In 2015 a record-setting $46.7 billion was invested in fintech companies globally, and it seemed a boom was in the making. Then came 2016 and investment dropped off by almost 50% to $24.7 billion. In a wide-ranging session at the New Economy Summit (NEST) 2017 in Tokyo last month, investors and global fintech leaders discussed the reasons for the downturn, as well as the challenges posed by cryptocurrencies and a rising tide of economic nationalism. Following are some of the highlights.
Matt Danzeisen, a portfolio manager for Thiel Capital, addressed the downturn in 2016 with a level of stoicism. “What might explain some of the slowdown is that winners are emerging as certain business models are becoming more clearly dominant,” he said. “So, it is cyclical, but we’ll still see innovation.”
Others, like James Gutierrez, whose firm Insikt operates an online lending-as-a-service loan origination and investing platform, saw regulators as part of the problem: “There was a feeling that banks were under-regulated, but then we overregulated and the banks stopped lending.”
Dealing with political upheaval and global uncertainty in 2017
By any measure, 2016 was unpredictable. Few foresaw the Brexit result and the same could probably be said for predictions that Donald Trump would become President of the United States. As protectionism seems to be on the rise around the globe, how have fintech leaders dealt with these events and has it dampened their outlook?
“Brexit was a negative,” admitted Kristo Kaarmann, co-founder of peer-to-peer money transfer service TransferWise, though he was quick to take a positive perspective. “[It] was a negative, but at least in the short term we’ve seen spikes in volume. The internet is driving businesses to be more global so even though there may be some political isolation, it shouldn’t change things much.”
Michael Laven, the CEO of payment platform Currencycloud, was equally optimistic, commenting, “Early stage firms are looking 5 years ahead to generate value for investors, which is a different regulatory environment. The real innovation at the bottom is still very vibrant.”
Echoing the sentiments of his fellow panelists, Danzeisen suggested that regulations cannot ultimately contain innovation, saying “When businesses are small they can operate under the radar, even if they are circumventing regulations. Innovation follows what people want. In terms of finance, there are a lot of regulations, barriers that people have set up, but it is like holding back a dam. The pressure will burst it eventually. Bitcoin is an example. It will break through at some point.”
The potential impact of cryptocurrencies
And speaking of Bitcoin, rare is the fintech panel where it escapes mention, and NEST’s was no exception. In response to an audience question on the potential impact of cryptocurrencies, Kaarmann got some laughs when he said, “We can all go home!” suggesting that Bitcoin has the potential to replace traditional national currencies and, by extension, cross-border money transfer services like the one offered by his own company. He added, “It would be a real democratization of the global financial infrastructure.”
Despite the uncertainty caused by apparent government overreach and geopolitical instability, we learned that the people who live and breathe fintech are undaunted – and remain as optimistic about their industry as ever.
Read more reports on NEST 2017 here.