What has changed in financial services since the collapse of Lehman Brothers?

End of the year seems to be the favorite time for people to take a moment and reflect on what has happened in the world. It does seem a bit arbitrary — it is just another day after all. On the other hand, it tends to be the last accounting day in the tax year, and it does indeed impact people’s bonuses and companies bottomline — though the two don’t always move together.

So I will join the bandwagon and briefly talk about recent developments in financial services. In my company, we have a particular exercise that we practice: Hit list vs Shit List, i.e. things that worked that we should do again, and things that did not work and we should avoid next time around. I feel that this can be applied to the financial services industry, a bit like a scorecard. (Hindsight is always useful!).

Here is my Hit vs Shit list for the financial services industry. It is based upon my reflections and realizations in 2015, but much of what I have listed relates to a longer time frame: starting perhaps at the start of the last financial crisis defined by the collapse of Lehman.

Let’s start with the bad news — SHIT LIST

1. Large banks (you know who they are) remain terrible places to work. The still provide the wrong incentives in rewarding employees, which fosters toxic cultures. (Remember the story of Goldman referring to clients as muppets?)
2. We are nonetheless still surprised by the intense greed (why?) and we continue to struggle with scandals such as the LIBOR rigging, the findings of Michael Lewis in Flash Boys (where algo-trading machines were front-running other market participants) and many more.
3. Regulators seem to remain a step behind, and are reactive in their policies — they are still trying to clean up the previous mess while the next one is around the corner — (we are still debating issues from 2009 such as implementing a financial transaction tax, and controlling the size of the banks’ balance sheets)

And now to the silver lining — HIT LIST

1. The rise of fintech is challenging the incumbent financial services giants. These fintech companies are leveraging technology and putting the customer needs first — which may seem novel. Creating customer value is still important!
2. Banks are trying to keep up with the rapid rate of change — by creating incubators, accelerators and VC funds — but there is still a long way they need to go to change.
3. Some regulators are indeed being proactive and forward-thinking — i.e state of New York launched a BitLicense, the FCA (UK regulator) has been running the Innovation hub for over a year, and they have also committed to the launch of the FinTech Sandbox, which rethinks the way regulators interact with start-ups, providing a realtime dialog that empowers new companies to understand their compliance landscape while allowing the FCA to keep pace with the next generation of ideas.

2016 is going to be another interesting year, and for sure, it will be full of surprises.

There is a personal story behind this as well — I too used to work for the “dark side”, in the field of high-frequency trading. I came to realize that this sector was not creating any fundamental or lasting value for society (that is indeed a philosophical discussion on what value creation really is), but was instead wasting valuable resources — the fastest computers, newest servers, and most talented programers — in the pursue of the wrong goals.

Fintech hype aside, I believe that I am actually creating value by working for a company like Azimo. Azimo is offering a service to consumers that is making them better off — a better alternative to the traditional money transfer process. Better means cheaper, faster, simpler. I may not directly be saving blind homeless puppies though via our superior solution for international payments, but I am for sure making people’s lives a bit better. And this is my way of being part of the HIT and not the SHIT list.