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There are some huge misunderstandings in the Fintech scene right now. Innovation is (often) misunderstood. The importance of domain expertise and experience is (often) misunderstood. Also what’s happening with emerging market currencies and the London Fintech scene as a whole?
On this show today I am delighted to welcome a serial FX entrepreneuer – Jon Vollemaere CEO of R5FX.com (which is all very synchronicitous as this is episode 005 :-)) – to discuss all of these issues.
Wearing his day job hat, upcoming regulation requires Foreign Exchange trading banks to radically change their current trading channels for emerging markets. In essence this is to increase transparency in a market which has around $100bn turnover every day. R5 is leading that change by creating an electronic trading platform for emerging market currencies which is focused on moving the market from voice to screen.
Above and beyond this current incarnation, Jon is an excellent person to discuss innovation, FS, FX and Fintech with as he has 20yrs experience in FX markets and is a serial entrepreneur having worked, in essence, with Fintechs before “Fintechs” existed as such. So he brings great practical experience to the show.
Additionally Jon is a top bloke. Having lunch with him recently I was reminded of the City in the ‘80s – when everyone had something interesting to say outside of Financial Services as well as within it. Indeed it is no surprise that the most creative folks do have the widest horizons. Very tough to be creative if you wear blinkers.
The Importance of Experience and Domain Expertise in Fintech
This is especially valuable in a frothy/early-stage London Fintech world where incubators/accelerators/the-media can sometimes portray an implicit assumption that FS is “easy” such that it can be innovated by the archetypal “teenager on a couch” (hence all the bean bags, ping-pong tables etc).
Some Fintech can be innovated “from the outside” but much Fintech – like most (all??) mature, regulated industries – is highly complex and highly regulated. This complexity and regulation is something that needs to be understood whether you are a “T-shirt” or a “suit”.
The second important element of deep experience is (in this specific case of R5 but also generically) Jon knows the market. Again it’s the implicit “lift” lock, stock and barrel of a Silicon Valley (perhaps more retail) model that can be an issue. All this “customer development” (that is otherwise an essential part of the startup journey) is pretty irrelevant if you have known a market, its players, its problems and upcoming changes for 20yrs… Of course you always need to listen to your clients – like all businesses – but on the other hand if you don’t know 90%++ of what your product needs from the get-go you were asleep for two decades.
This is a point I will return to more over time. However for now, if London is to have an advantage – and it certainly can do in FS (point not yet proven) – we need to amend the standard (more retail focused) “valley startup” model to accommodate London’s (B2B as well as B2C) FS-strengths.
The main domain strength of London in FS is naturally a vast depth and understanding of FS. London needs to marry “valley” tech know-how with FS know-how … (which not entirely coincidentally is relfected in the LFP byline of bridging the worlds ot t-shirts and suits :-)).
The bleeding edge right now is the definition of the word Fintech – it’s a very heterogeneous market, so all generalisations (even B2B vs B2C) are rough sketches. Innovation will differ in the differing sectors of Fintech.
Jon coins the useful phrase of Fintech-markets to describe R5’s sub-sector for professional capital markets which is very different from a “new App for a man in the street”.
Some of the key innovation angles we touch on are:
– Frustration with trying to innovate within ever more rigid MegaBanks is causing folks to leave in order to innovate. However this is a real journey in itself. Especially once one has left – create product, create business like most journeys is easier when you have done it before (which few have in the current “new fintech” world);
– “One important thing for fintechs is who are you disrupting?” I have comea cross a few Fintechs who think they are disrupting FS whereas they are actually trying to disrupt the software vendors! It doesn’t matter who you are disrupting but you must know who your competition is! R5 is “disrupting from within, banks are our friends”.
– “Regulatory enforced technology change is about as nirvana as you can get if you are a fintech startup – part of the marketplace is forced to do it in a new way and way not do it quicker faster better at the same time”. Long sales cycle but “once banks make the change they do tend to stick to it & if they like it it’s even better again”;
– innovation is less about “flying to Mars with feathers” and more about taking an existing model that works in another area and rolling it out, mutatis mutandis, in a new area. Alternatively/additionally it can be about “putting it in bite sized chunks the market will accept” (eg Bitcoin needs steps along the way “a journey”). Sometimes salami needs to be sliced to be easy to eat.
London Fintech is cheaper and more supported (by an ecosystem from incubators et al to networking groups) than ever before.
However it is not necessarily “easier” to launch a Fintech – you still have to go through the same hoops to build product, do marketing, close sales etc.
These changes in Fintech are not just quantitative (“it’s 10x cheaper”) but importantly qualitative too – you can now take on the banks, software vendors, marketplaces.
The UK had exchange controls up until 1978 – “emerging currency” is the phrase used to describe those currencies on the rare journey from “closed” to “open”, Jon also talks about the importance of, current state of and future direction of the renminbi. “when the renminbi is fully internationalised it will have the same impact on the FX markets that the arrival of the euro did”.
Finally trading in non freely convertible currencies and FX products therefor (notably hedging) are extremely important for the “real” business flows in an increasingly global world where income and revenue can be in different continents.
Phew! What a lot in one episode – and that’s just the executive summary 🙂 Listen above for the full conversation.
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