Talking Fintech and Asset Management at the ALFI European Alternative Investment Funds Conference
Closing out the European Alternative Investment Funds conference hosted by the Association of the Luxembourg Fund Industry (ALFI) was a fintech panel. For asset management, innovations in finance technology is both a provider of investment opportunities such as equity crowd funding and P2P lending, a path to diversify client distribution and enabler to reduce the burden of compliance.
Discussing the present and future for the fund industry, Cappitech CEO, Ronen Kertis, had the chance to represent Cappitech on the panel along with other leading fintech executives. Moderated by Serge Weyland from the Banque Internationale à Luxembourg, the panel also included Nasir Zubairi, CEO of Luxembourg House of Fintech, Fintech Advisor Jack Ehlers, and Nejc Kodric, CEO of Bitstamp.
With the Fintech Panel following one devoted solely to the blockchain, it was natural that this panel’s discussion started off with thoughts on bitcoin.
Commenting on bitcoins, Nejc Kodric stated that this his firm has received much demand from the asset management industry about how to invest in bitcoins. He explained though, that currently, there are limitations of bitcoin as an asset class in the regulated investment community due to the lack of derivatives and depository system for bitcoins. According to Kodric, asset managers aren’t interested in holding bitcoins themselves for their clients, but want a custodian model which mimics their existing processes and fits better for compliance reasons.
Discussing another hot fintech related investment, Nasir Zubairi was asked about the suitability of P2P lending for investors, and especially in light of negative sentiment towards the industry during 2016 . Zubairi explained that that the bottom line is that everything comes down to risks and return. As such, despite the default risks, the higher interest rates available from P2P lending make it a favorable investment.
P2P lending is still in the 1.0 version of its product life, with 2.0 coming
Zubairi explained further that P2P lending is still in the 1.0 version of its product life, with 2.0 coming. In the 2.0 version, Zubairi described new products that will bundle up multiple P2P loans into one larger investment as well as securitization options. According to Zubairi, these new products will open up the asset class to more asset managers that can use P2P loans to diverse their portfolios.
As an advisor to startups, Jack Ehlers was asked about key details startups need to overcome when servicing financial firms such as asset managers. Ehlers answered that from the start, fintech firms need to consider how their products handle issues like cybersecurity, money laundering and client complaints. In addition, they need to understand how the existing banking system works and how financial firms are currently operation their businesses.
Ehlers described the job of fintech startups as “a big undertaking” since they both have to develop innovative technology, but also have answers to the above problems faced by financial firms.
Zubairi added that startups also need to “respect regulation”. As an example, he cited new digital banks that are spending a lot of time and money to become regulated in order to provide their services legally within the existing banking framework but with technology advancements. However, Zubairi cited that the downside is that this process means you are spending a lot of effort to get regulated before you can ever reach the market to monetize your business. Therefore, startups have to have in mind the long term capital requirements to get to market.
Asked about cloud computing and potential security risks with the public internet to financial firms, Ronen Kertis explained that the opposite is also true. Through cloud computing, firms can take advantage of security features being implemented by major cloud vendors like Amazon that are utilizing both leading software and hardware to secure data.
In relation to regulators, Kertis cited that the FCA has already issued a paper on proper usage of cloud computing and he believed it is only a matter of time until we see similar statements from other financial regulators.
Technology in 5 years
The panel concluded with the question of what existing lines of business in the fund and financial industry will be disrupted the most with new technology over the next five years.
Bitstamp’s Kodric answering that the blockchain is the most innovative technology. He explained that the blockchain is a database that can be accessed my many groups and the information there can’t be corrupted. Therefore, it is creating a new form of communication similar to what was created with the internet.
Cappitech’s Kertis answered by focusing on the end user instead of the financial firm. He explained that the means that consumers connect with their financial firms is rapidly changing, such as handling all banking via a smartphone and never stepping foot in a physical branch. Therefore, companies that aren’t catering to the change in consumer technology habits will get disrupted.
In a similar vein, Zubairi, of the Luxembourg House of Fintech answered that financial firms need to embrace changes instead of looking backward. That meant staying in line with new technology being made available to companies as well as used by clients.
Lask, Jack Ehlers explained that the risk is beyond just technology. He explained that the biggest risk in the financial industry is cybersecurity and how regulation with entangle itself within the technology.