Fintech and the future of finance | Prof. Arman Eshraghi | TEDxCardiffUniversity
Summary
TLDRThe 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
📱 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.
🌊 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.
🚨 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.
💸 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.
Mindmap
Keywords
💡FinTech
💡Blockchain
💡Cryptocurrency
💡Disruption
💡Mobile Banking
💡Robo-advisors
💡Unicorn
💡Speculative Bubble
💡Big Tech vs. Big Finance
💡Hype
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]
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