Things We Got Wrong in Fintech | Hacker News Reader

Things We Got Wrong in Fintech

regalii.com

60 pointsrumayor9 comments

Always good to have an opportunity to point to https://medium.com/bull-market/a-cynic-s-guide-to-fintech-3c...

"Fintech business model #1. Reinventing past mistakes of the banking industry because you don’t know about adverse selection"

I read each of the five "lessons learnt" in this article and thought to myself: "No shit, Sherlock!"

After the dot-com bubble burst in 2000, I ended up working in FinTech. It was an eye-opening experience and, ever since, I have been constantly amazed by the irrational optimism/arrogance/hubris of people who have zero experience in the sector but believe that they know better than people who have been working here for decades.

It's actually embarrassing at this point. To quote Lucky Green, God forbid "there might be something to be learned from several millenniums of financial services best practices."

What's worse is that investors are actually funding companies run by people who don't recognize that fraud is really bad, compliance is a pain, customer acquisition costs are high, trust is a challenge and remittances are primarily used by the unbanked.

It goes to show how much the investors know these days.

Not to go too far off topic, but it's worth noting that many investors today are people who sold bags of dog shit to real companies in 1999.

I know of a fintech startup that hired a guy who had been convicted of embezzlement at a previous company.

If I could short that company...

I had the opportunity to be on the advisory board of my local bank at a very young age (19-21). I'm in Canada, so we have less competition and we were the leading bank in my region (size ~$2billion). You come to see at their problems with a new eye, but you do learn a lot and you change your mind quickly. I thought it would be easy to change banking. Boy I was wrong. People underestimate the complexity of banking. I think one of the area where people overestimate their chances is on the consumer side. Banks have a very good distribution network, good salespeople and they act as a platform with a network effect where the more you own products from a bank the less likely you are to switch. Sure their products is shitty, but people don't really care about their money. Money is not sexy. If a bank is not going to make money with a good chunk of their customers, how will you make money ? Sure they have high infrastructure cost, but you still need to acquire that customer.

I'm still excited by some startups like Plaid, but on the consumer side i'm still somewhat skeptic of a lot of things I see.

The fraud problem is discussed in the Paypal interview in the Founders at Work book. Paraphrasing: "Paypal is really a security company disguised as a financial services company."

Sorry if this is OT, but didn't regalii go thru YC? IT doesn't have the flag.

At any rate, Regalii was one of the best companies in my round of Startup Chile. I saw their pitch and I really wanted to invest.

Of course they have these challenges, and with the current regulatory climate in the USA this is only going to get worse and worse over time-- imagine what will happen when they have to verify and report the identity of every recipient of their funds? I think thats not too far off.

IT will be hard to report he identity of Chileans or Argentinians or Uruguayans to the IRS because it will be hard to collect it in a way the IRS understands.

And then how many argentinians are going to want to give a US company enough info that the remittances (in US Dollars equivalents) can be reported to the argentinian government at some point down the line?

Moving money across borders is the number one business governments seem to want to destroy (Because of course all this money could be "Terrorism" or "drug" related.)

Related: what do people think of Yodlee?

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