Reserve your seat for the O'Reilly Next:Money Summit, our new event exploring the long game of financial upheaval.
Payments are as old as the first transaction. Lending rose with the mercantile class. Credit, title, and financial advice soon followed. Today, banking is an established, venerated industry at the core of most Western civilizations. And it’s under siege.
Banking is about information. Since we unhinged currency from the Gold Standard, it’s been based on trust, and the tracking of payments and debts around the globe. And if there’s one thing we’ve fundamentally changed in the last 20 years, it’s how our species works with information. One-way, centralized systems have become peer-to-peer, distributed networks. Four billion of us have smartphones, and well over a billion use Facebook daily.
This networked free-for-all of information has spawned an array of disruptors that’s now looking to upend the financial old guard: peer-to-peer lending; money with opinions about how it’s used; payment from our pockets; algorithmic advisors planning our financial futures; zero-fee trading; transaction processing outside the usual channels; and cross-border transfers on razor-thin margins.
As Paul Kedrosky observes, "Finance has the three main characteristics of an industry likely to be transformed by technology: it traffics in bits, not atoms; its services are often delivered remotely; and there is little need for human contact."
The timing is certainly right. Big data makes crunching numbers cheap and fast; real-time connectivity allows transactions without proprietary back-end networks; smartphone screens replace bank tellers; distributed trust and social identity allow new kinds of authentication; we can bake creditworthiness from the digital breadcrumb trail customers leave behind themselves.
Early targets are among banking's most lucrative sectors — consumer and business lending, and payments. But having so far resisted the disruption that’s hit so many sectors of the wider economy, nearly every facet of finance is now vulnerable. And the wounds could prove fatal. In March, 2015, Goldman Sachs estimated that 7% of banks' annual profits could be consumed within five years from fintech startups and non-banks.
Investment in the sector is huge — $64 billion in fintech ventures since 2010, according to VentureSource. Add to that a climate of bad press, putting bailouts, student debt, and onerous fee structures in the headlines almost daily, and something’s got to give.
“In five years,” predicts provocative fintech entrepreneur Brett King, “the biggest banks in the world won’t be banks; they’ll be tech companies.” JP Morgan’s Jamie Dimon puts it even more bluntly: “Silicon Valley is coming.”
Or is it?
Banking is heavily regulated, too big to fail, and inherently conservative. It relies on closed networks and protocols, and is extremely complex. That creates high barriers to entry for small startups.
And big finance has plenty of tricks up its pin-striped sleeves. Banks control most of the customers — and much of their money. They have deep pockets with which to acquire or shut down disruptors. They employ powerful lobbyists and influence regulation across government borders. In an industry built on trust, a centuries-old history goes a long way.
Still, nobody wants to be the banking equivalent of Blockbuster or the taxi industry, falling victim to a newly minted Netflix or Uber. So banks are snapping up startup rivals and Silicon Valley design darlings in the hopes of disrupting themselves before someone else does.
The banks that do surf the coming tsunami of innovation will remain afloat because they learn to innovate quickly, and then transform themselves more completely over time. Accenture says that short-term growth will come from disruptive products such as digital wallets, an expansion beyond banking, crowdsourced lending, or harnessing big data. Longer-term, sustainable survival will rely on deeper, more fundamental changes, ultimately making both the front and back office digital.
At the O'Reilly Next:Money Summit, being held March 14-15, 2016, in San Francisco, we’ll chart the course of the finance industry, bringing together leading banks, fast-growing startups, global regulators, investors, and top journalists and analysts. We’ll navigate the tension between big incumbents trying to remake themselves and the early-stage companies that are trying to make them irrelevant. And we’ll consider the social impact of ubiquitous, digital financial technology as it unlocks the wealth of the unbanked, tipping the balance of trade across nations.
We’ve crafted a lineup of speakers to look at how fintech startups are being created, what problems they’re tackling, and how they’re being regulated — and what the incumbents are doing about it. Here's a peek:
Building the new guard
The word “disruption” is over used. Unless you’re destroying something, you’re not disrupting — and investors are betting on destruction.
- How to birth a fintech player: Jenny Fielding, managing director of the Barclays/Techstars accelerator, will discuss how new fintech companies are created with The Economist’s U.S. business editor, Mathew Bishop.
- Financial evolution/Where the smart money is going: Award-winning writer Felix Salmon has been blogging since 1999, writing for Reuters, Portfolio.com, Wired, the New York Times, New York Magazine and Euromoney. He is currently the senior editor at Fusion, known for his provocative take on how the financial industry is evolving. Salmon joins FuturePerfect Ventures founding partner Jalak Jobanputra, an investor in more than 80 early-stage companies over the past 15 years. With several multibillion-dollar acquisitions and IPOs under her belt, Jobanputra is uniquely qualified to guess at where the industry is headed.
- The offense strategy: Citigroup's chief innovation officer and CEO of Citi Ventures Debby Hopkins was betting on tech early. The founder of labs and accelerators across America, she’s applying Lean Startup approaches to banking and finance, and helping the nation’s third largest bank navigate the uncertain waters of fintech disruption. She’ll join Bloomberg TV’s Joe Weisenthal to explore how banks can disrupt themselves before someone else does.
- Apps for banks: Brett King isn’t just a disruptor in his own right — having founded “downloadable bank account” startup Moven to the tune of $25 million in backing — he’s also a bestselling author and the person behind the world’s number one fintech radio show. He’ll explain why mobility, connectivity, and the human-machine prosthesis of smartphones are forever changing what customers are and how they use banking.
Disruption in action
The banking system is being broken into smaller parts by hundreds of startups, each tackling a smaller part of the whole. We’ll look at several of these first-hand:
- The central nervous system: Bloomberg’s iconic terminal has been the central information source of the finance industry for decades, delivering not only a constant flood of data, but also news, messaging, and a broad range of reliable, real-time functions. Now, startups and competitors think they can do it better — take Goldman Sachs’ Symphony as well as upstart money.net as examples. Our panel will tackle the threat — and promise — of new information sources in finance.
- Send everything everywhere: Transferring money has always been complex, a mixture of foreign exchange trading, know-your-customer regulations, and a Byzantine pipeline of proprietary protocols. But when everyone is a node on a network, transfers get far simpler. Transferwise founder Taavet Hinrikus will join Next:Money co-chair Alistair Croll to look at startups, business models, and the future of fast, ubiquitous money transfers and payments.
- Trade for free: Banking relies on fees and percentages. What happens when those fees vanish? Traders needed a trading desk; now they need a smartphone. Robinhood co-founder Vladimir Tenev will discuss what trading looks like tomorrow with Elizabeth Stark, an entrepreneur who has worked at Stanford, Yale, and Harvard’s Berkman Center for Internet and Society.
- Robot knows best: Few of us are the unique and special snowflakes we once thought we were. Tell Amazon a few of the albums you own, and it can guess your music collection with surprising accuracy. Share a few personal facts with an insurer, and it can assess the risk you pose in an instant. So, why should financial advice be any different? Future Advisor’s lead investment advisor Bo Lu and Vanity Fair’s Bethany McLean ask whether or not your next advisor will be a machine.
Coin & crypto
It’s easy to conflate cryptocurrency with fintech. But cryptocurrency is more than just another currency. It’s programmable money — or, otherwise put, it’s money with opinions about how it’s used. It’s decentralized, but still trusted. And it enables a wide range of business models because its underlying technology of blockchains can enforce policies: The money is the contract. And ultimately, cryptocurrency is a building block of fintech, just like big data, real-time connectivity, and ubiquitous mobility.
- Money with opinions: By now, Bitcoin is a household word. But few grasp that cryptocurrency’s truly disruptive quality lies in the ability to program transactions with enforceable instructions, thus imbuing money with new powers. This has vast consequences, from contractual enforcement to digital rights management to cross-border transfers, property registries and securities settlement. Chain.com CEO Adam Ludwin will explore how cryptocurrency enables a broad, new range of business models.
- New currency: Brian Forde has spent more than a decade at the intersection of technology, entrepreneurship, and public policy. He works at the MIT Media Lab to mainstream digital currencies, and has advised the White House on emerging technologies. His counterpart for this conversation is Steve Waterhouse, a partner at Pantera Capital and an investor in a number of Bitcoin-focused startups. Together, the two have seen a wide range of businesses and business models; at Next:Money, they’ll separate the digital wheat from the cryptographic chaff.
- Digital assets: Felix Salmon will sit down with serial entrepreneur and cryptography expert Shaul Kfir to look at how digital currencies and the blockchain could streamline the arcane but high-stakes world of securities settlement. Along the way, they’ll discuss how to ensure the integrity of transactions while maintaining the privacy of all parties, and how to pave the way for new trusted, arms-length transactions on which tomorrow’s markets can run.
Regulating an industry reborn
New models mean new regulation. In the wake of accidental flash trades, high-profile money laundering, credit-default swaps, and other financial calamities, we’re more aware than ever of how brittle modern markets can be. As we create new technologies and new business models, how can we even know what to look out for?
- Balancing security with innovation: Ben Lawsky, CEO of the Lawsky Group and a visiting scholar at Stanford University’s Cyber Initiative, has built a career helping companies and governments manage change. As superintendent of New York’s Department of Financial Services, the industry’s most important state regulator, he regulated the largest banks in the world. He also pioneered the first licensing regime for digital currency services. It’s a career that makes him uniquely positioned to understand how to manage the risks of rapid change while leaving enough breathing room to let true innovation flourish.
- Reg-tech innovation across the pond: If U.S. regulators want to find room for innovation in their existing rule set, the U.K. has a different approach. For Britain’s all-important financial services industry, encouraging world-leading fintech startups is a goal in itself — which means that regulations, while still important, should encourage innovation. Bob Ferguson, the head of the U.K. Financial Conduct Authority’s Strategy and Competition, will explain the philosophy behind a model that some see as a rival to that of the U.S. in the global competition for smart investments.
- New tools for catching crooks: Kathryn Haun, the assistant U.S. attorney for the U.S. Department of Justice, is a federal prosecutor who’s worked in both Washington, D.C., and San Francisco on a broad range of regulation: digital currency, organized crime, cybercrime, and compliance with the Bank Secrecy Act. She led the DOJ’s complicated case against Ross Ulbricht — the convicted mastermind of the Silk Road illicit drugs trading site — and the subsequent case against two FBI agents caught stealing bitcoins seized in the operation. She’ll offer Next:Money a unique perspective on how law enforcement agencies can use new technologies to their advantage rather than merely seeing them as a threat.
- Getting compliant first: Most fintech firms promise ease-of-use. But that can often mean ease-of-misuse, with payments going to bad actors, skirting Know Your Customer regulations. Adam Shapiro leads the FinTech practice at Promontory Financial Group, and helps both startups and finance incumbents develop regulatory strategies that keep them compliant while allowing them to scale and meet their business objectives. In a candid conversation with Next:Money co-chair Michael Casey, he’ll discuss the regulation of payment, lending, banking, and digital currency.
State of the world
It’s hard to keep on top of what’s happening in finance. Next:Money has invited three experts on the subject: Domino Data Lab’s Matthew Granade and Hannah Granade, and CB Insights’ Anand Sanwal.
- Getting to the data: Matthew Granade is currently focused on analytical tools and on advising a variety of fintech startups. At Bridgewater Associates, he built systems for understanding the global economy and wrote Bridgewater’s market commentary. He and Hannah Granade will turn their analytical eye toward today’s fintech industry, identifying trends and seeking alpha.
- Unicorn races: Anand Sandwal is the founder and CEO of CB Insights, whose widely read newsletter takes a data-driven approach to understanding financial markets. His always incisive, often irreverent take on tech growth, bubbles, and unicorns is informed by a background launching startups and managing a $50 million innovation fund for American Express.
Transactions drive economies, and economies inform everything from the balance of trade to social justice. As we reshape capitalism, we need to consider what kind of world we want — one of ruthless efficiency or of hope and economic mobility. Yet, if you listen to fintech enthusiasts, those goals might not be mutually exclusive. By cutting out middlemen, they argue, technology can promote inclusion and deliver profits to innovators. From digital identities and property registries for the world’s “unbanked” billions, to financial instruments that marry philanthropy with for-profit investing, Next:Money’s program will explore the forgotten frontier of the global economy.
- The rise of the unbanked: Hernando de Soto is one of the world’s top thinkers on banking, freedom, economics, and democracy. He is the author of The Mystery of Capital, which explores why capitalism thrives in Western markets but stumbles elsewhere. As part of that research, he dove into the wealth of the world’s unbanked, revealing how the identity, property title, and financial systems that we take for granted are necessary for capitalism to function. In conversation with Vanity Fair’s Bethany McLean, they’ll discuss whether fintech will lift the unbanked from poverty or banish them to the far side of a digital divide.
- Trust, identity, and society: In a candid discussion about the future of identity, Next:Money co-chair Michael Casey invites the MIT Media Lab’s John Clippinger and Red Rose founder John Edge to explore what digital transactions, connected markets, and new economic systems mean for financial inclusion. Can we properly protect personal data while sharing it? Can we use transaction trails and sophisticated analyses of network relationships to automatically bake inclusion into financial systems? Can we simultaneously deliver value for investors, boost financial access, and protect society from bad buys — or are these goals fundamentally at odds?
- Financial engineering for social good: We have financial instruments to support business models; why not have them for social goals? Tracy Palandjian, CEO and co-founder of Social Finance, thinks we can. She’s rethinking how we tie outcome-based investment to social outcomes, using tools like Social Impact Bonds, building on her work with The Parthenon Group, where she ran the nonprofit practice globally.
Incumbents fight back
Banks may be big, but they’re also careful, well-informed, and carry with them the wisdom of age. None are ignoring the surge of fintech startups; some are plotting their counter-attack, or even courting unlikely allies. As a counterpoint to the breathless bombast of the tech trade press, we’ll hear from executives at some of the world’s biggest financial organizations whose responses, while more measured, are no less formidable.
- Tech, risk, and strategy: Being early is like being wrong, only more expensive. Goldman Sachs’ George Lee co-chairs the company’s Global Technology, Media, and Telecom (TMT) Group and is the CIO of the Investment Banking Division. As the person driving technology for one of the world’s top investment banks, he has a unique take on emerging technologies, balancing early-adopter advantage and early-stage disruption with a need to deliver robust, reliable systems to customers.
- Startups don’t know what they don’t know: Warburg Pincus' managing director Bill Janeway talks with the Financial Times’ Gillian Tett about whether fintech represents an existential threat to existing companies. Both Tett and Janeway have written books on capitalism, the global economy, and financial systems, equipping them with deep insight into just how complex and entrenched those existing systems are.
- Payments are already ubiquitous: Digital wallets and local point-of-sale are two of the most popular fintech startup categories, and everyone’s seen their local coffee shop use an iPad for payments. But what’s really going on behind the scenes? MasterCard's chief emerging payments officer Ed McLaughlin knows just how much power and complexity hides behind a simple credit card or a dialup point-of-sale terminal.
- A European take on fintech innovation: TBA, ING Group.
- Building for the big firms: TBA, Fiserv.
- The anti-lab strategy: TBA, Cathy Bessant, Bank of America.
For more on our program and to reserve your seat, visit the O'Reilly Next:Money Summit website.