About 30 years ago, I took my wife on a trip to New York.
My intent was to research the nature and history of money. I was fascinated by 19th century America, by people like J.P. Morgan and George Peabody, the Baltimore merchant who, in London, became a model for Dickens’ Ebenezer Scrooge.
I came home confused and, about nine months later, our first child was born. I became a househusband and my wife went back to her job in what is now known as fintech, programming the processing of credit and debit card transactions.
Fintech — the marriage between finance and technology — has come a long way since then.
Along the way, I got an answer to my question.
Money Is a Verb
Money is what lies between any exchange of value. Its purpose is to represent that value, to stand in for it. If it’s not in motion, if it’s left in Aladdin’s Cave, it might as well not exist.
Fintech startups try to make this real by putting the exchange of value online. There are fintech startups that target investors, start-ups that target corporate accountants, fintechs that make markets and fintechs that create their own money.
Most fintechs seek niches that conventional banks, and payment processors, aren’t meeting efficiently. Whether it’s processing small transactions through cellphones, as with M-Pesa in Africa, or the creation of virtual currencies through cryptography, like Bitcoin and Ethereum, the aim is always to make the exchange of value instantaneous, transparent and (hopefully) safe.
Take my local doughnut shop. Revolution Doughnuts was started a half-decade ago through Kickstarter crowdfunding. Maria Moore Riggs needed cash to open her shop, and offered to give people doughnuts for their cash, once she was operating. Revolution recently opened its second store.
Crooks have also flocked to Kickstarter, and similar crowdfunding sites like Indiegogo. Since 2012 some of the action in crowdfunding has moved to sites selling debt or equity.
Governments have been even slower than banks to recognize the power of fintech. A call by the Comptroller of the Currency last year to regulate fintechs as banks has the whole industry on edge.
Fortunately, many fintech companies are subject to regulation. More than half of all U.S. mortgages are no longer made by banks, but by non-bank websites like Quicken Loans and Pennymac Financial Services Inc (NASDAQ:PFSI). Online-only banks like Ally Financial Inc (NYSE:ALLY), formerly GMAC, are giving consumer banks a run for your money.
All this makes now a good time to start paying attention to fintech, which is moving the search for value out of traditional banks, marketplaces and value chains, into the world of startups, crooks and the Internet.