Fintech: growing up fast

Insider: Jesse McWaters

World Economic Forum fintech research head Jesse McWaters: “Regulators in many jurisdictions have come to view fintechs as a welcome presence and have moved to actively engage with them”

Who Jesse McWaters, financial innovation lead at the World Economic Forum in New York. McWaters, a Canadian, heads WEF research on fintech, manages its council on the future of blockchain, and coauthored its influential 2015 “Future of Financial Services” report.

Involvement The seminal research in the WEF’s 2015 report provided an early, around-the-globe look at fintech and its disruptive potential for incumbent banks, insurers and other institutions. McWaters’ team is now working on a follow-up, for June 2017, to identify early winners and update emerging trends. We interviewed McWaters after he spoke on a panel about blockchain and capital markets at the Ontario Securities Commission’s Dialogue 2016 conference in November.

Listed You started the financial services project at the WEF’s Davos meetings in 2014. What happened?

Jesse McWaters We asked 50 senior financial services executives from banking, insurance and asset management what were they worried about, where were they concerned about innovators potentially disrupting their business? And the answer, quite frankly, was that they were not significantly worried. They were interested in how these players were going to evolve, but they perceived it as the fact that they had scale, customers’ trust, and an enormous amount of regulatory complexities that they thought that fintechs would simply not be able to overcome.

Listed How about when you reconvened in 2015?

Jesse McWaters The attitude in the room had really shifted from one of, dare I say, complacency, to deep concern for the role that these fintechs would play. They were starting to see that they had customers who had rising expectations, who were experiencing highly bespoke low-cost or free digital experiences in other realms of their life and felt that their financial experience was falling behind that.

Listed Why are you revisiting the 2015 report so quickly?

Jesse McWaters Fintechs have grown; there’s been an enormous amount of investment. I feel like we need to do a stocktaking of where fintech is delivering and where it’s struggling.

Listed What sort of the things are you seeing?

Jesse McWaters There are areas where fintechs have rapidly gained traction and where they’re winning. Look at Venmo in the United States, for example. They’ve got a niche around particular types of payments, peer-to-peer, their usage has grown really rapidly, particularly among millennials. But you also have areas in which a fintech has presented an idea, but then struggled to build scale, and at the same time established players have been able to buy/build their way out of the situation.

Then there’s the area of partnerships. You have incumbent-incumbent partnerships, you have fintech-incumbent partnerships, and you even see relationships between financial and non-financial players. There’s a really interesting case of a marketplace lender named FundBox who has partnered with Intuit, the small business accounting software, and basically what it does is allow FundBox to offer, directly in the Intuit app, invoice receivables financing. They’re able to look directly into the data that is passing through the small business’s financial software and then make adjudication decisions based on that.

Listed Has regulation been the barrier incumbents thought?

Jesse McWaters We’ve seen two things happen. One is that by choosing to be highly specialized, fintechs have simplified their regulatory problems. The other thing is that regulators in many jurisdictions have come to view fintechs as a welcome presence and have moved to actively engage with them. The Financial Conduct Authority in the UK has really been a leader in this respect. Part of the mandate of the FCA is to drive competition, and they view fintechs as an important part of driving that competition. And you’re seeing regulators around the world adopting and adapting elements of that model.

Listed What are the implications for companies that deal with financial services firms and work in the capital markets?

Jesse McWaters If you sit outside the financial system, this competition is good for you. Because fundamentally this is about providing better experiences, it’s about streamlining infrastructure to provide those experiences more effectively and it’s about breaking tradeoffs either to significantly reduce costs or increase services at the same cost.

Listed On the Dialogue panel we heard about customer needs, but also a lot on service providers’ own challenges. Why so?

Jesse McWaters The reason is that to provide the type of services that consumers have come to expect requires significant changes under the hood at most financial services organizations. They’re operating today with legacy infrastructure that is exceptionally stable but not particularly flexible. What you’re seeing now is the rise of an interesting com- petition wherein incumbents are trying to update those systems while fintechs, particularly in the UK, are building whole new digital banks, built from the ground up to be highly customer-centric. I’m really interested to see how it’s going to play out over the next five years.

Interview by Listed Staff

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