

A Cynic’s Guide to Fintech Business Models - jackgavigan
https://medium.com/bull-market/a-cynic-s-guide-to-fintech-3cd0995e0da3

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abritishguy
The article seems to be quite US centric when talking about regulation. The UK
banking market is very different than the US with just a handful of banks. The
regulator is actively trying to increase competition. Atom, a new challenger
bank just got their banking license and Mondo (where I work) is on its way.

We are looking to differentiate ourselves by simply not sucking, providing
features people want when they want them not two years later. Water bill
doubled this month, we'll flag it. Salary not come in when it should have, we
will send you a notification.

Api? Yup

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bjterry
It's interesting you say that, given that the author lives in London, most of
his examples are from the UK, and he specifically refers to the UK
government's desire to expand fintech in the last paragraph, which he says has
received "uncritical support." When I read it I thought it was fairly UK-
centric. What is it about his points that makes it seem US-centric?

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tim333
I think this article has been posted three times with no comments so I thought
I'd start one.

It seems over cynical to me in that it passes over various successful models.
LendingClub is doing well and has done over $5bn in loans. Transferwise seems
to be going well and has done over $3bn of foreign transfers. Stripe is doing
well. All are providing better service or value in fields that were poorly
served and don't really fit with the articles views and categories.

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joosters
To be fair, it is labelled a Cynic's Guide for a reason...

I agree that LendingClub (and others, like Funding Circle) would be separate
model from the ones listed in the article. Passing risk onto others and being
paid a commission for the job of finding buyers & sellers. It's a little like
his business model #4 but setting up a new exchange rather than using an
existing one.

That said, these 'alternative investment' style companies haven't yet been
tested. What will happen when the next downturn arrives, and lenders get hit
with massive losses?

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notahacker
My guess is that for many of the equity platforms, it won't take until the
next downturn...

Being a shovel seller in a gold rush is profitable enough whilst it lasts; the
bigger worry is that it's not unheard of for UK regulators to decide that
retail customers deserve compensation for financial products which were
inadequately explained and a really bad deal, and put the vendor on the hook
for it. I can almost imagine the next wave of robocalls from claims
consultancies...

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joosters
Yeah, there's a load of these p2p lending companies in the UK, some of them
even describing themselves as 'savings' schemes rather than as speculative
investment. That kind of language is asking for trouble.

The business model even has remarkable similarities to some of the fundamental
problems that aggravated the last mortgage collapse: the people who are credit
rating these investments (i.e. the companies like Lending Club, Funding
Circle, Zopa, RateSetter, Saving Stream and so on) are not the people taking
the risk. So there's a great chance that the credit ratings will turn out not
to be robust enough.

IMO these companies should be forced to invest some of their own money in each
of their lending offerings.

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hackuser
Can someone explain this?

 _this tends to mean that you get a book of business which has loads of little
concentrations in them - you’ve got all the mixed-race dentists in Yorkshire,
or something. And this, in turn, means that when the world changes, your risks
tend to be very correlated and you lose years ' worth of profit in one lump._

I would guess that many small concentrations would be less correlated with
each other, not more, than a few large ones. Or is he comparing it to having
fewer 'concentrations' (which I understand to be market niches you dominate)
at all; that is, having a few customers in this niche, a few in another,
rather than everybody in a particular niche.

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joosters
BTW the author's book (as mentioned in the article) is pretty good:

[http://www.amazon.com/Secret-Life-Money-Economics-
Explained-...](http://www.amazon.com/Secret-Life-Money-Economics-Explained-
ebook/dp/B00R0IZFL4/)

It's fairly short but well-written, and the chapter on health insurance (and
why genetic screening isn't the game-changing breakthrough that people think)
is very interesting.

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fegu
I really enjoyed this article. It is obvious that the author has some real
insight. Also, I am tired of otherwise smart people automatically assuming
they are smart in any field, not just their own. It seems the author is too.

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omouse
> _financial services is an intrinsically regulated industry where consumer
> protection is often very rigorous for a good reason_

Hah, hahaha. Right. What kind of a cynic can say that without a trace of
sarcasm?

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jqgatsby
Can anyone give specific company examples of business model #4: "Trying to use
someone else’s network and only pay the marginal cost of doing so"

Examples outside fintech are also very welcome.

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tim333
I'm having a job thinking of any of the "surprising number of viable business
models which involve undercutting the incumbents for payment services."
Outside of fintech I can think of companies using LVLT's fiber network and not
paying much. Also travel companies booking off peak hotel rooms and paying
enough to cover maid service etc but not the cost of building the hotel. Both
of those happen where there is an excess of capacity in a competitive
industry. When things turn and there is a shortage, hotels and the like can
jack their prices.

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pbreit
So the author would advise against PayPal & LendingClub, for example? Cynical
indeed. And very short-sighted.

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ThomPete
No he wouldn't that type he is positive about.

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AnneBoden
Jack may say he is only being cynical but there is a lot of truth in it.
Perhaps worth taking a look at this analysis of UK market to give a sense of
the players. [https://starlingbank.co.uk/a-new-market-segmentation-for-
ret...](https://starlingbank.co.uk/a-new-market-segmentation-for-retail-
banking/) Our next blog will to try to explain what Full-Stack Banking is both
in terms of the technology stack and in a business model sense.

