Fintech's ultimate value: Making sense of the data explosion
Editor’s Note: A version of this post first appeared on the FiniCulture blog.
Every technology has the potential to change us in ways we do not immediately understand. Some technologies influence us more profoundly than others. The technologies that impact us the most are related to how we define, comprehend and organize ourselves around and with the “truth.” (For clarity’s sake, I define the truth not as the ultimate truth but as a group of axioms a given society accepts as self-evident at a given point in time.)
Take the printing press invented by Johannes Gutenberg around 1440. No one would have been able to forecast its far-reaching consequences ranging from the mass production and distribution of knowledge to the circulation of information and ideas. Scholars rightly point out that at its core, the revolutionary potential of the printing press centered around who controlled the “truth” — and ultimately who developed, managed and benefited from the truth or its multiple subtruth interpretations. The bloody wars of religion that followed Gutenberg’s discovery in Europe prove the salience of this point as well as how societies undergo tumultuous times when an established set of truths are challenged and a new set of truths emerge.
The advent of the internet, as many have pointed out, is as momentous, or even more so, than the printing press, not only as a new engine of economic growth but also as a vector of change in relation to the truth. In an era where everyone has access to every data point and can opine on every data point and where a plethora of tools make it ever so easy to share and augment one’s opinion or distort someone else’s, we are left bewildered and lacking obvious, dependable and anchoring truths onto which we can hold on to and trust.
We see this unfolding with the tug of war between old myths such as traditional media outlets and new myths such as social media and the epiphenomenons that are “fake news” and cyberpropaganda. We see this unfolding with the promising and threatening gifts artificial intelligence bestows upon us. We see this unfolding with the rise of cryptocurrencies and blockchain technology while questions are asked of centralized monetary systems and fiat currencies. We see this unfolding with our diminishing trust in traditional institutions, which, much like the Catholic Church circa 1439, held somewhat of a monopoly on truth.
Whether entrepreneurs busy with crafting tomorrow’s solutions, incumbents (or existing intermediaries) busy with protecting yesterday’s solutions, state actors busy with ensuring control over a set of emerging solutions, we are all involved in building new truths. The systematic and systemic destruction of yesterday’s truths, which the internet enables, mires us in a transition phase where we frantically search to realign and rebalance truth.
What does this all mean when it comes to fintech? Most of fintech to date has preoccupied itself with efficiency, the concrete bedrock of technology promises — “We shall build better products and services and deliver them faster and in more transparent ways.” Indeed, the first waves of fintech were enthralled with creating a direct-to-consumer nirvana articulated around a “better, faster, cheaper” Olympian paradigm which, as an unintended consequence, obscured the important disruptive trends assaulting truths.
I contend the real promise of “fintech” lies with rebuilding truth. The early assaults on the commanding position financial intermediaries have enjoyed is only the beginning of a transformative process. To be clear, bitcoin idealists as well as blockchain/distributed ledgers aficionados have always asserted similar views. How can it be otherwise when so many traditional business models find themselves on the wrong side of a new Pareto principle? Yesterday, credit bureaus had their hands on sufficient data streams to somewhat accurately deliver truth to score credit. Yesterday, banks owned proprietary distribution channels that allowed them to somewhat control the truth of credit intermediation. Yesterday, the physical truth of your identity was sufficient to give you access to a variety of services with little to no friction to you or the service providers you dealt with. Yesterday, the truth of fiat currency was enough to cater to 100% of your needs. Yesterday, the truth of life expectancy tables was enough to somewhat accurately cover any risk behaviors with some degree of certainty. Finally, yesterday any and all of these above truths were girded by “easily” digestible ethical constructs that helped us navigate gray areas.
Today, we are faced with a Cambrian explosion of data bolstered by ubiquitous modes of distribution. Credit bureaus may only master 20% of available or relevant data. Banks have lost not only our attention but also the dominant distribution channel position. Our identities have exploded in myriads of subatomic particles that we try to use while others try to manipulate them and us. Currencies are metastasizing in front of our very eyes, sometimes in a good way — loyalty points, tokens, cryptocurrencies, digital currencies, private currencies. Insurers face new behaviors and new risks to cover. Last but not least, ethical issues abound when it comes to how technologies will be deployed to help us rebuild trust.
The more meaningful fintech opportunities I see, as an investor, center around enabling a new truth equilibrium. This is why core banking systems or policy management systems for insurers are so exciting. This is why digital sovereignty — digital identity schemes, privacy schemes applying equally as direct-to-consumer solutions and business-to-business solutions — are so exciting. This is why distributed ledger or blockchain tech is so exciting, when appropriate. This is why solutions that allow us to make sense (or truth) of data such as new-generation data marketplaces are so exciting. Any and all of these hold the promise of anchoring us with new truths we can trust. Therein lies the real signal. The efficiency part is only noise.
Four parting thoughts: First, these fintech solutions are much harder to build as they require intense collaboration between various stakeholders — as opposed to the simpler fintech solutions of yesteryear. Second, emerging properties cannot be forecasted easily which is why, although it is relatively easy to “bet” on blockchain or AI or new core banking systems, it is eminently more difficult to accurately predict how tomorrow’s bank or tomorrow’s insurer will look. Third, not one but many technologies will allow us to build new truths; thus, rendering the endeavor of rebuilding truths eminently complex. Fourth, as a thought experiment, try to imagine what a truth-seeking financial services entity would look like by extrapolating from Wikitribune, Jimmy Wales’ new endeavor.