Twelve FinTech Myths Debunked for 2024
Myth-busting is a great way to start the year!
Today’s artwork: A blowup unicorn seemed to fit myth-busting! All fintechs are bound to be unicorns, aren’t they? Back to the classics next week!
Welcome to 2024!
I wanted to start the New Year with something different and level-set on what I see as an increasingly problematic set of fintech beliefs or myths that need to be challenged.
I love fintech, but some elements in fintech's fundamental belief system need to be challenged. Some of these beliefs are simply dumb and the byproduct of hype or wishful thinking, but that doesn't stop them from being repeated ad nauseam.
For those who expected predictions for 2024, I’ll make it easy for you and keep it down to two that will surely be correct in 2025!
Everything, everywhere, will claim to have generative AI built-in, but banks will still stick you with stupid charges and annoy you, but now it will be personalized;
More central bank digital currencies will launch this year, fueling de-dollarization, sanctions busting, and geopolitical stress. The die is already cast.
Twelve FinTech Myths Debunked:
1. Fintech is imbued with an ethical or moral superiority.
“Fintech for good” is a slogan, not a given, and anyone still thinking that fintechs have a better moral or ethical compass than incumbents is delusional.
For the best examples of where fintech has been anything but ethical, look at P2P lending, BNPL, and mobile loans for recent instances where fintech companies have lied, cheated, and tricked unsuspecting users. Startups can be more vicious than incumbents, as they need the cash and have nothing to lose.
2. FinTech’s impact is limited to finance.
It may have started that way, but fintech is now bigger than just financial services. In a sense, Fintech has grown up. It’s gone from being the cause celebre of the start-up world to being a major player in the great geopolitical game between nations through CBDCs and stablecoins.
Central Bank Digital Currency (CBDC), the offspring of cryptocurrency, is set to become a geopolitical flash point as nations use it to avoid sanctions and conduct cross-border trade without using the US dollar.
3. Generative AI will quickly transform banks and fintech.
GenAI is certainly a transformational technology, but it won't transform heavily regulated financial institutions overnight due to the high trust required in banking services and GenAI’s penchant for making up answers and bias.
Don’t believe the hype. GenAI is great, and yes, it will eventually transform banking, but expecting this to happen quickly is unrealistic. Financial institutions still don’t understand GenAI risk and how to manage it. Be patient.
4. Crypto is special.
Crypto doesn’t get a regulatory pass because it’s new and special, though it has undoubtedly earned the right to exist. Existing, however, is a low bar. The reality is that crypto has been “zombified” with banking-level KYC and AML, which grates against those in crypto who believe in personal financial sovereignty.
Crypto wanted to go mainstream, and it has. This means an end to the crypto cowboy era. It sought acceptance and got it, along with taxes and KYC, just like everyone else. “Same activity, same risk, same regulations” will apply.
5. Web3 will only use crypto.
Really? How will the 95% of humanity who have never used crypto be included? It is hard to reconcile Web3's mantra of inclusion with its religious fervor for crypto when so few people actually use it. Will Web3 developers force users to use crypto?
Unsurprisingly, I'm a proponent of CBDC usage on Web3, and this year, others like Visa and Mastercard are moving to ensure that crypto won't be the only way to pay on Web3. It's the only way to bring Web3's mantra of inclusion to life.
6. DeFi is just as bad as crypto and should be avoided
DeFi is scary. You can't look at the $3.2 billion lost in 2022 by DeFi Bridges and not be afraid. That said, the technology isn't all bad if it is run responsibly. Enter "Institutional DeFi," an oxymoron if there ever was one, as there is nothing decentralized about it.
Large financial institutions, or consortia, will eventually run limited access DeFi systems, allowing for a mind-boggling number of services, from payments to securities transfers. DeFi tech and smart contracts are critical to our new world of tokenized assets.
7. Embedded finance is all about BNPL
Embedded finance is far more than Buy Now Pay Later (BNPL). Banks and fintech companies that claim to harness the power of embedded finance through BNPL have only tapped into 1% of its potential. This is not to mention the ethical issues of BNPL, which increases the debt of the vulnerable and less educated.
Embedded financial services are much broader than BNPL, and while every bank out there says they are embedding, BNPL shouldn't be their only foray into the genre. If it is, there's a problem.
8. Blockchain is coming
No, blockchain is here. Fast adopters like JPMorgan are already operating a blockchain transfer coin that carries some US$ 1 billion in internal JPM transfers daily. Not to be outdone, Citibank also has an internal tokenized transfer system with smart contract programmability.
While blockchain was certainly late in its arrival, it is now transforming our financial system. Watch carefully as asset tokenization becomes the go-to model for large banks where internal cost-cutting alone can be a game changer.
9. CBDCs will kill [insert name here]
CBDCs will not transform payments overnight and won't kill crypto, stablecoins, or credit cards. All payment methods will compete, and someday, you will pick the method based on your needs, just like you do now with the multiple credit cards you carry. Also, banks, their reserves, and personal privacy will not be killed.
What CBDCs may someday injure, not kill, is dollar hegemony. Emerging markets have discussed de-dollarization for decades, and CBDCs are likely the tool they use to achieve this. This is a long-term process that sanctions will continue to drive.
10. Mobile payments are the key to financial inclusion.
Mobile payments and loans can fundamentally help with financial inclusion, but they are only part of the puzzle. They should not be seen as the endgame for financial inclusion. Connecting the vulnerable to usurious loan rates and high cash transfer fees, these systems can hurt as much as they help.
Loans, in particular, are problematic. While many boast of the inclusion provided by loans, they have a much darker side, as already witnessed in countries like Kenya, China, and India, where they ravaged vulnerable populations.
11. Crypto will bring financial Inclusion
Crypto bros never cease to tout the power of crypto in bringing financial inclusion to emerging nations. Interestingly, the United Nations Development Program, the people who work to provide inclusion to emerging markets daily, doesn’t support this conclusion and has written multiple reports on the topic.
With high technical barriers and price volatility, finding a less likely form of digital money to give to the world’s most vulnerable would be hard. Still, the crypto dream lives on, even if impractical in countries with limited electricity and connectivity.
12. Fintech may still bring down incumbents.
The mantra that banks are doomed when fintech grows up is outdated. It is also stunningly blind to the fact that fintech partnerships with incumbents keep some of them afloat during the current downturn.
Fintechs will continue to give complacent incumbents a run for their money, but it is no longer reasonable to support the notion that fintech will cause fatal disruption for incumbents. Even the biggest of the current crop haven’t done this, though they will continue to slice away incumbents’ profits.
Your favorites?
Any list like this is bound to be incomplete, and I’m sure in a few days, I’ll realize a few myths that I forgot to debunk!
Most importantly, what fintech beliefs/myths do you think need debunking?
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Great summary, thanks