We talk to Eric Horesnyi, a high frequency trading infrastructure expert and Jax Finance speaker, about the fintech movement and the way it’s shaping traditional banks’ approach to business. Eric shares insights into unicorns’ obsession for UX, the importance of user experience, and how banks can put fintech trends to good use.
In this interview, we focus on the technical part of fintech, and look at the actors affected by the blurry line between finance and technology, including citizens and developers.
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, you are the curator of the fintech-track at Jax Finance in London. In our conversations while preparing the track, we discussed the main elements of the fintech movement: payments, 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?
Payments is the most mature sub-segment in fintech, and the one that has been most covered and invested in over the past few years. The payments 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.
To what degree do you think the traditional world of banking is prepared for this tectonic shift in retail banking?
Traditional banks now understand that their competitors in the long run could be the following: web or telecoms giants with a profitable non-banking core business, or niche, fast-growing ventures disrupting – or using sharding – for their business models. They have all understood that technology is no longer just a tool, but a core skill. However, only a few have come to consider technology as 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 vs 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’s 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 users’ information that they already monetize, including banking information. It must feel like the scene of invasion in the Pixels movie, the best illustration I know of ‘software is eating the world’.
Is this going to be the ‘Uber moment’ of the finance universe, where a smart aggregator, without owning the whole value chain, will rule the finance business?
If we mean Uber as a UX-focused company reinventing a traditional business model, then yes. To me, Uber also means (if I remember the German word correctly) ‘great!’ or ‘above anything else!’, and that’s definitely how it feels for users experiencing a UX-focused app.
Who controls the user experience indeed has immense power, whether it be Facebook, Amazon, Alibaba or Google. These companies base their business on over-the-top models without having to own inventories or salesforce. They simply let their companies sell to each other, build nice and addictive user experiences, retain and attract billions. Yet, I don’t think a single company can control it all, at least by the transparent nature of the technologies they rely on. The web was built 20 years ago (at the European Organization for Nuclear Research in Switzerland) to be open, and later the blockchain (eight years ago, in Japan) underlying future core banking systems is by definition based on nodes.
Speaking of modern company culture, one usually refers to unicorns such as Netflix, Spotify, Facebook, and so on. Besides the well-known fact that they’re usually characterized by agile approaches, flat hierarchies and an emphasis on high intrinsic motivation, what’s the magic about them?
One simple abbreviation: UX. All of these companies are built by purposeful entrepreneurs who bring something unique/differentiated, useful and simple to the world. Everything else, starting with the culture, before trickling down to dev and IT stacks, DevOps, continuous delivery, agile, microservices, APIs, mobile-first, scalability, global, is a result of this obsession for UX.
You’ve mentioned the tech element in ‘fintech’. To what degree does such a company culture interact with technologies in use, for example clouds, containers, and microservices?
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’s immaterial. Finance 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 crops) has made finance a heavy IT user since computers were born.
Fintech is about bringing the dev culture into the financial sector. Technology isn’t 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’m not a sociologist, but I believe our dev audience will recognize itself). Blockchain, the underlying technology of alternative currencies such as bitcoin, doesn’t represent a protocol or a network for exchanging values. It’s a value creation system itself.
Would you say it makes sense to state that the initial web was about exchanging documents between humans, then came the Internet of Things (IoT), and finally we arrive at the Internet of Values?
Yes. Blockchain gets us to the full transparency, ‘trackability’ and distributed scalability and resiliency we couldn’t even conceive when HTTP was created. By just agreeing on a hashing code and protocol, and applying it to transactions, we have in front of us a revolution in the way we’ve shared trust responsibilities in our society, with a huge impact in clearing, custody and settlement for the securities and payments industry, and ability for any community to create its own money (not having to rely on governmental budget policies).
What is blockchain, then: is it disruptive or innovative, criminal, brilliant or simply the future of financial technology?
Brilliant and the future of financial transactional technology. Criminal? Definitely not per se, but as with any technology since fire was invented, it can be misused. Technology per se is rarely good or bad.
To sum it up, could one say that the fintech revolution affects all parts of the finance industry: retail banking, investment, funding, insurance, and so on?
Yes, and that’s good for all citizens (cheaper and better targeted offers from the financial industry), fun for technologists, and healthy for incumbent players who need to reinvent themselves, and a great corporate project to unite teams.
The fintech revolution has implications at various levels, one of which is led by developers working somewhere in finance. How should they prepare for fintech-driven changes?
They already are, unless they went for a three-year-long global surfing trip and missed the latest best practices. Even so, I’m sure they would soon catch up with the changes.
It’s a can-do, pragmatic attitude already prevalent in the dev culture. Just take this approach and apply it to a sector that seems obscure – hence the need to bring simplicity and transparency – though very close to each of us, and I believe useful.
See more information about Jax Finance in London 27-29 April 2016.
Main photo: Raymond Sam, StockSnap