The Heavy Lifting

A lot of the Fin Tech industry revolves around the easy stuff.  The new app on your phone.  The saving pennies, nickels and dimes app.  The new investing app.

This is all well and good, but it’s easier to build these kinds of things.  Infrastructure is hard.  Some of the other things in fin tech are really hard because of all the regulations that stand it your way.  Innovation becomes expensive.  How many investors are lining up to fund a company that has $500k in regulatory costs before you know if it works or not?

I am watching the launch of IEX with great interest.  They recently received approval to start trading from the SEC.  I am a big fan of competition.  It will be fascinating to see if their hypothesis wins and they can beat other exchanges like BATS. There are a lot of moving parts to an exchange.  It’s not just a matching algorithm.

Markets are core to our human DNA.  A lot of things that were previously in vertical silos can be made more efficient via a marketplace.  Marketplaces are different kinds of networks.   Look for a lot of previously untouched industries to be modified using a market.

There is a second wave of Fin Tech innovation coming.  It requires a fair amount of domain expertise.  The entrepreneur has to know where the bodies are buried.  In many cases, they need practical experience with the problem so they can solve it.  Of course, because the cost of technology is so cheap, it can be hard to find funding for it.  Because the problems are so hidden, it can also be hard to explain.

One example of heavy lifting is local Chicago company Dough.  If you compare prior options trading platforms like Think or Swim or Options Express to Dough, there isn’t much of a comparison.  Dough is much more intuitive and opens the options market up to less sophisticated investors.

The increased regulation and change in capital requirements is forcing the industry to figure out lightweight ways to innovate old processes.  I am not a fan of the new regulations, but they aren’t going away.  You’ll hear political candidates crow about repealing Obamacare, but you won’t hear them tout a repeal of Dodd-Frank.  Or Basel 3.  Or Mifid 2.

This wave of innovation will cut costs inside institutions.  It will make things more efficient.  But, it requires heavy lifting.