Maarten Ectors, L&G’s Chief Innovation Officer, writes regularly about using innovation to create new businesses. He has created Fintechs himself and now holds sway over innovation in one of Britain’s most powerful financial institutions. When he writes, he writes with the authority of experience and the power of money.
In his latest article, Maarten Ectors says of Starling, Monzo, Moneyhub, TransferWise, Plaid, Yolt and a whole list of others that…
most of these startups can easily be bought by incumbents or incumbents can copy and scale their ideas given that most improve upon the existing business rules and practices. There are two additional disruptive forces in the finance market for which this is not the case.
One is China and the other one is DeFi. Combining both would be a lot more disruptive than any of the current fintechs and it appears this is about to happen.
This is fairly brutal talk , but the talk of an experienced and powerful man who has seen the dismantlement of fintechs and their disruption defused.
What he goes on to talk about is a more fundamental shift in the power base of financial markets away from the western banking culture, to something from the east and a decentralized form of finance known as “DeFi”.
What the two have in common is a grudge against the centralised financial system and the hegemony of American and European culture which has excluded both China and the non-affluent from it.
Ectors explains how China has built an internal financial eco-system that is radically different from ours.
For most Chinese, their bank is called WeChat or AliPay. Even beggars have QR codes! Banking has become part of chatting with friends and is no longer an app by itself.
He links this form of decentralised banking to the development within the world of cryptocurrencies of a new kind of financial transaction based on smart contracts, distributive ledgers and the blockchain.
While cryptocurrency coins create a decentralized store of value separate from any government-backed fiat currency, DeFi creates decentralized financial instruments separate from traditional centralized institutions
Ectors explains what is going on
DeFi companies have created automated stock exchanges, payment processors, derivatives, loans, insurers,… and completely new products like Flash Loans. These loans inside one transaction, request a loan, use it and give the money back, all in mere seconds. Who would want that? Lots of distributed finance solutions have governance based on voting. To vote you need to “stake” an amount of crypto currencies. If you do not have them, get a loan, deposit crypto, make a vote, withdraw crypto, give loan back and do this in one transaction, providing a guaranteed revenue stream for others who are lending you the money for seconds. You can vote on many things, like approving an insurance claim or a loan, pricing risk, making investment decisions to allocate or withdraw capital, and much more.
He concludes that China controls the means to distribute this new technology (cheap smartphones powered by HarmonyOS and home grown chips) but also the motivation to take on western finance. DeFi provides a platform for this to happen,
What if the next “TikTok meets WeChat” app, you download from your HarmonyOS store, permits super cheap payments, loans, investment, insurance and lots more? Would you use it?
This might like a conspiracy theory to you, but remember it is the theory of the CIO of Legal & General, an authoritative and powerful man.