[Editor’s note: Bo Brustkern is Co-Founder and CEO of LendIt Fintech and Co-Founder of Lend Core, which operates NSR Invest and Lending Robot. He is a serial entrepreneur with a passion for building companies and he has spent the past six years focused on the fintech space.]
Attempting to predict the future is a fool’s errand particularly in the fintech arena, where change can be surprising, lightning quick and brutal. But I’ll play the fool and give it a go. This article briefly touches on many of the themes being explored at our LendIt Fintech USA 2018 conference, which is now just days away:
Audits Will Go the Way of the Dodo Bird
Stop me if you’ve heard this one before. No, seriously: the blockchain is for real. The protocol of trust is here to stay, and it’s going to disrupt everything. Just know, it is going to have a massive impact on the future of financial services. Here are some examples:
At our p2p robo-advisor, Lending Robot, we publish a record of all transactions executed by our Series Fund to the Ethereum blockchain. An immutable record of all transactions, making future audits far less complex and expensive. While the blockchain has not rendered audits unnecessary yet, I believe we’ll see it happen within the next five years.
Smart Contracts Are In, Long, Paper-Intensive Financial Processes Are Out
As I write this, Lending Robot is raising a private round of growth capital. The closing process, called “papering” for very obvious reasons, is just as onerous and Microsoft Word-oriented as I remember it back in the early 2000s when I was a young VC. Where are Ethereum-based smart contracts when we need them? Indeed, I believe we’ll see smart contracts proliferate broadly in the next five years.
Cross-Border Payments Become Seamless and Inexpensive
Our conference business, LendIt Fintech, is a multi-currency enterprise regularly dealing in USD, CNY, GBP and EUR, just for starters. Cross-border payments are costly and time-consuming. For good reason; cross-border transfers have the compounding challenges of anti-money laundering laws, know-your-client regulations, exchange rates and stacked bank fees. Again, I believe that the protocol of trust (blockchain) coupled with a universal, fungible currency (crypto) will disrupt cross-border payments in the next five years.
Say Goodbye to Expensive Transaction Fees
Several recent announcements from well-known crypto companies claimed to allow businesses to set up alt-coin enabled checkout systems. After several months of trial and failure, our conference business finally broke through with a success… BitPay to the rescue. I’m delighted to say that LendIt Fintech accepts Bitcoin as a payment method. And here’s the pleasant surprise: processing fees for crypto payments are materially lower than credit card processing fees. Compare roughly 3% (old skool) with 1% today. Imagine a future with sub-1% transaction fees… I believe it’s going to happen, and soon.
“Investing for Everyone” Takes Hold
Some of the most exciting innovations are occurring in wealth management. While Betterment and Wealthfront may have taken early headlines and a few billion AUM, it’s not robo-ETFs that I’m excited about. That stuff is… well, let’s say comparatively easy… and most of the innovation over the past decade is not impacting the non-accredited investor, which accounts for about 92% of us. What’s more exciting are the new Regulation A+ funds that are beginning to proliferate. Noteworthy are Fundrise, which offers real estate investments to retail investors, Street Shares, which specializes in small business lending, and SeedInvest, which is democratizing venture capital. Imagine a future where investment products proliferate not just for the already-rich, but for aspiring intelligent investors across the economic spectrum. This reality is already on the way.
Fintech is Everywhere
Fintechs are enhancing the customer experience along four axes: choice, price, convenience, and predictability. They are meeting the needs of educated, aware, demanding consumers and they are attacking traditional financial institutions at every angle. They are everywhere: personal loans, business credit, insurance, investing, wealth management, mortgage lending, student loans, financial education, visualization and interface, credit scoring, credit management and achievement, merchant services, payments, payroll, benefits. Did I get everything? I’m sure not.
Enabling this is the amelioration of regulatory requirements by governments across the globe. While Estonia is famous for its digital citizenship, called e-residency, the UK’s Financial Conduct Authority is arguably the most innovative regulatory body when it comes to promoting financial services innovation. Since 2016 the FCA has been building and promoting its regulatory sandbox built for UK fintechs to launch and test their products under proportionate regulation, which is essentially a scaled-down compliance requirement that scales up once it’s clear that a concept is commercially viable.
Not only has the UK government created a hospitable environment for fintechs at home, but it has begun exporting the blueprint for its regulatory sandbox to other nations. The idea is that fintechs that meet common regulatory standards will be able to offer their products around the world without burdensome regulatory requirements at home or abroad. It’s quite possible that we’ll see multiple governments around the world set up regulatory frameworks that scale in proportion to innovation, allowing fintechs access to a broadly compatible, cross-border regulatory system.
Summary: The Engine is Roaring & the Runway is Long
We are right now experiencing the confluence of massive change. Sovereign identity, deep learning, decentralized networks, trustless systems, and scalable regulations are conspiring to fundamentally change financial services. Indeed, the fabric of our economies is being rewoven right under our feet. I am delighted to participate in this time of massive change because I am optimistic about what will result: increased speed, safety, security, convenience, and privacy. Governments competing for innovators, and consumers benefiting across the board.
Do you agree? What do you think will be the lynchpin of change in financial services? Tell me in the comments section below.