The woes of Fintech, at least on the lending side (see Funding Circle / Lending Club etc), look set, to continue for a long while to come (maybe terminally so). Aside from COVID-cum-attendant govt actions related headwinds, the core reason for this is that FinTech lenders have not shown meaningful innovation where it matters most. Namely, in being able to differentially price and make available (to borrowers and investors) credit at scale in a materially better way than FinIncumbents. So where is the core value proposition? Unless there is a real step forward that FinTech lenders can bring and apply in credit assessment and pricing, there is only so far that relatively cheap digital distribution and slick, quick service / loan disbursement will get them.
If a truly material step forward / innovation break-through is to come in the assessment and management of credit risk, a break-through which is hallmarked by a new and materially differentiated pricing of credit combined with a genuine widening of the circle of availability of credit, it seems to me only big tech, not the fintech hoard, has a plausible chance of bringing it to pass. My hunch is Ant Financial / Amazon / Google / FB have the best chance of upending FinIncumbents and owning the future of lending. If big Tech do come to own the future of lending, it will be because they brought genuine innovation in credit assessment and in so doing created material core customer and societal value.
Good insights. Agree re financials lurk within many other companies notionally in other sectors. Agree many people including professional investors do not understand financials. Agree that many financial companies, particularly insurance companies, seem to go out of their way to layer complexity on what should be simple to understand.
Great summary - interesting to see Sony go in the opposite direction to Third Point & announce that they are buying in the Sony Financial minority! I think you sum up everything else pretty much on the money, not least the part about how we were such a key component of the market, yet even then, most generalist PMs & brokers did their best to avoid the sector, other than having a couple of stocks that they felt comfortable with (which meant owning/talking the same consensual names as their peers). And yes, there are reams upon reams of tech-related news letters as that's what they all own & generally wish to hype even higher.
Dear Marc.. I have a basic question on Banking...Take eg top 3-4 US banks or any banks in any other country [which have adequate infra on credit rating of customers] has more or less the same cost of funds and target the same profile of customers in their Prime retail loans, will their credit costs from retail loans will be more or less same..The question is not specific to any bank.. To put in more general terms how much differentiation can underwriting skill can make when top 3-4 banks any country with the same cost of funds, the same cost of customer acquisition and target the same top prime customers. Is it right to say that for the prime customer segment their credit cost will be more or less the same ....Thanks a lot for your help....
Great content Marc. Bravo
The woes of Fintech, at least on the lending side (see Funding Circle / Lending Club etc), look set, to continue for a long while to come (maybe terminally so). Aside from COVID-cum-attendant govt actions related headwinds, the core reason for this is that FinTech lenders have not shown meaningful innovation where it matters most. Namely, in being able to differentially price and make available (to borrowers and investors) credit at scale in a materially better way than FinIncumbents. So where is the core value proposition? Unless there is a real step forward that FinTech lenders can bring and apply in credit assessment and pricing, there is only so far that relatively cheap digital distribution and slick, quick service / loan disbursement will get them.
If a truly material step forward / innovation break-through is to come in the assessment and management of credit risk, a break-through which is hallmarked by a new and materially differentiated pricing of credit combined with a genuine widening of the circle of availability of credit, it seems to me only big tech, not the fintech hoard, has a plausible chance of bringing it to pass. My hunch is Ant Financial / Amazon / Google / FB have the best chance of upending FinIncumbents and owning the future of lending. If big Tech do come to own the future of lending, it will be because they brought genuine innovation in credit assessment and in so doing created material core customer and societal value.
Will expand on fintech thoughts in future issues as per our email correspondence, Paul ... lets keep sharing notes.
Great newsletter
I still think AM has a better return on capital than blogging. But I look forward to reading more of your writing!
Yes, I'm a long way from the inflection point!
great stuff Marc!
Thanks Robert. Hope all well.
as well as it could be given the pandemic, which I am trying to pass in Panama
Good insights. Agree re financials lurk within many other companies notionally in other sectors. Agree many people including professional investors do not understand financials. Agree that many financial companies, particularly insurance companies, seem to go out of their way to layer complexity on what should be simple to understand.
Thanks, Mark.
Brilliant, Marc
Thanks Roberto, and also for your support of the newsletter on LinkedIn.
Sure, Marc. My pleasure.
Great summary - interesting to see Sony go in the opposite direction to Third Point & announce that they are buying in the Sony Financial minority! I think you sum up everything else pretty much on the money, not least the part about how we were such a key component of the market, yet even then, most generalist PMs & brokers did their best to avoid the sector, other than having a couple of stocks that they felt comfortable with (which meant owning/talking the same consensual names as their peers). And yes, there are reams upon reams of tech-related news letters as that's what they all own & generally wish to hype even higher.
Thanks Duncan. Keep the feedback coming, and feel free to share with clients.
does anyone know any trails or biking routes that aren t too far from campus
New subscriber here, taking a look at older posts... excited to the review all this content next!
100.co
Dear Marc.. I have a basic question on Banking...Take eg top 3-4 US banks or any banks in any other country [which have adequate infra on credit rating of customers] has more or less the same cost of funds and target the same profile of customers in their Prime retail loans, will their credit costs from retail loans will be more or less same..The question is not specific to any bank.. To put in more general terms how much differentiation can underwriting skill can make when top 3-4 banks any country with the same cost of funds, the same cost of customer acquisition and target the same top prime customers. Is it right to say that for the prime customer segment their credit cost will be more or less the same ....Thanks a lot for your help....