Fintech and the future of finance | Prof. Arman Eshraghi | TEDxCardiffUniversity

Yes, hello, it's a pleasure to be here, so let's talk

fintech

in the next few minutes. I'm going to reveal to you some key insights about FinTech and why I think not just

finance

prof

essionals, but all of us, should care about how it works. The FinTech phenomenon is changing and affecting our lives, but before that, let me ask you a question: can you raise your hand if you have a mobile phone right now? So, almost all of you, which is not surprising, but can you guess what percentage of the world's population in 1990 had mobile phones, so the answer is less than 1% 0.2%.

It is a very, very low percentage, that is, 2 in every thousand people and of course they were nothing like the smartphones that you have, they are bulky and quite basic items. If a technology can go from zero percent adoption to one hundred percent adoption in less than three decades, that is an amazing example of adoption at a very fast pace, but if you think this is fast, then the adoption of some of the cleantech innovations I'm referring to. Talking about it is significantly faster now, when you hear the word thintech, most people think of blockchain and cryptocurrencies, which we'll get to, but FinTech is not really a new concept, even ATMs were innovations at the time. of thin technology in the 1960s or debit. cards and credit cards, but what has made Finnish technology so unmasked is simply the pace of innovation in this space, the rate of innovation and the abundance of new technologies that have emerged everywhere now, what is blockchain without getting too much into the blockchain technology, you can think of it as these spreadsheets or ledgers that are distributed around the world and built on the internet, so unlike the old system where you had just one copy of a central ledger, now you have thousands of these copies of the same ledger and they are all linked together and constantly synchronized, which makes it cryptographically very, very secure and on this infrastructure you can build anything, you can build digital currencies like Kryptos, you can build contracts and pretty much anything worth recording.

For example, in the

future

, it would be very likely that when you buy a property, that record will be implemented on the blockchain and people will be working towards it, so it would not be a stretch to call the FinTech phenomenon a FinTech disruption. I think this is an example of a disruption that has already affected their lives in many different ways. Think about mobile banking that you can do with your phones anywhere in the world, at any time. Think of new forms of insurance you can. buy and personalize again through new innovative platforms think about the world of personal

finance

, in the old days you would have gone to a financial advisor for advice and now you also have the option of getting advice from algorithms and software also known as Robo. advisors and the point of a wide variety of other areas, think about payments, lending, capital markets, all these subareas of the FinTech landscape or being touched and influenced by FinTech innovations, so these are some of the companies that are apparently They are very active in the world of payments and money transfers and, although they use different technologies, perhaps the common denominator is that they are all very young companies.

They were both established in the last few decades and that's the disruption, so we're all grabbing market share and that's fascinating, of course, now, so it wouldn't be a stretch to think of it as a tsunami or a big wave, and if You don't know how to ride a wave, you better learn to swim. There is no big figure here in 2018, last year the size of global investments in the physics phase was forty billion dollars and that number continues to grow. Some people argue that forty billion is actually conservative estimates, the actual figure is probably significantly higher. higher, depending on what is considered FinTech, there is another forty number that is also interesting and that is the number of unicorns that are related to FinTech globally, so what is the unicorn?

So the unicorn is a private company worth at least a billion dollars, at that level. of market valuation, there are forty of them, in fact, over 40, a little bit more, which is quite interesting and a lot of this is happening in different centers around the world in Wales, where at the moment we have a lot of interesting activity in the physical realm. The space is already happening and a newly formed body called FinTech Wales has taken shape to coordinate this effort, but let's pause for a minute and think about how we got here in the first place, so I want to invite your attention to think.

About three snapshots in time in 1999, just before the dot-com bubble burst, these companies were the four largest companies in the world in terms of market valuation, here's how the stock markets would value them, and as you can See, I have put three of them as logos and one that is not a logo, so the ones in logos are the technology companies, but of course the dotcom bubble burst and then the situation changed quickly, 10 years later, and you have a slightly different picture. so the four largest companies were some energy companies, you still have Microsoft, mistake, but you also have a financial company, ICBC, the Chinese bank.

Fast forward another 10 years to the latest data we have and we're interested in guessing what the four largest companies do. they're all tech Microsoft Apple Amazon and Alphabet, which is Google's parent company, so big tech has made a comeback. If you think this is just one of the top four, let me show you what the top 10 look like so they are equal. four companies now, look at the rest, these are the ten largest companies in terms of market assessment right now, as we speak, the ones in red are technology companies, the ones in blue or financial companies, what's up ?

It seems that big technology has made a comeback. and what's really interesting is that big tech companies are getting into finance now. Traditionally, big tech companies were reluctant to get into finance, especially after the 2008 crisis because the financial services sector was heavily regulated, they weren't very interested in getting into that, but more recently the tech sector is also being regulated and is being closely watched by the government, as you can see for example with Facebook, so the technology companies are thinking that we are already being regulated or that we are going to be regulators, so let's diversify our income and let's get into the finances.

Well, I think this battle between the red and the blue, big tech and big finance, will be a very, very interesting phenomenon to watch in the coming years, which one will dominate now, as exciting as all this progress is. We also need to be cautious about the level of over-enthusiasm and endorsement that there is also in this market and in this sector, and this is important because the hype can overshadow real real progress in the legitimate use cases and applications of these technologies, but How would you measure the buzz? It's difficult, so you need some hints and directions.

I'm going to invite your attention to a series of examples of the hype in the FinTech space. These are some cryptocurrencies that have been heavily endorsed or promoted by celebrities. and unfortunately, in this case, all three of them, and more generally many others like them, have been involved in fraud and irregularities and financial regulators have basically issued cease and desist orders against them, which goes to show how This market is hot. and how overrated and overhyped this market is and of course celebrities don't help in this regard. This has become such a problem that the US regulator, the SEC, did something smart: they wanted to educate investors, so they created a fake website and a fake eye. initial point offer of the code and they included fake celebrity images with endorsements of this so called cryptocurrency called how is point and they also put some science into it, they included a whitepaper so a lot of people clicked on the link and showed interest and then they were forwarded to the actual regulatory webpage that basically warned them against this, so here's another example.

You may have heard of this: a company called Long Island Iced Tea Company that produces, I see mainly in the United States, just before the end of 2017, changed its name to guess what. long blockchain corporation and just because of that corporate name change its stock price went up four hundred and thirty percent in one day, in fact, in a few hours, that's all, there is no rational way to explain this, other than the overexcitement of the In fact, this company said very transparently that we are thinking about using blockchain technology. There was no fundamental change in their mod in their business model.

It was just an ik to declare a sin or an announcement, but that announcement was enough to excite the public. markets to this point and this is not only happening in the United States, unfortunately it is happening all over the world, for example in the United Kingdom a company called online PLC changed its name to online blockchain and then the share price went up 400% in China, a company called Sky People Fruit Juice changed its name for a prominent impression and then the stock price rose to 200%, so these cosmetic name changes that lead to such exaggerated reactions in the market only They can be an indication of hype and emotions in the market and remember they are not.

In reality, these companies were not changing business models in any fundamental way, they were just announcing that they might be interested now, new studies show that these are not exceptions, unfortunately, this is a pattern, speculative mentions of the word blockchain in fine. Oh, revelations have been demonstrated. to provoke similar reactions in the market, now Shakespeare is famous, he wrote that a rose by any other name would smell just as sweet, so no matter what a rose is called, it is still beautiful, it still has a very sweet smell, but in the world of finance matters how companies are named and in a famous study that was called Rose Calm by any other name, some researchers found that during the dotcom bubble, those companies that simply added dotcom to their names experienced the market again for the overvaluation of about seventy five percent and this was just about Association again, they were not changing anything fundamental, they just had Dutch computer links, but the story goes beyond that, as you know, this is the famous graph Bitcoin price in 2000 at the beginning of In 2018 or late 2017 it reached a price of about twenty thousand dollars and then plummeted.

Now there are many compelling reasons to think that this was a classic speculative bubble if we go back far enough in history and we've seen examples of this before we've seen examples of this before and there's a body of academic studies about it, so For example, in the 17th century, exotic tulips, rare tulips were so overrated in the Netherlands that you could basically buy houses in the center of Amsterdam by exchanging a few tulips. Now, of course, we are not suggesting that bitcoins are like tulips, but the underlying emotion and the psychological emotions that form this speculation are very similar and if you read the ideas of psychologists, basically the idea is that in these types of bubbles speculative what happens initially There is a little bit of excitement about a new innovation which then leads to euphoric levels of excitement, but then inevitably panic sets in and then they collide, and what was very interesting is that these emotions, many of them are unconscious emotions.

People like Freud have talked about this so much. that is why it is very difficult to learn from experience because these emotions are not conscious notions, they are actually quite unconscious emotions, which is why all technological innovations can lead to excessive enthusiasm with financial innovations, but the danger is still more because there is the promise of abundant wealth and that is what we must be careful with, so I want to conclude by reminding you that there have been many examples of innovations in history that have not survived the test of time, snow screens for a family bicycle or a single-wheeled motorcycle are just three of those examples.

It is extremely important to remain optimistic and excited about the

future

that FinTech promises us, but not to get too excited either. Thank you so much.