The FinTech Paradox in the Age of Open Data
One of the widely-discussed themes of this generation of technology companies is that it has never been easier to start one. The key costs of running a software startup — compute, network, and storage — have all declined by several orders of magnitude. Further, the shift to cloud IaaS has shifted these burdens from CapEx to OpEx, allowing startups to iterate and scale without incurring huge upfront expenses. Developers can also use countless open source projects, as well as a rich ecosystem of publically-available APIs, in order to assemble and deliver an end-to-end product. Finally, the support system of investors, incubators, and service providers has never been stronger. These ingredients have come together to unleash an unprecedented acceleration of “time-to-market-cap” — more startups are creating more value, quicker than ever before.
In this context, the market for data itself is worth examining. On one hand, the movement towards “Open Data” — defined as free, machine-readable data produced by governments and other institutions — has lowered the cost of including valuable content into applications, and the impact is clear. The McKinsey Global Institute released a report with some pretty staggering headline numbers on the potential for open data: they estimate the trend could generate an additional $3T of value a year, including $210-$280B in consumer finance alone. A number of startups have ridden open data to some fantastic outcomes in the past (think the $900B industry built on public Global Positioning System data, or firms like Zillow in real estate or Castlight Health in healthcare); still others are devoted to making this data even easier to create and consume.
On the other hand, it seems financial and market data is lagging the broader open data movement. In fact, studies show that the cost of market data has actually risen. Burton-Taylor, a financial industry consultancy, estimates that total spend on market data in 2014 grew ~4% to $26.4B, with much of the growth over the last several years driven by vendor price increases — and a quick glance at BT’s market share chart clearly shows the power dynamic driving prices in the industry.
This places financial technology startups at a disadvantage, especially in the early stages of development. A quick survey of early-stage startups in our network illustrates just how big of a challenge this is. On average, the startups we polled spent $14K a month on market data, with some spending as much as $70K a month, far outstripping the any other expense line-item. On top of this is the time it takes just to get started — it’s often hard just to find the right person to talk to, and most market data vendors default to long-term contracts that require heavy negotiation and non-disclosure agreements. Contrast this to getting started with something like Stripe, where all you need is an email address to get an API key and start building.
We had this challenge in mind when we started the FinTech Sandbox. We wanted to build a community of data providers willing to give their data away for free, with the hope that the next generation of FinTech startups never be dissuaded from solving the industry’s tough problems. With the help of entrepreneurs who lived this problem first-hand and fantastic data and infrastructure partners that share our vision, we look forward to pushing FinTech into the open data economy in the years to come.