We are at a time in which technology advances at an incredible pace, unlike other generations, today’s society is accompanying technology, allowing it to develop without fear of looking back. Unfortunately, regulation and laws cannot advance at the same speed, and that is creating dangerous gaps that can destabilize the economy as we know it today.
The crisis we have experienced during the last decade has shown the shame of the economic system, and its fragility in some aspects, such as its banking dependence. The latter has allowed alternative investment to hatch, and with it many fintech tools, blockchain systems, tools based on peer to peer, etc…
The problem we are experiencing is that, with the mentality of breaking the rules so as to write them again (something that in principle should be positive for society), we are forgetting the basic rules on which our society is based; data protection, right to privacy, capital controls, or protection of retailers, are basic rules that should not be forgotten, because if we do so, we are going back in time despite being in the most advanced technological cycle in history. And this can lead to a spiral as much or more dangerous than the crises we have experienced in recent decades.
Do not mistake the passion necessary to advance in a disruptive business, with moving forward at any price, the next decade will be marked by major changes in many sectors: Fintech, Insurtech, Foodtech, Legaltech, etc. As we can see in their names, they all rely on technology, in which in most of the cases there is no regulation or jurisprudence, so we must be cautious with the rules on which we write, because if we do it in the wrong way we will be wasting the opportunity that is being given to us.
A clear example of the above is that the majority of cryptocurrencies, which as we all know are written under Blockchain technology. The blockchain technology is very reliable, but it is not infallible, and unfortunately the states are not prepared for its supervision and control, so even though its survival and development is clear, here the market is not ready to hatch, and unfortunately we are seeing how it advances at a speed of madness, and possibly we will see scary situations, because the vested interests are very high, and possibly some are not entirely licit.
Another example, are the famous ICOs, in 2017 we have seen how the volume under management with this type of product has multiplied by 5 in direct investment on the same type of asset, I do not say that that is bad in itself. But when we see that companies that have not been able to finance themselves by normal alternative investments, manage not only to do it by this method, but also obtain three times the capital they needed, it looks like we are facing a bubble, and that if it is not controlled can only bring problems to the system, and possibly the ones that will pay for this will be the usual ones, the retail investors. All this will bring fear into the tools that are being born now, and could end up becoming a mere frustrated attempt, instead of a complement of the future. Both examples described above are allowing us to generate inflation in value and price, something which we all know what it will bring us … It is clear that crises, like wars, generate poverty, although in the long term these allow the pillars upon which the economies are built to be more solid, and with that comes certain economic evolution and improvement, at least to date. Therefore, my insistence on control, at least in what affects citizens, the companies can take risks, but without transferring them to people.
In general, the fintech sector has a huge market for its development potential, disintermediation and the creation of value for the user will mark the next decade. The new generations want products that provide value and that do not generate captivity of anything or anyone. And this is my reflection, to generate value to the user, it is something more than just to provide a friendly and easy to use tool, we must protect the users and explain the risks to be assumed. We are seeing how many investment platforms sell high risk products to their users through marketing tools. It is clear that we could not live on a banking product eternally. But what can not be allowed is that the rules of protection for retail investors are violated, because in doing so we will be destroying a complement of value to the traditional banking product.
As a conclusion of all the above, almost all the Fintech tools have a long life ahead, the regulation is tracking behind, but if we want it to last over time, we must not forget the basic rules of user protection in all its aspects. Although there are no rules in most cases we must use common sense, which in many cases we are demonstrating that it is the least common of all the senses. Users are our loudspeaker to change things, and if we mistreat them, all they will say is that we are another failed attempt at evolution.
About the Author
Francisco Mariscal is a Founding Partner of Fellow Funders. Telecommunications and industrial organization engineer from Universidad Europa, he has a master’s degree in Quantitative Finance from AFI and an Executive MBA from EAE Business School