What I learnt Moderating the Fintech panel at IIT Leadership Conference

 

On June 17 I moderated “Fintech , The Path Forward” panel , at IIT leadership Conference in Santa Clara. My three other esteemed panelist were Anju Patwardhan , Senior Partner at CreditEase, Arvind Purushotam , Global Head Citi Ventures & Soups Ranjan , Director Data Science at Coinbase. We had an interesting and engaging discussions covering wide range of topics related to Fintech industry in US, Europe and Asia. With experience from the biggest P2P company in the world, One of the pioneer banks in Fintech and biggest Platform I was able to learn a lot from my panelists. Here is the brief summary of the learning:

This is the first innings in Fintech growth

While in US the fintech (technology companies operating in finance domain) had taken a breather in last 18 months most of the panelists were of the view that fintech is just getting started and it has a long way to go to fulfill its potential.  Fintech companies started with a promise of revolutionizing the financial services and initially everybody was in the watch and see mode. Over last few years they have proven that they are here to stay and banks and other financial institutions have also gotten comfortable with them. All expected that with increasing familiarity the collaboration will only improve between banks and fintechs.  Agreement between OnDeck & J P Morgan for referrals are only the begining and we are in for much stronger collaboration on online lending, regulation, settlements as we move forward.

P2P/Crowdfunding is creating real impact in Lending

Consumer loans are definitely serving a segment that needs loans but a bigger need is Small Business Lending. Small business lending is nearly 50% the lending market worldwide has been served poorly by the banks historically due to Bank’s high cost structure. Online lending that use various automation and machine learning tools can underwrite these small business loans at fraction of a cost and have made a real difference for small business who had no access to capital before. This Small Business lending is expected to grow significantly over next decade.

More new Startups will focus on Serving businesses rather than consumers

Till date most of the innovation has come on the consumer side (like Lending Club, Prosper) or real estat crowdfunding. The next wave  of fintech startups will innovate on serving more of the business finance needs, like business looking for loans to trade internationally or like Amazon giving funding to the online sellers on their platform.

Regulation is a Big Deal

Finance is one of the most regulated industry and any technocrat thinking about starting a fintech should take it seriously. The panel is of the view that whatever you imagine regulatory impact is much more than that and you need a capable business partner to handle all the regulation. Example if you are starting an online lending business you need to get a basic lender license in each US state, ensure you are not violating basic lending practices and understand terms like TILA, ECRA etc etc.

Different Countries are taking different approaches to regulation for Fintech Growth

United Kingdom and Singapore have taken a very open approach in regulating Fintech and have even created regulatory Sandboxes (in the regulatory sandbox you can try anything that you think can have regulatory impact and get the right answer without any impact to your real business) for fintechs to test their products on . In China most of the Fintech is lead by tech companies like Tencent and Alibaba and regulators have provided an implicit support to their growth. In India the fintech revolution has been  more top down where Government has taken a lot of steps like digitization. BHIM & UPI to drive innovation. The biggest issue most panelist were had was with US regulation. In US the regulatory uncertainty has been negative to the fintech growth and everybody thought that it was time for US regulators to get their act together.

International Fintech is hard to do

Continuing on the regulatory path all Panelists agreed that doing a international fintech company like Google or Facebook is hard to do because of different regulations and lending environments. For example if Lending Club (the most successful Peer 2 Peer platform in US) wants to launch their platform in China/India they have to start from scratch on everything like what information to collect from borrowers how to assess their creditworthiness, all the lending licenses and how to signup investors.  This means starting business from scratch.

Having a Bank as a partner is a great way to go

For a company to do a international company the best place to start is partnership with a local bank. Most banks are good at regulation but bad at technology, which is the strength of fintechs. So if you have a cool technology and want to grow internationally the best way to do it is to partner with local banks across countries and launch your company.

Blockchain is the new kid on block

Decentralized and distributed systems built on block chain technology is a new technology that is getting a lot of attention and will be a growth industry in next decade. From Decentralized facebook to decentralized library and music sharing all can be done effectively with block chain technology. Its usage in finance is growing (Now you can buy your grocery, pay international freelancers and everything else with bitcoin) and will continue in near future.

Bitcoin/Cryptocurrencies have a lot of Use Cases

Cryptocurrencies (like Bitcoin, Ethereum, Light Coin) have become a new mode of financial transactions. Companies like Coinbase use it to pay their international employees to save on FX costs. In future your card will be connected to one of these Cryptocurrency wallets and you will no longer need to deal in Fiat currencies (dollar, pound etc)

ICO/Token offerings are new way of Crowdfunding

Initial Coin Offerings (Token Offerings) are the new way to raise initial capital for your company. Recently in US Civic raised $33MM in few hours, an Israeli company Bancor raised $150MM in 3 hours. For companies looking to raise VC money it is a new way to raise money from Crowd in a smart and effective manner.

 

This was a great session for all of us to attend. Attendees got valuable tips on what to do and what not to do.

One specific attendee who was trying to use cryptocurrency to do Forex transactions learnt how regulation still applies for Forex transfers.

Another, attendee looking to use some non conventional metrics for credit decisions learnt from Arvind what all parameters they need to test for the factors for being non-discriminatory before it can be reasonably applied for credit decisions, and so on….

With technology pervading more and more parts of our life and machine learning and AI coming of age, it seems like we will soon be going online for all our financial needs. our salaries will be given in Bitcoin (or any other cryptocurrency) that could be used all across the world using our phones or may be through our retina scans.

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