
FinTech is the worst - jackgavigan
https://medium.com/listen-to-my-story/why-fintech-is-the-worst-de90e89a4f0c
======
barrkel
B2C/C2C fintech, perhaps. But it's not the only model, and TBH, selling
financial services to consumers is difficult - the risks of getting a startup
involved in your financials aren't trivially dismissed.

Selling tech, particularly SaaS, into finance is a different story. Most
organizations are large and scelerotic, developers are heavily laden with
security controls, and smart devs are uninterested in the more boring
plumbing, where you're a cost centre and aren't getting a decent slice from
the bonus pool.

Historically a lot of financial software has been consultancy-ware sold
directly to management, or poorly implemented internal systems with long
turnaround times. The industry is ripe for more cloud-oriented software with
lower onboarding times and less gating by internal IT. The primary challenge
is convincing people that their data is safe with you, and that the service
can be continued even if you go away (so, source escrow).

(I work in this space - send me an email at barry@du.co if you're interested
in joining a growing startup in London. Stack includes C++/Java/Ruby/JS and
more.)

~~~
shubhamjain
> The primary challenge is convincing people that their data is safe with you,
> and that the service can be continued even if you go away

Isn't it possible to sell self-hosted software like AeroFS does?

~~~
barrkel
It's possible, but it's a different business model. For a complex multi-tier
application, it wouldn't just be an executable; it would be a set of machines
that all need to be on the same version, configured correctly with appropriate
firewall rules etc. Who would manage it? Would it reach out and grab updates,
or would the you reach in and upgrade it remotely? Would IT want to get
involved? Are you responsible for training them? For fixing things when they
mess it up? There's loads of pain in this direction. It's best avoided if the
application is in any way complex, and particularly if it has a rapid upgrade
cycle (we roll out upgrades every 2 to 4 weeks or so).

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akhatri_aus
I personally think FinTech is the the best.

The examples mentioned are focused on a specific sector of the market where
there are players to compare against for similar products or products that at
the end of the day, do the same thing.

A disruptive business has its own market that can't be compared against
another before it such as Bloomberg. The examples offered are just variations
of existing business models and are bad examples of the potential of FinTech
businesses.

Even with the businesses mentioned it ought to be mentioned about the ROI. The
operating costs of Merrill can't even remotely be compared to the upstarts.

There are a couple of really good examples such as TransferWise, CrowdCube,
Bloomberg, Square, Stripe, Xero, MPESA and loads more that are at the top of
their categories either immediately or in terms of growth.

Fintech businesses _do_ scale quickly, very quickly. Most of the examples I've
given have done this already. MPESA transacts in multiples more than the
entire banking system itself in Kenya.

------
vegabook
Here is a revealing fact. Trading in FX has been electronic since well before
the age of the internet, with EBS being setup to compete with Reuters as early
as 1990. Still, as soon as transactions are bigger than some small nominal
amount (say, 5m USD notional), inevitably, they're transacted human to human,
_to this day_. Sure, many transactions in total size are larger than that,
done in smaller electronic chunks, but as soon as there is a real, single-flow
risk, many humans simply like to deal with another human. Twenty five years
later.

The facts is that, when you're risking large amounts of money, and I have been
a portfolio manager and self-analysed why, despite being a techie, I was
uncomfortable putting large risks through a machine, the fact is that you want
re-assurance. You want a _person_ to guide you through the risks, or at the
very least, you want to be able to reward a real person with your flow, buy
their loyalty, so that in future they will help you with new, nascent risks,
that you might not be aware of (the salesman-PM bond).

Fintech in too many cases assumes that transactions are simply a dry exchange.
Where it fails every time is in acknowledging the rich set of emotions that
accompany any transaction beyond a certain threshold size, and which only
another human can understand/acknowledge/address.

I have not been surprised, because of the above, about how many fintech
companies are failing.

~~~
ellius
Matt Levine at Bloomberg summed this up well: "It's not enough to get your
machines to agree. You have to agree on what your machines should agree
about."

You're exactly right. People forget money is a contract business for a reason.
Even if it were feasible to remove government regulation, the enormous
complexity of financial needs and marketplaces would require a huge amount of
human oversight. When things go right, transactions are simple. The problem is
they frequently go wrong, sometimes in unanticipated ways where liability gets
fuzzy.

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manishsharan
Lots of fintech entrepreneurs I have spoken seem to disregard threats to their
model by their biggest competitor: banks. Banks are your biggest and smartest
competitor. And they are not as bureaucratic as you may have been led to
believe. They pay top dollars for engineering and marketing talent and they
have a ton of money and patience. So unless you have a strategy to deal with
banks, you are toast.

~~~
p4wnc6
It's well-known that banks do not pay top dollar for engineering or IT talent.
Further, for the less-than-top-dollar pay, you often work in horrible
conditions. It's loud, relentlessly interactive even if your job function has
nothing to do with intraday banking activities. Banks are notorious for using
legacy technology, having arcane legal restrictions (e.g. you can't use an
open source project without weeks worth of approvals and paperwork), virtually
never pay down technical debt, have an unholy mixture of off-site consulting
teams with too many cooks in the kitchen, and require you to work an
unreasonable number of hours purely for the sake of appearing, visually, to do
a lot of work.

I am not in the fin tech space, but if I was, banks would not be a serious
worry. When large banks "mobilize" to compete with faster moving start-ups it
is a hilarious failure, like when a cat is trying to take off a cat Halloween
costume.

~~~
kafkaesq
_It 's well-known that banks do not pay top dollar for engineering or IT
talent._

Doesn't jibe with my observation -- my sense is that (upper-tier) banks do pay
significantly higher than tech startups (leaving aside equity, of course), on
average. And offer a lot more security, if you can stick it out. Again, on
average -- for average-schmoe Java/C++/what-have-you devs.

You're definitely right about the horrible technology and working conditions,
though. That's why the banks know that have to dangle above-average salaries
for all kinds of humdrum role descriptions -- deep down inside, they know that
to a large extent, they're paying people for being willing to hold their nose,
day in, day out, year after year.

And of course for the willingness to pee in a cup, because someone told you
to.

~~~
p4wnc6
I guess it depends on what you mean by upper tier. Goldman Sachs pays well. JP
Morgan, Bank of America, Wells Fargo, BNP, Citi, Morgan Stanley, TD Bank,
Standard Chartered, etc... These places absolutely don't pay well even
compared to medium quality established tech firms. Certainly they don't pay
well compared to hedge funds, private equity, VC, and other types of
boutiques. And if it is even remotely adjusted for quality of life, they begin
to look horrible.

The larger banks like JPM etc go out of their way to suppress wages. They are
sort of the IBM of finance. Lots of big, senseless, ill-conceived technology
re-orgs all the time happening to create bonus fuel for someone up the food
chain. These places certainly don't recruit the best, and often dupe decent
developers into doing totally foolish things, like working in a proprietary
language for years that heavily damages your ability to get other jobs, for
salaries and bonuses that don't even afford that great of a lifestyle in the
high-cost cities you're required to live in to work for them.

Bonuses at banks are also often paid in the form of bank stock and vests on a
rolling basis. This stands in contrast to straight cash bonuses paid by many
other types of firms, which have the benefit of not immediately being
correlated directly to your regular income stream (e.g. if things go downhill
and you're laid off, at a bank this often means that stock bonus has lost
considerable value and you could be screwed out of a large portion due to
vesting issues ... whereas a cash bonus could have been invested in some way
that helped diversify and hedge against risks of losing your job).

Comparing with start-ups is not very useful since start-ups also seek to
greatly suppress wages by marketing jobs as lifestyles instead of a fair trade
of labor for wage.

------
Inthenameofmine
"FinTech is not an acquisition space" might be the only universally true point
here. At Bitsapphire.com we talk with tons of Fintech founders every month.
Exit strategy is the Nr. 1 problem for almost all of them _except_ B2B SaaS
Fintech companies.

B2B SaaS Fintech us a while other ballgame. SaaS in general is difficult to
exit because you can easily increase your valuation with a few more users. If
you get financial.institutions to use your SaaS product you have a long term
goldmine. Obviously the sales cycle is horrendous though.

------
ryporter
While FinTech does face headwinds, it's not as bad as the author claims.
Taking the points in turn:

1\. "FinTech businesses don’t scale quickly." Online lending platforms can
actually scale rather quickly. According to SoFi's CEO, "In 2012, SoFi funded
about $90 million of loans. These days, it originates more than $1 billion a
month". [1] While that is indeed still small relative to size of the market,
that's more of a reflection of how huge the market is.

2\. "It’s really easy to get fooled by early adopters." True in any space.

3\. "FinTech is not an acquisitive space." This is a good point.

4\. "The sale cycles are really long." If you're selling into an enterprise,
then sales cycles are always long.

5\. "Customer acquisition is hard to hack." Compared to a social network, yes,
but social networks are singularly conducive to viral growth. It is possible
to achieve viral growth (e.g., PayPal).

[1] [http://www.sfgate.com/business/article/Online-lender-SoFi-
st...](http://www.sfgate.com/business/article/Online-lender-SoFi-starts-hedge-
fund-to-invest-in-6885222.php)

~~~
quanticle
>If you're selling into an enterprise, then sales cycles are always long.

The point OP is trying to make is that in financials even selling to consumers
has a really long sales cycle, since people are understandably leery about
just handing over their finances to a random startup that didn't even exist a
couple of years ago.

------
omarish
For each point there is a counter-point about why it's a good place to invest:

FinTech businesses don’t scale quickly. => it takes a long time to build a
business, but once you're there it's harder to get usurped by new upstarts.

It’s really easy to get fooled by early adopters => this can be said about
_any_ market, not just fintech.

FinTech is not an acquisitive space. => yeah, you build long-term equity value
in the companies you think are going to be successful and big wins.

The sale cycles are really long. => this is endemic to the entire finance &
banking space itself; not just fintech. That also means once you're in, you're
in for a while.

Customer acquisition is hard to hack. => moat, and this can be said about any
space.

------
cm2187
And the elephant in the room is regulations. You end up hiring a dozen people
just to read the draft regulations coming every week, you need to set up
processes, controls, compliance depts. And before you know it you became a
bureaucratic bank.

~~~
baus
In another life I built an entire product for the sole purpose of helping
companies meet their regulatory requirements for marketing their products to
other people who worked in finance. I had many a meeting with compliance
officers. It was ludicrous.

------
markbnj
Having done an e-banking startup in the mid-90's I agree generally with every
point the author makes. The reason people continue to go after the space is
that it's a very rich one.

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flerchin
FFS. It's the worst because it parasitically drains the market while adding
exactly zero economic value.

~~~
eggy
'it' being Fintech? Which type of Fintech product do you think does what you
state?

~~~
collyw
High frequency trading would be one for me.

~~~
tome
If high frequency traders add zero value then why do counterparties enter into
trades with them?

~~~
collyw
So can you explain the economic value that HFT creates, with some evidence
rather than just rhetoric?

~~~
consz
Isn't the fact that people trade against their quotes sufficient evidence?
After all, if someone besides the HFT had a better quote (e.g. better price),
people would trade against that instead of the HFT's quote.

~~~
ricardobeat
No. Not unless they become high-frequency traders themselves. HFT will always
win the trade since they can instantly offer a 1 cent lower price.

~~~
consz
That sounds like the HFT is providing a better bid-ask spread.

