fintech a brief overview - Sustainable Finance Geneva

FINTECH
A BRIEF OVERVIEW
What is Fintech?
« Taken at its broadest, Fintech is shorthand for ‘innovation in financial services’, whether that means
new products from new startups, or the adoption of new approaches by existing players where
technology is the key enabler. »1
In a report for the UK Trade and Investment, Ernst and Young identifies 4 main themes that run
throughout Fintech: Monetisation of data, Fraud and Identity protection, Infrastructure replacement, and
Disintermediation.2 PME Magazine divides it into three sectors : «celles qui concurrencent les
acteurs financiers traditionnels, celles qui leur fournissent des solutions innovantes et celles qui
développent des produits ou des services de niche encore inexistants. »3 Its impacts will be widespread:
payments, banking, personal finance, peer to peer lending, Crowd funding/investing/..., Bitcoin, RoboAdvisors,etc…
Beware of the Geeks
Fintech is widely compared to the disruptive companies that have emerged from Silicon Valley that
radically changed other industries. Some proponents of Fintech see « La fin annoncée des grandes
banques » and claim that traditional finance is counting its final days : « Les beaux jours sont bel et bien
terminés, même si peu d’entre elles semblent l’avoir encore réalisé. »4 Others are more skeptical arguing
that « La gestion de fortune robotisée doit encore faire ses preuves. »5
However, Fintech is expected by everyone to improve the financial sector by bringing innovation to a
sector that has undergone stiff regulation. In a special report on May 9th 2015, The Economist argues
that these beneficial innovations will include cost-cutting and improvement of financial services,
innovations in risk assessment, and diversifying the « credit landscape. »6
Goldman Sachs is typical of the changes taking place in many large financial institutions : "Every year,
Lloyd (CEO Goldman Sachs) would give the tech division an annual speech, saying how we were a tech
company (…) And believe it or not, Goldman has more programmers and engineers working on tech
matters than Facebook. »7 Some see the change as a cultural shift as well – as the internet generation
starts to take a larger portion of the financial market, the financial market must evolve to serve them.
Stéphane Dubois, a pioneer of Fintech, succinctly summarizes this8 :
« Les natifs de l’ère numérique veulent de l’instantanéité et ne sont pas forcément intéressés à parler
à un banquier. Le conseil financier a toujours été une affaire de relation personnelle. Est-ce que cela va
continuer parce qu’une fois arrivée à 45 ans, cette génération voudra à nouveau un conseil
personnalisé? C’est possible, mais ce n’est pas sûr. »
Fintech and Geneva
Swiss banks are adopting many different approaches to adjust to the changes in the financial sector. In
an article laying out the reactions of Swiss financial institutions to Fintech, Mathieu Hoffstetter observes
« Racheter, couver, faire émerger ou entrer en partenariat: les grandes banques adoptent différentes
stratégies quand elles abordent l'innovation et la Fintech. »9 Nonetheless, Switzerland is seen to be
behind in the field of financial innovation, especially in comparison with the United States and the United
Kingdom. As the director of Swissquote noted in an interview with the TdG :
Thor ERISMANN // JUNE 2015//PAGE 1
« La Suisse a énormément d’atouts, mais n’a pas encore totalement pris la mesure de la révolution qui
est en route dans le domaine des Fintech. Il n’y a pas, contrairement aux États-Unis ou au RoyaumeUni, un bouillonnement de nouvelles entreprises qui vont définir la banque de demain.»10
This is often blamed on the crises that have roiled the financial sector in Switzerland in the recent years.
To again quote Stèphane Dubois : « les banques sont occupées à gérer les suites de la crise financière,
la fin du secret bancaire, la réglementation etc. Elles n’innovent pas. Pendant ce temps, d’autres
réinventent le monde de la finance. »11 There has also been division within Switzerland; Geneva has
taken longer to develop the financial technology sector than Zurich, which can be proud of the fact that
« Les grandes banques y comptent des équipes dédiées à l’innovation financière, même discrètes, et
plusieurs start-up ont émergé ces dernières années. »12
Yet, Fintech is growing in Suisse Romande and Switzerland is well placed to develop the Fintech
industry as argued by a recent article in PME13. The opening of Fusion, an incubator dedicated to
financial innovation and strongly supported by both the finance industry and the city of Geneva14, and
the recent collaboration between Banque Syz and Investglass illustrate the ability of Geneva’s banking
sector to adapt to both Fintech and the new regulatory frameworks15.
Sébastien Flury, Program Director at Geneva’s incubation lab Fintech Fusion, summarizes this nicely in
his blog: « Until recently, however, you didn’t hear anything about Fintech. Strangely. Of course, you
need to have a real willingness to act for the players in the financial and banking industry to move
forward. Which was not really the case until recently. But things are moving… and in the right
direction! »16
The example of London
As of June 2014, London was the world leader in financial technology, with 44,000 estimated Fintech
workers. According to a survey released June 15th, London has strengthened its position in Fintech
since last year and continues to command dominance in the field17. The CEO of the UK Trade and
Investment commission makes the position of the UK government clear : « The UK Government is
committed to supporting Fintech companies; creating jobs and growth as well as further strengthening
our position as the world’s pre-eminent financial services destination. »18
A quick Google search yields evidence of the ecosystem that makes London so attractive for Fintech :
incubators, associations, a London Fintech podcast, Fintech Week, and a huge number of events
demonstrate the diversity of offerings aimed at the Fintech industry. In a report on tech firms, Bloomberg
says that the ecosystem of London is critical for the growth of Fintech « Because financial services is
such an integrated industry, Fintech start-ups need to be close to the existing financial firms who may
be competitors, suppliers, customers, or sources of talent. Additionally, as regulatory scrutiny increases,
Fintech start-ups benefit from being able to integrate culturally and geographically with the mainline
financial sector. »19
An Ernst and Young report confirms these observations and further details the reasons for the
attractiveness of the UK market 20:






Large and sophisticated consumer market
Access to high-quality finance and tech talent
High concentration of global financial institutions across many sectors
Availability of capital
Well regarded regulatory regime
London’s « mercantile culture »
Hearteningly, similar arguments could be made for the potential growth of Fintech in Geneva and
Switzerland more broadly.
SFG/Thor Erissmann/Juin 2015
Thor ERISMANN // JUNE 2015//PAGE 2
Fintech and Sustainable Finance
As the Fintech wave sweeps through the finance sector, sustainable finance will be forced to evolve as
well. The general trends of disintermediation and transparency are positive and Fintech has already
demonstrated its compatibility with sustainable finance projects.
Let’s start with financial inclusion. Using mobile phones to provide basic financial services has
« proved transformational as a tool to combat financial exclusion among the unbanked. As a result,
mobile money penetration already outstrips bank accounts in several emerging countries, including
many in Africa. »21 M-Pesa, launched in Kenya in 2007, built the world’s largest mobile-money network
and is fighting to defend market share against numerous challengers.22 M-Pesa’s ubiquity opened up
new opportunities for innovation: GiveDirectly, a USA-based charity, uses M-Pesa to sends small
sums of money directly to the extreme poor 23 and enables Azimo to deliver remittances for a fraction
of the cost of traditional services.24
The multitude of P2P lending and crowdfunding platforms that have sprung up worldwide25 are
changing philanthropic donors and microfinance investors by aggregating small sums of money from
people with modest means and connecting borrowers/lenders and donors/beneficiaries in new ways. 26
The increase in data and connectivity that powers these platforms is also enabling services such as
the Open Philanthropy Project and GiveWell to research and compare charities thereby increasing
efficiency and transparency.27 Similarly, investors interested in socially responsible portfolios or
sustainable finance investments are empowered by the increase in data and transparency that Fintech
brings to the financial sector.28
The Fintech revolution bodes well for sustainable finance as it brings much needed transparency,
disintermediation, and disruption to the financial sector. As demonstrated, sustainable finance actors
stand to benefit from these trends, but should not be overly reliant on technological tricks because
solutions are often not « breath-taking Fintech IT innovation, but it’s a genius, simple bit of social
innovation. »29
Fintech actors
Switzerland:
Swiss Finance Startups is a non-profit organization based in Zurich that promotes Fintech
Swiss Financial Technology is Geneva’s response to Swiss Finance Startups. They also host a very
active Meetup.com webpage with events once every two – four weeks.
FintechFusion is the new Fintech incubator opening in November 2015 in Geneva
Fintech conference in Zurich
Crowdsourced list of Swiss Fintech companies
Some well-known examples of Fintech companies:
Venmo, Lending Club, On deck, Xignite, PayPal
Sustainable Finance:
Crowdlending/P2P: Kiva, Zidisha, CrowdMapped (global directory of crowdlending & crowdfunding
platforms)
Philanthropy: Open Philanthropy Project, GiveWell, GiveDirectly, Pennies
Financial Inclusion: M-Pesa, Zoona, CGAP (lots of information on digitization and financial inclusion.)
SFG/Thor Erissmann/Juin 2015
Thor ERISMANN // JUNE 2015//PAGE 3
1
http://www.ndrc.ie/2014/03/Fintech/
http://www.ey.com/Publication/vwLUAssets/Landscaping_UK_Fintech/$FILE/EY-Landscaping-UK-Fintech.pdf
3
http://www.pme.ch/de/artikelanzeige/artikelanzeige.asp?pkBerichtNr=188188
4
http://www.bilan.ch/antoine-verdon/startup-generation-y/la-fin-annoncee-des-grandes-banques
5
http://www.agefi.com/quotidien-agefi/suisse/detail/edition/2015-05-15/article/michel-girardin-arrivee-de-laFintech-dans-le-private-banking-les-progres-a-accomplir-sont-encore-significatifs-398454.html
6
http://www.economist.com/news/leaders/21650546-wave-startups-changing-financefor-better-Fintech-revolution
7
http://uk.businessinsider.com/goldman-sachs-has-more-engineers-than-facebook-2015-4?r=US
8
http://www.letemps.ch/Page/Uuid/0192b4ba-b868-11e4-b7037833333027ee/Les_banques_sont_trop_occup%C3%A9es_pour_innover
9
http://www.bilan.ch/plus-de-redaction/grandes-banques-suisses-abordent-Fintech
10
http://www.tdg.ch/economie/La-Suisse-peut-se-tailler-une-premiere-place-dans-la-finance-dedemain/story/17536432
11
http://www.letemps.ch/Page/Uuid/0192b4ba-b868-11e4-b7037833333027ee/Les_banques_sont_trop_occup%C3%A9es_pour_innover
12
http://www.letemps.ch/Page/Uuid/3324cf18-b868-11e4-b703-7833333027ee/L%C3%A9mergence_des_startup_financi%C3%A8res
13
http://www.pme.ch/de/artikelanzeige/artikelanzeige.asp?pkBerichtNr=188188
14
http://www.bilan.ch/argent-finances-plus-de-redaction/premier-incubateur-Fintech-de-suisse-verra-jour-geneve
15
http://blog.alpict.com/2015/06/02/la-reglementation-mifid-2-pourrait-accelerer-la-croissance-dinvestglass/
16
http://www.startupolic.com/the-waking-up-of-Fintech-in-switzerland/
17
http://www.bobsguide.com/guide/news/2015/Jun/15/london-strengthens-position-as-the-worlds-leader-inFintech-says-global-Fintech-community.html
18
http://www.ey.com/Publication/vwLUAssets/Landscaping_UK_Fintech/$FILE/EY-Landscaping-UK-Fintech.pdf
19
http://www.mikebloomberg.com/content/uploads/sites/10/2015/06/London-Digital-City-On-The-Rise.pdf
20
http://www.ey.com/Publication/vwLUAssets/Landscaping_UK_Fintech/$FILE/EY-Landscaping-UK-Fintech.pdf
21
http://www.ey.com/Publication/vwLUAssets/EY_-_Mobile_money__the_next_wave_of_growth_in_telecoms/$FILE/EY-mobile-money-the-next-wave.pdf
22
http://www.economist.com/news/business/21657378-two-african-business-giants-go-head-head-over-mobiletelecoms-and-payments-new-east-africa
23
https://www.givedirectly.org/
24
https://azimo.com/en/
25
Directory of worldwide crowdfunding/crowdlending : http://www.crowdmapped.com/
26
For example : https://www.zidisha.org/, http://www.kiva.org/, http://www.pennies.org.uk/
27 http://www.givewell.org/, http://www.openphilanthropy.org/,
28
https://medium.com/@RebMelMen/why-we-re-so-excited-about-Fintech-793a40337491
29
http://www.theguardian.com/sustainable-business/2015/feb/03/what-you-should-know-about-Fintech-positivepowers-banking
2
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