As we have published before, crowdfunding and online finance are being revolutionized by the internet and are disrupting traditional financial firms. The boom in FinTech startups has also been fueled, at least in part, by the profound regulatory oversight in banking and finance in general. So much time and effort is committed to compliance issues within modern banks these days that efficiency and productivity have both declined. In fact none other than JPMorgan Chase CEO Jamie Dimon called this phenomena into the public forum in declaring, “New competitors always will be emerging – and that is even truer today because of new technologies and large changes in regulations. The combination of these factors will have a lot of people looking to compete with banks because they have fewer capital and regulatory constraints and fewer legacy systems.” Dimon is spot on.
Regulations in the US have seen punitive rules applied from monolithic laws like Dodd-Frank and Sarbanes Oxley thus slowing innovation within legacy financial firms. Politicians have never been willing to waste a crisis and, without little professional experience, have burdened financial firms with excessive rules. Meanwhile the internet has evolved with its big-data quantitative power to transform established practices in finance.
Think about the newspaper industry. Incumbent firms have struggled to adapt the disruptive powers of the internet. Large media companies have typically taken a circle-the-wagons approach while claiming to empower employees to innovate internally. This has not really occurred. As Clayton Christensen explained, established firms and the executives given managerial control, inevitably push to protect legacy operations to the detriment of emergent technologies. Innovation is pretty much dead on arrival. Meanwhile lean startups, like digital news operations, are not encumbered by legacy processes, swoop in and disrupt the veteran firms. Eventually the old guard, in this case print media, is replaced by once smaller firms. This is what is occurring in finance today. Banks and other financial firms are having their newspaper moment.
FinTech startups are blossoming around the globe. All aspects of the financial sector will be inalterably changed as creative entrepreneurs seek to do things better, using big data and the internet, to provide access to capital and investors new opportunity. While early entrants in the FinTech space have been matching firms like equity crowdfunding and peer to peer lending, now back office operations and other more creative aspects of finance are being impacted.
Following the most recent financial “crisis” financial firms like banking lost their luster for young, well educated, professionals. Today this allure is returning to finance but more so in young, forward thinking startups. These innovators will disrupt traditional finance by involving creative and non-traditional strategies to improve the finance sector of over-all industry.
Finance and the capital markets is one of the most important industries on the planet. Every business is touched by aspects of the industry. It is hard to place a number, or simply grasp, the incredible changes being driven by FinTech. But one thing is certain, today’s banking and finance industry will be completely different in less than ten years.
Rodrigo Nino is the CEO and founder of Prodigy Network, a commercial real estate crowdfunding platform. Nino has raised more than $300 million from 6,200 investors and is currently developing commercial real estate projects in Bogota and Manhattan with a projected value of more than $850 million. Major money center banks like Deutsche Bank, CIBC and Bank of America provided traditional financing for Prodigy’s Manhattan projects. As a proponent of the Crowd-Economy as the main tool against inequality, Nino has spoken at worldwide conferences and was a noteworthy guest at New York University, MIT, Yale University, Harvard University and the AEDES gallery in Berlin, Germany. Nino is often featured in leading publications, including The Wall Street Journal, Businessweek, Forbes, The Economist, The New York Times and Fast Company among others. A Colombian native and a Manhattan resident, Nino belives Prodigy Network’s crowdfunding model as an efficient and secure mechanism that enables smaller investors from around the world to invest in specific projects that were solely accessible to the very wealthy before.