“It’s more about marketing than it is about finance.”
A student assistant at California State University, Northridge’s (CSUN) David Nazarian College of Business and Economics gave that answer to explain what she had learned during a research assignment on Fintech applications. She’s a marketing major. Her classmates in supply chain management, accounting, business law and ethics, information systems, or yes, finance, would have recognized their own passions and ambitions looking at the same data through their chosen lens.
In that sense, Fintech applications are like Rorschach Test ink blots. They provoke diverse interpretation and jolts of aspiration from any perspective.
To appreciate why, let’s consider the enabling technologies, the market solutions, and some emerging themes as start-ups, unicorns and industrial giants alike accelerate their investments and strategic commitments.
A half-dozen discrete technologies drive the Fintech phenomena, built atop a global infrastructure of seemingly infinite, fast and inexpensive capacity for teleconnections, cloud processing, and data storage. But what was “seemingly” evident during this build-out, looks less so now. War, climate change, natural disaster and political inertia have crashed the paradigm, especially regarding the costs and reliability of electrical power and global supply chains.
That notwithstanding, the technologies that enable Fintech are here to stay: blockchain, cryptology, artificial intelligence (AI), machine learning, the Internet of Things (IoT), robotic process automation (RPA), and natural voice and facial recognition.
Most readers have some familiarity or experience with these technologies, so with one exception, we won’t dwell on them here. Blockchain deserves some special attention because it has reached an inflection point, and because in some circles, that single technology and its derivative solutions have become synonymous, almost conversationally interchangeable, with “Fintech.”
We refer to the world of cryptocurrencies, decentralized autonomous organizations (DAO’s), NFT’s, smart contracts, and generalized visions of DeFi and Web3 that anticipate displacing sovereign currencies, international monetary protocols and any form of centralized regulations.
To be sure, blockchain technology presents a profoundly disruptive force for monetary and capital market innovation and the transformation of contracts, supply chains, transactions, financial and investment services, and payment systems. Yet, there is an increasing recognition that the true economic utility of blockchain technology has become lost amid esoteric applications, speculative flurries, and unwarranted grandiosity.
So it’s good to know that people like Silvio Micali are working hard to ensure that the blockchain baby doesn’t get thrown out with the bathwater.
In a recent interview with the Los Angeles Times, this MIT professor and A.M. Turing Award winner sounded resigned and rueful when admitting, “First of all, we can’t stop people from speculating.” He then turned feisty in articulating the distinctions and mission of his new blockchain, Algorand. It features an operating model with random selection of users to effect proof-of-stake methodologies. It’s fast, secure, reliable, and economically and environmentally sustainable. More importantly, it’s focused and purposed on first principles – to run sophisticated transactions at massively high volumes.
He sounds ready for the battle: “We are at a very unique moment in which there are extremely sophisticated blockchains like ours … and very early generation blockchains who continue to be there … it’s like … Neanderthal Man and Homo Sapiens living together.”
We should cheer Dr. Micali. To reach its full potential, the Fintech market solutions we describe below will need focused blockchains to segment assets, run transactions, maintain immutable records, authenticate and effect payments, and establish the provenance of the goods, services and assets that flow through them. Blockchains so constructed and purposed represent a central utility of the Fintech movement.
Blockchain is not the only technology that should be considered a Fintech “utility.” Indeed, when the discreet technologies we’ve mentioned are combined, these utilities become organized as a Fintech ecosystem. When market solutions then begin to form around themes or categories, we have “Applied Fintech,” and that’s when those ink blots start to jump off the page to excite the imagination.
“Market solutions” should not be confused with products and services. Rather they are themes and categories that transcend industries, around which firms and innovators can address markets in previously unimaginable ways.
• Mass Personalization – combines AI and machine learning to create and target a “market of one for everybody,” with product and service offerings based on preferences expressed and implied in the data trail of each life lived.
• Embedded Finance – wraps product design and delivery with integral credit underwriting, finance, insurance, warranty, payment processing, servicing, upgrading and replacement as a single and perpetual “service model” transaction. Its ambition turns every product sale into a long-term service relationship. The value proposition for customers includes convenience, an end to product obsolescence, and single payment bundling. For companies, it consolidates the value chain under their roof, captures proprietary customer data, ingrains customer loyalty, and drastically reduces cart abandonment at the point of sale.
• Asset Fractionalization – applies hyper cost and operating efficiency, predictive modeling, mass personalized targeting, and secure and accurate tracking of ownership provenance with blockchains to expand the market and the delivery of sophisticated products and services heretofore enjoyed solely by institutional entities or high net worth individuals.
• Autonomous Finance – displaces the burden on individuals to research and make decisions on complex and disparate elements in the acquisition and maintenance of holistic full-life assets, event-based life passages, and life-affirming passions and aspirations. Full, discretionary authority to decide and execute such decisions is assigned in a “one payment model” to profile-driven and AI-powered bots for combinations of financial, retirement, educational and career planning; health and wellness services; housing, transportation, travel and recreation; and, personal budgeting and expenditures.
• Money as Software – turbo charges the current reality that much of the world’s money supply is effected in “lines of code.” It propagates decentralized, blockchain-based cryptocurrencies; central bank governed digital currencies, coded-money with restricted fungibility for specialized purposes and accounts; cashless point-of-sale finance; and, institutional money movement redesign.
SOME EMERGING TRENDS
• Predictive modeling will be the source code for Applied Fintech solutions. It will drive product and service design, and precisely target their delivery to customers in “real-time of need.”
• Reducing Friction is the essence of Applied Fintech. It runs throughout, from the identification and targeting of markets and customers to vast innovation on payment systems. It also takes the form of disintermediation, eliminating or supplanting suppliers, brokers, intermediary service providers and regulatory and compliance regimens across B2B, B2C and Peer2Peer transactions.
• Hyper-automation permeates the value chain of transactions, back-office operations, customer service, problem solving, crisis management, compliance and reporting. This portends dramatic cost reductions, and profound consequences for workforces in both scale and required skills.
• Marketplace Ironies attend the democratization in the distribution of valuable goods and services to mass and/or previously underserved markets on the one hand, with ever-more extreme consolidations, concentrations and imbalances of wealth and power among capital and labor markets on the other.
• Diversity, equity and inclusion will be a core competency of any organization focused on democratizing products and services for mass distribution to previously underserved markets and communicating them to digital/mobile natives.
• Emerging Markets are leading the way in the societal acceptance and scaled market utilization of some of these market solutions, especially in Asia and Africa – not the least because there are fewer entrenched incumbents to displace and the customer appetite for digitized services lies not in underserved markets, but in never-served ones.
• Strategic alliances between large companies and entrepreneurial firms will proliferate. The former bring substantial balance sheets, vast troves of proprietary data, and amply resourced incubation capabilities; the latter offer disruptive perspective and cutting-edge talent in a rapid-cycle world.
At CSUN’s Nazarian College we’re undertaking new initiatives and programs to ensure that our students embrace the challenges and opportunities of Applied Fintech’s promise. The thrust will be to balance the academic rigor of traditional disciplines for grounding and context, with a common core of skills-based certifications.
Our goal is simple – to turn ink blots into prisms to display the full rainbow of Applied FinTech’s promise and to inspire our students to seize the opportunities at any point along the spectrum.
Chandra Subramaniam is the dean of the David Nazarian College of Business and Economics at CSUN. Bob Sheridan serves as executive director of its Career Education and Professional Development Center. Learn more at nazarian.csun.edu.