Fintech and the future of finance | Prof. Arman Eshraghi | TEDxCardiffUniversity

Summary

The speaker provides a comprehensive overview of the FinTech revolution, highlighting its rapid adoption and disruptive nature. They discuss how FinTech innovations like blockchain, mobile banking, and robo-advisors are transforming finance globally, much like the evolution of mobile phones. The speaker emphasizes the balance between excitement over FinTech's potential and caution against market hype, using examples such as speculative bubbles in cryptocurrency. They conclude by stressing the importance of staying optimistic yet grounded in the real impact of financial technologies.

Takeaways

• 📱 The rise of mobile phones: Less than 1% of the world had mobile phones in 1990, but now mobile technology has reached near full adoption in under three decades.
• 💻 FinTech is not new: Innovations like ATMs and credit cards were early forms of FinTech, but rapid advances in recent years have made FinTech more pervasive.
• 🔗 Blockchain explained: Blockchain is a distributed ledger technology that enhances security by syncing multiple copies of data globally, allowing for innovations like digital currencies and contracts.
• 💰 Disruption across finance: FinTech is reshaping industries like banking, insurance, personal finance, payments, and capital markets, making processes more accessible and efficient.
• 📊 The rise of FinTech unicorns: As of 2018, there are over 40 private FinTech companies valued at over $1 billion, highlighting the rapid growth and influence of the sector.
• 🌊 Tech vs. Finance: The battle between Big Tech and Big Finance is intensifying as tech companies like Apple and Amazon begin expanding into the financial sector.
• ⚠️ Hype and caution: While FinTech offers exciting potential, there are significant risks of overhype, as seen with speculative cryptocurrencies and companies exploiting blockchain buzz.
• 🎭 Celebrity-backed scams: Several cryptocurrency projects heavily promoted by celebrities turned out to be fraudulent, prompting regulatory action and caution for investors.
• 🚀 Market over-excitement: Companies adding 'blockchain' to their name without real changes saw massive spikes in share prices, illustrating the market's emotional reaction to buzzwords.
• 📉 Learning from history: Bitcoin's price crash in 2018 mirrors previous speculative bubbles, such as the 17th-century tulip mania, underscoring the risks of unchecked excitement.

Q & A

What is FinTech and how is it different from traditional finance technologies?

FinTech, or financial technology, refers to new technology aimed at improving and automating the delivery and use of financial services. Unlike traditional financial technologies, such as ATMs or debit cards, modern FinTech has evolved rapidly due to innovations like blockchain, mobile banking, and robo-advisors.

How has mobile phone adoption changed from 1990 to today, and why is this relevant to FinTech?

In 1990, less than 1% of the world’s population had mobile phones. Today, almost everyone has one, illustrating the rapid adoption of technology. This is relevant to FinTech because financial innovations, like mobile banking, have similarly experienced rapid adoption, indicating how quickly FinTech can integrate into everyday life.

What is blockchain and why is it considered secure?

Blockchain is a distributed ledger system where copies of the same ledger are synced across multiple computers globally. This decentralized system, built on cryptography, makes it highly secure, as it is difficult to tamper with any single record without altering all copies simultaneously.

What are some examples of FinTech innovations outside of blockchain and cryptocurrencies?

Beyond blockchain and cryptocurrencies, examples of FinTech innovations include mobile banking, personalized insurance platforms, robo-advisors for financial management, and payment systems like digital wallets and peer-to-peer transfer services.

Why is the rise of FinTech considered a 'disruption'?

FinTech is considered a disruption because it is rapidly changing how traditional financial services operate, challenging established financial institutions by offering faster, cheaper, and more accessible solutions. Startups in FinTech are capturing significant market share in payments, lending, and personal finance.

What are 'unicorns' in the FinTech space and how many currently exist?

Unicorns in the FinTech space refer to private companies that are valued at over $1 billion. There are currently more than 40 FinTech unicorns globally, highlighting the financial and market significance of these rapidly growing companies.

How has the list of the largest companies by market valuation changed over the last 20 years?

In 1999, the top companies were a mix of tech and energy firms. By 2009, energy and finance companies dominated. However, in 2019, tech companies like Microsoft, Apple, Amazon, and Alphabet reemerged as the largest companies, illustrating the dominance of technology in the global economy.

Why are big tech companies now entering the financial services sector?

Big tech companies are entering the financial services sector due to regulatory pressures on their primary businesses and the opportunities in finance. Since financial services are also being regulated, these companies see it as an additional revenue stream and a way to diversify their businesses.

What risks are associated with the hype surrounding FinTech, and how can they be measured?

The hype around FinTech can lead to speculative investments and overvaluation, similar to previous bubbles like the dot-com bubble. Examples include inflated stock prices following superficial name changes, like 'blockchain' added to a company's name. This hype can overshadow legitimate innovations and create market instability.

What lessons can be learned from historical speculative bubbles, like the Bitcoin crash or the tulip mania in the 17th century?

Both the Bitcoin crash and tulip mania show that initial excitement around new innovations can lead to speculative bubbles, driven by psychological factors like euphoria and greed. Eventually, panic sets in, and the market crashes. These bubbles highlight the importance of balancing optimism with caution when investing in new technologies.

Outlines

00:00

📱 The Evolution of FinTech and Its Impact

The speaker introduces the topic of financial technology (FinTech) by highlighting its importance and rapid growth. They emphasize how mobile phones, once used by less than 1% of the global population in 1990, are now ubiquitous, drawing parallels to the rapid adoption of FinTech innovations. The speaker explains that FinTech is not just about blockchain and cryptocurrencies, but includes older technologies like ATMs and credit cards. What makes FinTech unique today is the speed and scope of innovation, driven by technologies such as blockchain. Blockchain is described as a decentralized ledger system that ensures security and transparency, allowing for innovations like digital currencies and smart contracts. The speaker stresses that FinTech has already disrupted many sectors, from mobile banking to robo-advisors, and continues to transform payments, lending, and capital markets.

05:03

🌊 The FinTech Tsunami: Market Disruption and Growth

The speaker likens FinTech's rapid expansion to a tsunami, stating that the global investment in the sector reached $40 billion in 2018. They note that this figure is likely an underestimate and that FinTech unicorns (private companies valued at over $1 billion) are proliferating, with more than 40 worldwide. The speaker reflects on the evolution of the largest global companies over the past few decades, showing how tech giants like Microsoft, Apple, and Amazon have reemerged as dominant forces. Interestingly, tech companies are now entering the finance sector, signaling a future battle between Big Tech and Big Finance. The speaker also cautions against overexcitement, stressing that market hype can overshadow genuine innovation.

10:05

🚨 The Hype and Risks of the FinTech Market

The speaker highlights the dangers of hype in the FinTech market by pointing to fraudulent cryptocurrencies promoted by celebrities, which have led to regulatory actions. They reference an educational campaign by the U.S. Securities and Exchange Commission (SEC) that created a fake cryptocurrency to warn investors about the risks. The speaker also gives the example of the Long Island Iced Tea Company, which saw its stock price soar by 430% simply by changing its name to 'Long Blockchain Corporation.' Similar instances of name changes sparking irrational market reactions occurred in the UK and China. This phenomenon is compared to the 'dot-com' bubble of the early 2000s, where companies with 'dot-com' in their name were overvalued.

15:07

💸 Speculative Bubbles and Emotional Market Reactions

The speaker explains that speculative bubbles, like the rise and fall of Bitcoin in 2017-2018, are driven by emotions similar to those observed in historical examples, such as the 17th-century tulip mania in the Netherlands. They discuss how excitement over new innovations can lead to euphoria and eventual panic, causing market crashes. The unconscious nature of these emotions makes it difficult for investors to learn from past mistakes. While financial innovations hold great promise, the speaker cautions that they can also fuel dangerous speculation, leading to bubbles. They conclude by reminding the audience of past innovations that failed, urging a balanced approach between optimism and caution regarding the future of FinTech.

Keywords

💡FinTech

FinTech, short for financial technology, refers to innovations that use technology to improve financial services. The video highlights how FinTech is not a new concept, with examples ranging from ATMs to mobile banking. The speaker explains how modern innovations, including blockchain and cryptocurrencies, have accelerated the disruption of traditional financial sectors.

💡Blockchain

Blockchain is a decentralized digital ledger technology where records (or 'blocks') are linked together in a secure, encrypted manner. In the video, the speaker describes blockchain as a system where thousands of copies of a ledger are synced globally, ensuring high levels of security. It underpins various applications, from cryptocurrencies to digital contracts.

💡Cryptocurrency

Cryptocurrency refers to digital or virtual currencies that use cryptography for security. In the video, the speaker talks about cryptocurrencies like Bitcoin as a prominent part of the FinTech revolution. Blockchain is the technology that supports cryptocurrencies, and the video touches on speculative bubbles related to crypto investments.

💡Disruption

Disruption in this context refers to the significant changes FinTech innovations are causing in traditional financial services. The video frames FinTech as a major disruptor, reshaping industries such as banking, insurance, and payments by introducing faster and more efficient digital solutions.

💡Mobile Banking

Mobile banking allows users to perform banking tasks through their smartphones, eliminating the need for physical bank branches. In the video, the speaker mentions it as a prime example of how FinTech has become part of everyday life, allowing financial services to be accessed from anywhere.

💡Robo-advisors

Robo-advisors are automated platforms that provide financial advice or investment management based on algorithms. The speaker uses this as an example of how FinTech innovations like robo-advisors are replacing traditional financial advisors, making financial services more accessible and affordable.

💡Unicorn

In business, a 'unicorn' is a privately-owned startup valued at over $1 billion. The speaker notes that there are over 40 unicorns in the FinTech space, emphasizing how quickly these companies have gained market value due to the rising demand for innovative financial solutions.

💡Speculative Bubble

A speculative bubble occurs when the price of an asset becomes wildly inflated due to excessive market speculation, often leading to a sharp crash. The speaker likens the rapid rise and fall of Bitcoin's value to past bubbles, such as the Tulip Mania in 17th-century Holland, warning against over-excitement in FinTech markets.

💡Big Tech vs. Big Finance

The competition between technology giants ('Big Tech') and traditional financial institutions ('Big Finance'). The video discusses how tech companies like Apple, Amazon, and Google are increasingly entering the financial sector, signaling a shift where tech and finance industries converge and compete for dominance.

💡Hype

Hype refers to exaggerated or unrealistic expectations about a product or innovation. In the video, the speaker warns against the over-excitement surrounding FinTech, citing examples like companies renaming themselves to include 'blockchain' and experiencing irrational surges in stock value without substantive changes in their business models.

Highlights

Introduction to the fast-paced adoption of FinTech, with a comparison to the rapid adoption of mobile phones.

FinTech innovations, such as blockchain, revolutionize traditional finance systems by decentralizing ledgers, enhancing security.

Blockchain technology explained as distributed ledgers, making financial transactions cryptographically secure.

Examples of early FinTech innovations: ATMs, debit, and credit cards, showing the historical roots of FinTech.

FinTech has disrupted various areas, including mobile banking, insurance, personal finance, payments, and capital markets.

Robo-advisors and algorithm-driven financial advice are replacing traditional financial advisors, transforming personal finance management.

Many emerging FinTech companies are young, often founded within the past decade, and are quickly grabbing market share.

The global investment in FinTech reached $40 billion in 2018, with unicorn FinTech companies increasing globally.

The rise of tech companies like Microsoft, Apple, Amazon, and Alphabet dominating the global market in the last decade.

Big tech companies are entering the finance sector, competing with traditional financial institutions for dominance.

Warnings about the hype surrounding cryptocurrencies, with examples of fraud and misleading promotions by celebrities.

The SEC’s clever fake ICO campaign, designed to educate the public on the dangers of fraudulent cryptocurrency schemes.

Speculative market reactions to cosmetic name changes, like companies adding 'blockchain' to their names, leading to massive stock price increases.

Comparison of Bitcoin’s price bubble to historical speculative bubbles like the 17th-century tulip mania.

The importance of balancing optimism with caution in the face of FinTech innovations to avoid over-excitement and speculative bubbles.

Transcripts

yes hello it's a pleasure to be here so

let's talk about financial technology in

the next few minutes I'm going to reveal

to you some key insights about FinTech

and why I believe not just finance

professionals but all of us have to care

about how the FinTech phenomenon is

changing and touching our lives but

before that let me let me put a question

to you can you raise your hand if you

have a mobile phone right now so almost

all of you which is not surprising but

can you guess what percentage of the

world's population in 1990 had mobile

phones so the answer to that is less

than 1% 0.2% that's a very very low

percentage so 2 in every thousand people

and of course those were not anything

like the smart phones you have it's

bulky quite basic items so if a

technology can go from zero percent

adoption to hundred percent adoption

within less than three decades

that's a striking example of very

fast-paced adoption but if you think

this is fast then the adoption of some

of the clean tech innovations that I'm

going to talk about is significantly

faster now when you hear the word thin

tech most people think about blockchain

and cryptocurrencies which we'll come to

but FinTech is not really a new concept

even ATM machines at their time were

thin tech innovations in the 1960s or

debit cards and credit cards but what

has made fin tech go so unmask is is

just the pace of innovation in this

space

the rate of innovation and the abundance

of new technologies which have sprung up

everywhere now what is what is

blockchain without going too much into

the technology blockchain you can think

of it as these spreadsheets or Ledger's

which are distributed around the world

on built on the Internet

so as opposed to the old system where

you would have just one copy of a

central ledger now you have thousands of

these copies of the same ledger and

they're all linked together together and

constantly synced together which makes

it cryptographically very very safe and

on this infrastructure you can build

anything you can build digital

currencies like Kryptos you can build

contracts and pretty much anything

that's worth making a record for example

in the future it would be very likely

that when you when you purchase property

that record might might just be

implemented on the blockchain and people

are working towards them so it wouldn't

be an exaggeration to call the FinTech

phenomenon a FinTech disruption in fact

I believe it's the participe example of

a disruption it has already touched your

lives in so many different ways think

about mobile banking that you can do on

your phones anywhere in the world and

any at any given time think about new

forms of insurance that you can purchase

and customize again through new

innovative platforms think about the

world of personal finance well in the

old days you would have gone to a

financial advisor to get advice and now

you have also have the option of getting

advice from algorithms and software

otherwise known as Robo advisors and the

point of quite a range of other areas

let's think about payments lending

capital markets all of these sub areas

of the FinTech landscape or

being touched and influenced by by the

FinTech innovations so these are some of

the companies which are apparently very

active in the world of payments and

money transfer and while they use

different technologies

perhaps the common denominator is that

they're all very young companies they

both they've all been established within

the past decade or two and that's that's

the that's the disruption so they're all

grabbing market share and that's

fascinating of course now so it wouldn't

be again an exaggeration to think of it

as a tsunami or a large wave and if you

if you don't know how to ride a wave

well better learn to swim right here

isn't piers of an important figure in

2018 last year the size of the global

investments in in the physics phase was

forty billion dollars and that number

keeps growing some people argue that

forty billion is actually conservative

estimates the actual number is probably

significantly higher depending on what

you would consider FinTech there's

another number forty which is also

interesting and that's the number of

unicorns which are FinTech related

globally so what is the unicorn so

unicorn is a private company which is

worth at least one billion dollars so

with that level of market valuation

there are forty of them around in fact

more than 40 of them around slightly

more so that's pretty interesting and a

lot of this is happening in different

hubs around the world in Wales where we

are right now plenty of interesting

activity in the physical space is

already happening and a newly formed

body called FinTech Wales has has come

in to shape in order to coordinate this

effort but let's pause for a minute and

think about how we got here in the first

place so I want to invite your attention

to think about three snapshots in

time in 1999 just before the burst of

the dot-com bubble these companies were

the four largest companies in the world

in terms of market valuation so that's

how the stock markets would value them

and you can see I've put three of them

as logos and one as not a logo so the

ones that are in logos are the tech

companies right but of course the

dot-com bubble burst and then and then

the situation changed fast-forward 10

years and you have a slightly different

picture so the four largest companies

were some energy companies you still

have Microsoft err but you also have a

finance company ICBC the Chinese bank

now fast forward another 10 years to the

latest data we have and care to guess

what the four largest companies do they

are well they're all tech Microsoft

Apple Amazon and alphabet which is the

parent company of Google so big tech has

re-emerged if you think this is just a

top four let me let me show you what the

top 10 looks like so these are the same

four companies now look at the rest of

them these are the ten largest companies

in terms of market evaluation right now

as we speak the ones in red are tech

companies the ones in blue or finance

companies right so what happens it seems

that big tech has reemerged

and what's really interesting is that

big tech is getting into finance now

traditionally big tech companies were

reluctant about getting into finance

especially after the 2008 crash because

the financial services sector was

heavily regulated they were not very

keen to get into that but more recently

the tech sector is also being regulated

is being watched closely by the

government's as you can see with for

example

Facebook so so the tech companies are

thinking well we are already being

regulated or we are going to do

regulator so let's diversify our incomes

and get into finance as well so that

this battle between the red and the blue

the big tech and the big finance I think

is going to be a very very interesting

phenomenon to watch in the next few

years which one is going to dominate now

as exciting as all these progress is we

should also be cautious about the level

of over excitement and behind that is

also in this market and in this sector

and this is important because the hype

can cast a shadow on the actual real

progress on the legitimate use cases and

applications of these technologies but

how would you measure the hype it's

difficult so you need to have some

suggestions and indications I'm going to

invite your attention to a number of

examples of the hype in the FinTech

space these are some cryptocurrencies

which have been heavily backed or

promoted by celebrities and

unfortunately in this case all three of

them and more broadly many many others

like these have been involved with fraud

and wrongdoing and financial regulators

have basically issued cease and desist

orders against them which just shows in

one in one way how how hot this market

is and how overhyped and overexcited

this market is and of course the

celebrities are not helping in this

sense this has become such a problem

that the United States regulator the SEC

did something clever they wanted to

educate investors so they created a fake

webpage and a fake eye code initial

point offering and they included

pictures of fake celebrities with

endorsements of this so-called

cryptocurrency called how is point and

and they also put some science into it

they

included a whitepaper so many people

clicked on the link actually and showed

interest and then they were forwarded to

the real regulatory webpage which

basically cautioned them against this so

here's another example you may have

heard of this a company called Long

Island iced tea company which produces I

see mostly in America just before the

end of 2017 change its name to guess

what long blockchain corporation and

just because of that corporate name

change their share price went up four

hundred and thirty percent in in a day

in fact in a few hours

now that's this there's no rational way

to explain this apart from just the

over-excitement of the market in fact

this company they very transparently

said we are thinking about using the

blockchain technology there was no

fundamental change in their in their mod

in their business model it was just an

ik declare a ssin or an announcement but

that announcement was sufficient to

excite the markets to this extent and

this is not just happening in the United

States unfortunately it's happening

around the world for example in the UK a

company called online PLC change its

name to online blockchain and then the

share price went up 400% in China a

company called sky people fruit juice

change its name to feature printing and

then the share price went to 200% so

these cosmetic name changes that lead to

such exaggerated market reactions can

only be an indication of the hype and

emotions in the market and remember

they're not really these companies were

not really changing the business models

in any fundamental way they were just

announcing that they might get

interested now new studies show that

these are not exceptions unfortunately

this is a pattern speculative mentions

of the word blockchain in fine

Oh disclosures has been shown to lead to

similar market reactions now Shakespeare

famous he wrote rose by any other name

would smell as sweet so it doesn't

matter what you call a rose it is a

still beautiful is it still very

sweet-smelling but in the world of

finance it matters what you name

companies and in a in a famous study

which was called rose calm by any other

name

some researchers found that during the

dot-com bubble those companies that

simply added dot-com to their names

again experienced the market by the

overvaluation by about seventy five

percent and this was just about

Association again they were not changing

anything fundamentally they were just

having Dutch computer links but the

story goes beyond that so as you as you

may know this is the famous Bitcoin

price chart in 2000 at the beginning of

2018 or end of 2017 it reached a price

of about twenty thousand dollars and

then it crashed

now there's every compelling reason to

think that this was a classic

speculative bubble

if you go back sufficiently long in

history and you have seen examples of

this before we have seen examples of

this before and there's a body of

academic studies about this for example

in the 17th century tulips exotic rare

tulips were so overvalued in the

Netherlands that you could basically buy

houses in the center of Amsterdam by

exchanging a few tulips now of course

we're not suggesting that bitcoins are

like tulips but the underlying

excitement and psychological emotions

that that form this is speculation are

very similar and if you if you read the

insights of psychologists basically the

idea is that in

in these sorts of speculative bubbles

what happens initially is a bit of

excitement about a new innovation which

then leads to euphoric levels of

excitement but then inevitably panic

sets in and then they crash and what was

very interesting is that these emotions

many of them are unconscious emotions

people like Freud have talked about this

so that's why it's very difficult to

learn from experience because these

emotions are not consciously notions

they're actually quite unconscious

emotions so all technological

innovations can can lead to over

excitement with financial innovations

but danger is even more so because

there's the promise of abundant wealth

and that's what we need to be careful

about so I want to conclude by reminding

you that there have been many examples

of innovations in history which have not

survived the test of time

snow screens for the face family bicycle

or a single wheel motorcycle are just

three of those examples it's it's

extremely important to remain optimistic

and excited about the future that

FinTech promises us but also just not

get overexcited thank you very much

[Applause]