Bernardo Lustosa, Ph.D. has a degree in statistics from Unicamp and a Master’s in Business Economics with a Focus in Finance from UCB/DF. He has a Ph.D. in Business from FGV/SP. His thesis was about pricing and stability in innovation networks. He is a Data Mining Professor in the FIA Fraud MBA program, and a Partner and COO of ClearSale S.A. Bernardo is an Endeavor Entrepreneur. He has worked in Data Mining for 14 years, and in fraud prevention for 10.
The fintech innovation in the Silicon Valley is a little different from the stereotype of 20-year-old boys in garages with revolutionary startups
By Bernardo Lustosa, ClearSale, for Endeavor
I represented ClearSale in two recent conferences in the Silicon Valley. The first was the Finovate Spring in San Jose, exclusively for startups and new products for the financial system. The second was an event of entrepreneurship, the Endeavor Retreat, with entrepreneurs from all over the world and speeches with some of the important people from the Valley.
For all I observed, I describe here the moment of innovation in fintechs, which can be quite different from what one can imagine.
1 — Blockchain and the disruption of the banking system
Without doubt, there is much to be expected from the Bitcoin technology, which proved to be a highly reliable and safe registration of information without the presence of a clearinghouse.
This article from the Harvard Business School states that the Blockchain will do the same thing that the financial system did to the media. It is not uncommon to find in the forums in Brazil people talking about the end of banks and registry offices. Indeed, this is something of great potential.
However, by participating in the conferences and listening to experts, we can conclude that none of it is for the present moment. The timing is a different one.
If it is true that there are many startups being developed that make use of blockchain, they are still in the oven.
The subject was more than just discussed in more than 150 companies that participated in the Finovate Spring. At the Endeavor Retreat, it was said that we should expect real and significant technological results in the next 10 to 20 years.
2 — Fintechs x Banks
Due to the intensive use of technology and innovation capacity, many predict that the emergence and growth of fintechs represent a major threat to banks.
Banks contain a number of factors which culminate in the lack of innovation, such as great structures, which in your time result in slowness, difficulty in the internal communication, difficulty in generating appropriate incentives.
The fintechs, on the other hand, would be agile, innovative and disruptive by construction, and they would work at the frontier of the technological knowledge and mobility.
All this makes a lot of sense, but as we can see in newly released products in the market of fintechs is that many of them are emerging as support to banks and to existing fintechs.
When we look at the goals of the companies that participated at the Finovate Spring, we can see: the simplification of granting of mortgages; end-to-end lending systems, systems for credit analysis, optimization comparison systems of loans and financial services in general, white label platforms for banks.
That is, nothing that would change the financial system, but it would help and improve the players in the current system.
3 — Revolutionary boys
For those who associate the innovation of the Silicon Valley with the freckled Bill Gates or the hairy Steve Jobs in his twenties, this would be another setback.
In an approximate count of the viewer, I could realize that more than 80% of startups have been presented by the founders and creators over 40 years of age.
I realized the same happened with the entrepreneurs of companies linked to the financial segment at the Endeavor Retreat. What may seem disappointing at a first glance suggests a nice perception: innovation has no age.
4 — Startups x Products
Not all of the Finovate presentations were of startups. Mature and established companies also take advantage of the ecosystem in which the event is embedded to show their newly released products that contribute to the fintech sector.
IBM has demonstrated its phising detection system at the Finovate, for example.
5 —The end of fraud?
In a world of technological and mobile galore, in the era of highly and instantly available information, wouldn’t there be more space for fraud?
On the contrary: the more platforms operating financial resources exist, the more fraud risk management is needed. I counted at least 10 startups focused on authentication, identification or other forms of fraud prevention, whether by register centralization, biometrics, copy of documents, etc.
The American trend continues to be from companies wanting to attack the problem of fraud by offering 100% technological products. The widespread delivery of tools makes it even more difficult for the work of the financial institutions, adoption and combination of technologies to actually solve their problems.
In short, there are changes on the horizon, big changes. We are still far from the eye of the hurricane, but we can see heavy clouds on the horizon of the global financial market.
Currently, it is up to the banks to learn to coexist with this new environment and to live with a consumer who rely on more and more possibilities and with less bureaucracy.
The cryptocoins have also taken a dimension in which it is hard to remain without a regulation. For the future, it is of utmost importance to invest in research and development in the blockchain technology as there is a lot of efficient people already doing this.
And what I have in my bag about all this for ClearSale? New technologies bring new possibilities and it is much more common to see entire markets being transformed, especially in the digital context.
It is a must to keep innovating in the core business and, if possible, participate and be a protagonist in the transformation of our own market.
Text originally published on the Endeavor’s website.