DISRUPTIVE FINANCE

Tech companies with financial industry aspirations will find a way around the rules

Banks should be worried about technology companies invading their industry, and not just because of the newcomers’ whizzier systems. Finance execs should also be concerned because tech entrepreneurs have a knack for skirting the complex rules and regulations that provide protective moats around entrenched industries.

Uber, as everyone knows, is a taxi service that broke into the sector without being regulated like one. The hotel industry says Airbnb is doing the same on its patch. A judge shut down Napster in 2000, and the music industry has been retooling its business model since, with considerable help from streaming services launched by tech firms like Spotify, Apple, and Amazon.

It’s risky for financial firms to think the burden of regulation will help protect them from competition, according to Bill Winters, chief executive of Standard Chartered. At a conference hosted by NEX Group, he credited the rise of Ant Financial, spun out from e-commerce giant Alibaba, partly to the “unfettered” regulatory regime in China.

To be fair to tech companies, banks don’t exactly have an unblemished record of staying on the right side of the law. But recent history suggests it’s only a matter of time before tech firms, in both the East and West, bust into the financial services industry in a big way, in part by finding ways around the rules.

British regulators are speeding up the process. This week, Transferwise became the first non-bank to get access to the Bank of England’s settlement system, which allows it to cut out the bank intermediaries that used to be the only ones granted access. Regulators in Europe increasingly separate the finance industry into three separate buckets—payments, holding money, and lending money. Only the last one is a purely bank-like activity. With the others, officials think a lighter regulatory touch is warranted.

To boost competition, European authorities now require banks to release customer information (upon the customer’s request) to other companies. Ana Botín, executive chairman of Spanish banking giant Santander, told the Financial Times (paywall) this week that new regulations are unfair: There’s no requirement for tech companies to hand over their customer data to banks in the same way. The Brussels-based lobby group European Financial Services Round Table has made a similar complaint.

They have a point. But the risk for banks is that tech startups have a habit of acting without asking permission, and by the time the authorities step in—especially if consumers like a new service—it can be too late for the incumbents to push back.


What to watch for next week


The future of finance on Quartz

China’s big three internet giants are betting on blockchain. Baidu, Tencent, and Alibaba are discretely exploring the technology, while steering away from the crypto speculation that has attracted concern from watchdogs.

Samsung is keen on crypto, too. Its semiconductor business is making chips for cryptocurrency mining, while its electronics unit is reportedly working on a blockchain project to monitor logistics.

BlackRock is increasingly worried about Chinese tech companies. The co-founder of the world’s largest asset manager, Robert Kapito, says Chinese tech firms like Ant Financial are a particularly serious threat to the financial industry.

Financial inclusion is increasing globally—but women are still missing out. The inclusion gap between men and women in developing economies hasn’t improved in the past six years.

Goldman Sachs is showing signs of a comeback. Volatility was great for equity trading in the first quarter, and its Marcus platform has lent out about $3 billion to consumers.


The future of finance elsewhere

Ant Financial’s $150 billion valuation ignores a lot of risks. Its founding chairperson is leaving, scrutiny by regulators is increasing, and competition is picking up (paywall).

Every company is a tech company—and a finance company. Plaid provides plumbing between banks and fintechs; its co-founder thinks companies could potentially move away from credit card transactions.

Cryptocurrency funds were down 30% last month. The nascent sector has been buffeted by regulatory scrutiny and worries that a speculative bubble is deflating. An index of crypto funds has lost 43% of its value so far this year.

Vitalik Buterin had lunch with the Financial Times. The creator of ethereum says (paywall) outlandish crypto valuations exceed what the technology “has actually accomplished for the world.”


Previously, in Future of Finance Friday

April 13: Big tech companies think they can make a lot of money from the world’s unbanked

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