Fintech is the hot new thing. It’s the industry that will carry the UK through Brexit. It’s the latest wave of startup mania in NYC. It’s becoming the darling of Silicon Valley. Chinese tech investors are all over it. It’s fresh. It’s sexy. But, wait a minute. What is Fintech?
Recently I attended MIT’s Fintech conference (#MITFinTech). We heard Brad Peterson, CIO of NASDAQ, talk about his firm as the original Fintech founded 45 years ago. Brad told us that NASDAQ no longer thinks of itself as an exchange, but as a Fintech company. A couple MIT professors told us there are 1800 Fintech companies out there today, and that number is quickly growing. There are some that promote robo-advisors as autonomous correctors for investor freak-out during volatile markets, and others that collect live market data from the web in order to predict real economic indicators, as opposed to statistics collected by government technocrats. Blockchain, we were told, is like the Internet was back in 1993.
Fintech investors say the industry is targeting issues like lazy money, long money transfer times, tedious credit scoring, macro and micro lending, and general use of cash anywhere (otherwise known as payments). The VC’s see more, not less, regulation in this space as Fintech becomes part of daily life of the consumer.
So, what is Fintech? Most of it is a lumbering, legacy industry that hosts a multitude of established players, undisrupted for decades. But, there’s definitely something new in this space as well. IOn the institutional side, it’s blockchain, which will be deployed as a starting point to finally achieve that long, lofty goal of Straight Through Processing. In the consumer space, there is a lot of activity to democratize and simplify finance for the masses. This is where we see the new, exciting action and most of the VC funding.
One of the highlights for me was hearing Andrew Lo, MIT’s star finance prof, talking about what happens when Moore’s Law meets Murphy’s Law. It was a punchy synthesis of a core issue we’ve been talking about at our Software Risk Summit that CAST runs in NYC. The issue, as Dr. Lo points out, is that our finance system has gotten so complex, and the software underpinning it so sophisticated, that we have lost control. Five years after the Flash Crash, with all the data we have access to, we still have no idea what happened! And, there have been more flash crashes, on a smaller scale, since then as we double our trading volume every five years. Some of these caused by technology glitches. I’m glad to be part of the solution – helping the industry get control back, at least over the software that runs Finance.
Finance has become the evil demon in Hollywood and on the college recruiting circuit, while Tech is the trendy, cool space to be in. So, the repainting of stodgy Finance with a Tech brush might just be the recipe to keep its talent lead and stay appealing for another generation of high achievers. Let’s just hope that the technology doesn’t become a runaway train, crashing and burning one of the key pillars of our society.
Erik Oltmans, an Associate Partner from EY, Netherlands, spoke at the Software Intelligence Forum on how the consulting behemoth uses Software Intelligence in its Transaction Advisory services.
Erik describes the changing landscape of M & A. Besides the financial and commercial aspects, PE firms now equally value technical assessments, especially for targets with significant software assets. He goes on to detail how CAST Highlight makes these assessments possible with limited access to the targetâ€™s systems, customized quality metrics, and liability implications of open source components - all three that are critical for an M&A due diligence.