I suppose I'll get in on the fun: 1 like = 1 opinionated thought about the intersection of technology and finance, up to a cap of 100.
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4/ "We" thought that the primary use of technology in finance was going to be adding up numbers really quickly without making mistakes. This was only the first order effect. The second order of effect was enabling cheap transfer of risks over abundantly connected networks.
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5/ The finance industry has known for decades, and the tech industry has discovered recently, that the increasing complexity of the world has detractors and that lacking a vocabulary to describe complexity detractors will find a widely distributed scapegoat to point at for it.
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6/ Financial firms have natural economies of scale both for operational reasons and because scale historically functions as both a force-multiplier for distribution and because it offers first-order and Nth-order buffers against risks and the business cycle.
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7/ One of the bets for startups offering financial services is that they can innovate faster on customer acquisition to attract sufficient desirable customers from incumbents, while keeping the risks relatively constant, to overcome their lack of ability to rely on scale.
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8/ This is a bet most startups offering financial services will, bluntly, lose horribly, but that's startups for you.
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9/ Geeks both underestimate how #%()#)&ed the engineering practices of large financial firms are and underestimate how impressive they are. They make radically different tradeoffs than a startup would, including routinely spackling over technical debt with thousands of people.
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10/ One of the biggest problems in financial services qua tech is that the entire technical universe changes over every national border (sometimes within it, too) and that there is a weird goldilocks zone in terms of scalability on approaches for going international.
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11/ The goldilocks zone goes something like: you can't go international without truly massive resources, which you can never justify allocating to you in a small market.
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12/ The upper end of the zone: If you have truly massive resources, it is tempting to use the difficulties of international as a barrier to protect margins of some of your business lines (you have a lot, almost by definition), causing you to avoid international cooperation.
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13/ For this reason, historically the really interesting international businesses in finance happened when they were young and hungry. ("Who?" You can trivially name four global businesses in finance. It's surprisingly hard to count to eight. More are under the hood though.)
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14/ Finance is a much, much more regulated industry than tech is, and a surprising amount of the competitive landscape is downstream of the preferences of your polity-of-choice and their elected representatives, which sometimes look irrational. They generally are not.
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15/ For instance, the United States does not have a strong opinion on the right number of tech companies in it, but it *does* have a strong opinion of the right number of banks, and it sets that number about 100X more than Japan does or 1,000X what the United Kingdom does.
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16/ Strong opinions on the polity for the number of banks are downstream of opinions as to what degree the financial industry should be an executional instrument for policy preferences. Saying that outloud in as many words is uncommon, but the industry is that, too.
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17/ (We appear to be in the early stages of a societal debate, conducted largely via misunderstood proxy questions, as to what degree the tech industry should be an executional instrument for policy preferences.)
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18/ There is a tension between bundling and unbundling in financial services. These are generally thought of on a services level, but you can also think of them in terms of customer segments and subsegments, which is probably more illuminating.
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19/ Because the most important thing for large financial services firms is distribution to customers and the cheapest customer to reach is one you already have, firms who might have once had a core product for a core customer now offer many, many non-core products to them, too.
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20/ Startups said "Aha, here is an opportunity. If there is a 100x100 matrix of broadly consumed financial products and potential customer segments for them, we can compete on product for one cell of that matrix, win by utter domination, and then start expanding from there."
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21/ Startups which did this found, much like the finance industry did, that it is rare one can build a freestanding business (and extremely rare that one can build one on the venture growth trajectory) by chipping off a few percent of one of those cells.
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22/ This is further complicated by incumbents being able to both dynamically alter their allocation over that 100x100 matrix and also being able to dynamically alter their pricing, because they *also* read Innovator's Dilemma, thank you, and didn't get this far by not mathing.
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23/ Which is not to say there are no opportunities and no obvious opportunities, but I think I feel comfortable with "there are almost no obvious, popular, consensus opportunities."
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24/ One "obvious, popular, consensus opportunity" is "Gee, wouldn't it be swell if we just had a no-fee bank account made for folks in economic precarity. There's lots of them; clearly this is a business worth being in." If only banks had good people who are good at math, right.
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25/ (Though, on that exact subject: Square's Cash App is one of the most impressive product innovations I've ever seen, because it managed to basically deliver a thing that the industry thought rounded to impossible by making it a side effect of a bigger, better opportunity.)
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26/ Let's talk discount brokerages, which I've talked about at length before. https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ … This is a case where startups had interesting product innovations for 3~5 years and then incumbents said "Cool ideas. We will yeet these into being, as you cool kids say."
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29/ The opportunity that most startup brokerages are really going for, and it usually isn't messaged as this (probably for talent management reasons), is: "We're building a book of business to a point where it is attractive enough to warrant integration and digestion costs."
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30/ A lot of the interesting bits in brokerages are actually a layer beneath, in e.g. custody, routing, KYC, etc etc, sometimes caricatured as being "arms merchants" or in the "selling shovels in a gold rush" business. This lets more firms experiment with marketing/UX cheaply.
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31/ It also opens the intriguing possibility where someone might successfully launder better internal X systems into Schwab (or similar) by making them indispensable to a particular distribution engine and, hopefully, winning argument on which system survives acquisition.
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32/ Deposit pricing is, like taxes, one of the largest line-item bills on a household or business, and this is underappreciated because of how the bill is delivered to you and the relative level of sophistication required to understand that there was actually a bill.
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33/ Geeks who grok this the first time often think of deposit pricing as being, if not outright theft, theft-adjacent, but partly it's tradition for how financial services are priced and partly it is a progressive cross-subsidization of some customers by others.
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34/ One of the issues in finance to have an opinion on is whether increasing velocity of money, and ease of allocating it via a swipe (or, in B2B, by a computer doing it for you) will cause most deposits to migrate to cheap-to-the-customer places or not. Not obvious, either way.
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35/ Maybe zooming one level back for comprehensibility purposes: There's a risk-free rate for deposits. Your bank or brokerage doesn't give you that. They give you a much smaller number. The spread is deposit pricing.
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