Vignettes from a Startup SummerAugust 7, 2014
What fascinates me about the start-up world is that it challenges the status quo.
Furthermore, there’s something to be said about the aura of optimism that surrounds a start-up.
Pessimism – different from realism – sounds more sophisticated and cosmopolitan than its counterpart.
But, pray, when has society progressed, in the absence of belief that tomorrow will be better than today?
And you live this belief and actively work towards it every single day in a start-up – I sure have, this summer at Artivest.
Finance is a strange beast. As an industry, it has defied trends in its interaction with human civilization.
In the arc of human history, humans have striven to disrupt industries that affect us regularly and deeply. Such disruptions have made these industries more efficient and accessible, both at the same time.
Think about telecommunications and where we stood two decades ago – and contrast that with where we stand today.
And look around you. This pattern becomes more evident: products and services that impact us most have drastically improved, often to the extent that some are unrecognizable from two decades ago.
Except for finance.
Financial institutions, products and services affect all of us – if you are a farmer in India or an engineer in Silicon Valley, you engage with the financial industry on a regular basis.
Yet, finance remains an abstruse subject for many around the world. While financial products have become more complex, the industry itself has not become any more accessible.
And you can’t miss the irony.
Chances are a number of innovations in the aforementioned telecommunications sector were financed by convertible notes – the preferred financing instrument for number of startups.
Yet, if you conduct a quick survey of people around you and ask them the difference between debt and equity (let alone convertible notes) or how they diversify their portfolio, the results will likely paint a bleak picture.
What happens when you fuse the first two vignettes?
In other words, what happens when you combine the energy, the challenge the ‘status quo’ attitude and the optimism of start-ups with the rather staid and difficult to navigate world of finance?
Enter: FinTech start-ups
There are a number of reasons why I am bullish on start-ups in this space. To begin with, finance is ripe for disruption. The opportunities are abundant in various segments of the industry: from wealth management to online payments, data analytics, capital markets and corporate finance.
While vertical integration has allowed banks to scale, it presents several challenges. For example, a number of banks today advise clients to buy products they have created in the first place. In what is not not an ideal alignment of incentives, this presents an opportunity for nimble, technologically-powered newcomers to break the industry horizontally and chip away parts of the value chain.
Further, the influx of young people from Wall Street to the FinTech space is a trend not to be missed. With relevant experience under their belt, these founders possess the energy, knowhow and network to usher in a Finance 2.0.
Where talent meets opportunity, capital cannot be far behind. A recent report by Accenture speaks about the global boom in FinTech as investments have more than tripled over the last 5 years: from under $930 mn in 2008 to more than $2.97 billion in 2013.
Transparency, democratization and greater access – these are powerful ideals, which become more potent when spoken of in the context of finance.
What’s exciting is that the wave of FinTech start-ups might actually help us achieve these ideals – sooner than we expect!