Bordeaux Fintech: a summary
An unexpected place brimming with unexpectedly audacious ideas is often what the world of fintech needs
I am standing on a train station to board a TGV to Paris and hear a familiar annonuncement chime: the one that David Gilmour of Pink Floyd turned into Rattle That Lock. The story is simple: Gilmour heard it on a station in south-east France and, upon recording it to his phone, turned into a base-melody of his single.
For me personally Bordeaux is now firmly associated with this chime — a nudge about a region that tries harder to use tech to reinvent the regional industry — and does this with unexpected vigour. The fintech foray may not be the one expected from the region known for its vineyards, producing several times more vine than the next one (Burgundy). Yet the output formed strength in trade and price negotiation — as well as formed cohorts of middlemen — sparking a renaissance in SME segment.
It is not a startup’s prime destination with capital going towards Paris — but one has to try harder. So Bordeaux does, with its Fintech Summit being held regularly — supported by my friends from Montaigne Conseil Bordeaux, namely, Louis de Froissard. Without his persistence, the hallmark the 2019 event has become would not have been at all achievable.
Now about the event: held in a famous regional business school, KEDGE, the event was a 2-day packed series of roundtables and keynotes from regional startups and international practitioners: Jim Marous, Bradley Leimer and others.
This was an inspiring time with several thoughts I want to share here:
The cooperation between banks and startups is still on the agenda, but there is a limited number of instruments to enable it — with little success because of banks confounding web of interests and tech legacy.
The current network of fintech soothsayers and practitioners started small: from the disillusionment of contrasting experiences between personal technology and the one used in the world of finance. People voiced their grievances and often won the verbal skirmish in their institutions, allowing small-time innovation to happen as part of innovation labs. Very often these initiatives were window-dressing for the eyes of investors who were exiting bank stocks after the economic downturn of 2008.
So banks antics in winning the attention back moved up a gear, with annonunced digital programs and semi-detached corporate venture funds. That is now a vestige of time past with CVFs doing too little to push the bank to implement the startups they found — and when they deed, the obligation to suit the founding bank quickly clogged the pipeline, killing the trust with early-stage founders, who are more time-sensitive and capital-constrained.
Most funds that are still here and successful either operate as FoF — pushed under asset management and more focussed on returns (Sabadell) or as proper market funds where a bank is a cornerstone LP (BBVA fund, Corviglia fund of Alfa-Bank).
Fintech conferences are moving on from being motivation platforms to actual-results and real challenges discussion platforms
A successful trade show rests on demand for commercially viable solutions. A fintech event is no longer a platform for motivational speeches as executives still coming to them are motivated (so they came) but are limited in their technnical or operational capacity to act. Those institutions moving faster due to tech — have been born with the tech DNA from day 1 and so have precise processes for product development and product / customer management.
Those who carry with them the legacy of tech — suffer, since IT structure often follow the org-chart — and the latter is formed by the product mindset of the executive layer. The lack of fintech in banking is a product problem, not the tech problem.
To solve this, banks are either investing in neobanks, buying them whole (BBVA and Simple was all about learninng how to deal with mobile / online — first customers and learn how to onboard customers and at what cost), never about the interface. The same is with Atom in the UK: an incumbent bank is effectively learning how to operate a digital-only bank.
To align cultures, some banks selectively invest in fintechs to integrate them into a new structure (Marcus and GS investments) or organise a green-field (Barclays US-based digital bank done from the inside). Yet even this can suffer should senior executives, several layers apart from these projects, suffer a change of heart.
Regulation can pose a challenge:
The bold talk about PSD2 and GDPR is no longer heard as solemn practice is different. Data protection favours the incumbents where originally it has been designed to favour audited data processing. PSD2 got lost in the design phase and implementation being left out to banks to decide themlelves quickly led to formation of several interest groups pushing for their API specifications.
Fintech can still help here with several fintech groups quickly building secure frameworks that even banks can use to satisfy PSD regulation. One caveat is around SCA, making recurring payments harder (requiring a OTP-based confirmation to accept account access).
One should remember that fintech follows and not leads the surge in ecommerce:
It all starts with a user and with an outcome — successful payment or transfer or other financial service. Upon doing it, a user borrows from the experience he has used to in similar situations: buying things online — with Google, Amazon and similar consumption-driven platforms dictating their norms of OAuth, 1-click payment, personalised recommendations etc. The current renaissance of fintech follows the uptake of digital content that then pushed the acceptance of similar experience in the physical domain and motivated the delivery of services that enable trust, seamless transactions, insurance protection etc.
One hardly knows when a crisis is coming, but it is looming over the market:
There are talks of a Japanese-style economic slowdown with QE programs only increasing to counter the stop in consumption. For now, fintech valuations depend on the success of x-selling — improving contribution margins and allowing platforms to move to profit from now loss-making acquisition of users. People specialise their payments between banks — so this would prolong the recovery of investment made to build neobanks who started with a solo use-case, but the slowdown in consumption will lead to starker negative effect. One should expect lots of haircuts in late-stage fintech transactions.