatory environment that has become favorable, notably in Europe with the SEPA scheme that has created a vast environment for open competition with the European Passport, fostering innovation, to the benefits of citizens.
Payment market has gone from domestic to European, without having to adapt core systems to each country.
Alipay, Apple Pay and Google Wallet now validate the market rather than crush it, and demonstrate that the Web Giants can enter banking markets, leveraging not only their technology stack, but also hundreds of millions of banking information they already have in stock with their core activities.
M-Pesa in Africa is an interesting touchpoint; it all started with SMS-based payments for the masses, right? Can you describe the development behind this idea and where are we standing now?
Niche opportunities have become big enough for new ventures to rise.
Other dynamics build up in Africa and Asia, with technology leapfrogging traditional models in Western countries. What strikes me most is the emergence of telecom players in Africa that leverage their network to offer payment and additional banking services: it started with M-Pesa in Kenya and Tanzania, now Orange has entered the market. These lean models will soon trickle up to Western Europe: watch Orange’s recent move in banking.
To which degree do you think the traditional banking world is prepared for this tectonic shift in retail banking?
Traditional banks have now understood that their competitors in the long run could be the following: web or telecom giants with a profitable non-banking core business or niche fast-growing ventures disrupting -or using sharding, one of the web practices- their business models.
They have all understood that technology was no longer just a tool, but a core skill. However, only a few have come to consider technology an enabler as important as their branches used to be. Not many have started to consider UX as their main objective to retain and grow their business. Many remain entangled with legacy systems that seem expensive, inert -as in full of inertia, versus agile-, and closed. Migration to new UX standards set by Amazon or Netflix requires investment and courage, but most importantly a realization that the technological paradigm shift – Continuous Delivery, Microservices, DevOps – has empowered a new generation of user experience that is not just a gig, but a complete culture.
Traditional banks feel threatened in their core business models by digital giants that have access to hundreds of millions of user information they already monetize, including banking information. It must feel like the scene of invasion in the Pixels movie, best illustration I know of “Software is eating the World”
Moving on to the API-oriented business – do you anticipate that traditional banks will be deconstructed and that small, independently operating “Microservice-Banks” will unite to provide a consistent service?
It is very hard to follow and define a strategy against thousands of players coming from behind. Traditional banks might compare this scenario with Gulliver traveling to Lilliput.
Banking is one of the last industries (governments and administrations too) to be impacted by the Web. Some mention the Third Industrial Revolution, I am not qualified to confirm, but for sure, after the revolution hit the music and video industry with streaming, retail with e-commerce, education with MOOC etc. there is no reason for banking not to be turned upside down and reborn into models hard to imagine 10 years ago.
The finance business has always been fragmented, full of coopetition. With companies selling services to each other while competing on another market, the revolution that Fintech brings has inserted itself quite naturally within the “traditional” landscape. And APIs have turned to be the best way for Fintech to collaborate amongst themselves, to leverage latest contributions in Analytics and UX, and even to provide services to traditional banks.
APIs were invented to facilitate programmatic open collaboration and reuse between software teams. Google and Amazon APIs have in fairly recent years demonstrated that APIs can be a core business. With more than 16,000 APIs now in ProgrammableWeb, and just 2,000 more in 2015, it sounds like APIs are more than a fashionable trend.
APIs have become the new store front.
Let’s remain for a second at Gulliver being a symbol for the big banks, chained by the small and agile inhabitants of Lilliput. What can large organizations do to be prepared to become as agile, flexible, and customer-oriented as the smaller challengers? And what role does technology play in this situation?
Technology remains a tool. Best use of technology actually requires a certain culture. Lilliputiens today are API and UX providers focused on a niche market opportunity. The obvious way to obtain this agility are Microservices: 2-pizza rule teams (6 people) with a responsibility on a feature, self-contained infrastructure -independent from Cloud location- exposed through APIs, streaming their states to other microservices so that the entire system can stay tuned (as we did with ESB and Middlewares before within data centre).
To get from a Monolith architecture to a microservice one is a journey. I invite you to review what Henk Kolk at ING shared last year at JAX Finance. And that path is not necessarily the same for all organizations.
Once Microservices are in place, you can imagine that a team focused on a KYC feature may decide to either scale down and sell their APIs to other companies, or shut itself down and invite others to use a third-party API doing a better job at KYC.
Another implication is that the famous Legacy issues can be circumvented and prepared to be replaced without too much impact on the entire system, other than a positive impact to open it. Legacy systems are treated like Sacred Monuments, to which a common interface is imposed (Rest API ideally) to make it work with other components. On this, my previous article titled Network-based architectures: What Parisian history can teach us on the job of a banking architect compared to that of a city.