Sneak peek into the future of banking: The tech part of FinTech movement
In the third part of our talk to Eric Horesnyi, a High Frequency Trading infrastructure expert and JAX Finance speaker, we delve into the technical part of FinTech and explain the role of robo-advisors. We shed some light on the future of crowdfunding and how banks will adapt to this movement. An idea pinpointed in the second part will also be revisited: UX.
We continue our talk to Eric Horesnyi, a founding team member at Internet Way (French B2B ISP, sold to UUnet) then Radianz (Global Finance Cloud, sold to BT) and a JAX Finance speaker, about the future of banking and how technology influences the course of finance. In this part we shed some light on crowdfunding and robo-advisors and the role they play in the FinTech movement.
JAXenter: You have mentioned the tech element in “FinTech”: To what degree does such a company culture interact with technologies in use, e.g. Clouds, Containers, Microservices?
Eric: Actually, the financial sector is the most technology-intensive industry already, with 40% of IT spent. It comes from the fact that finance is a proposition that is immaterial.
Finance (from fidere, trust in latin) is all about trusting somebody else to accomplish what you expect for the future: keep my values, transmit some values, or grow my assets. Manipulating such virtual concepts (against building a car or growing crop) has made finance a heavy IT user since computers were born.
FinTech is about bringing the dev culture into the financial sector. Technology today is not a series of protocols and norms the Web has helped build for 20 years. It comes with a culture of balanced collaboration, contributions, efficiency, openness, Darwinism, pragmatism and more (I am not a sociologist, but I believe our dev audience will recognize itself). Using technical words, that is the Microservices (2-pizza rule definitely addresses Dunbar’s number!), continuous delivery with containers (to ship features -hence the term, Docker motto is build>ship>deploy- asap and get feedback from users with A/B testing), Agile/Scrum (roadmap decisions are too important to be decided top down!), DevOps (the link between the virtual world of code and real machines to action it all), Cloud (it is possible to safe harbor in the cloud), APIs (the new front stores from a dev team to another), event processing & streaming (critical for real-time programmatic reactions), Analytics and Machine Learning (Artificial Intelligence-Neuron Networks and Graph Theory generating money outside of the algorithmic trading sector).
JAXenter: Then comes crowdfunding – which seems to be the less technical factor in our previously defined list of key elements of the FinTech revolution? Does Crowdfunding compete with traditional banking, or is it just complementary?
Crowdfunding is quite visible compared to its size. It includes Crowd Lending (someone/a company wants to borrow, take a loan) and Crowd Equity (a company raises capital for a project, against a % share of the company). Lending Club -a unicorn- is Crowd Lending, and yes, banks in the USA have been shaken by this risk-minimized/scored peer-to-peer model to the point where some banks invest in Lending Club sizable amounts now. Crowd Equity like Kickstarter and Angel List have had more coverage, as they are as much marketing tools (to recruit first users) as financing tool (especially for seed, but exceptions of multi-million funding like Pebble are growing).
JAXenter: What is your take on the crowdfunding movement? Do you think banks will fight back or they will somehow jump on the bandwagon like in the case of Lending Club?
[Banks will] Jump on the bandwagons, either by contributing lending or capital to the platforms, or taking shares into these ventures.
JAXenter: Data, as the raw material of so many businesses shows, is also going to play a crucial role. Let’s talk first about automated guidance for customers, the so-called robo-advisors. Can you explain this phenomena?
Robo-advisors represent the use of algorithmics to support financial decisions to grow your objectives. Human fund managers are being challenged by algorithms: ¾ of trades are already algorithmic in Forex, best funds -e.g. Renaissance- have been algorithmic for the past 20 years, and people have followed ETF strategies since Barra & BGI in San Francisco created the concepts 20 years ago (idea: you take less risk by investing in baskets of shares than individual shares, you choose your strategy and pay less in management fees). I am a big fan since Mint, now Wealthfront, Betterment, and Personal Capital. Give your time horizons, your household projects, get your risk-aversion assessed and boom that’s it:
Your financial health is built more smartly than median financial advisor and for less.
JAXenter: Things like understanding your customer better, his needs and preferences also fall into the UX category. This game is mainly controlled by Google, Facebook, Apple & Co. Can Finance still catch up or will the future customer only be known by the large internet companies mentioned above?
Any company can always catch up on UX: just listen to your customers and consider it more important than anything -than politics, or your personal exposure in the organization. It is not impossible. Without having worked there, so this is not a recommendation, I would say that a bank like ING in Europe has started to right-track on the IT front 5 years ago, and Capital One amazes me by the quality of people they keep recruiting from Google, Facebook , Amazon, Apple & Co.