I like the story of CLS (Continuous Linked Settlement), one of the most boring and important institutions in global finance. CLS is the world leader in FX settlement. It was launched in 2002, and just like with many other important things in the world, very few people have heard about it. That’s what I like about it. Also, the story of CLS is the perfect argument for one of my favorite quotes: “the older the problem, the older the solution”.
Now let’s talk about blockchain. When you give a little kid a hammer, everything looks like a nail. Blockchain is still a hammer looking for nails. Over 2016 it has been hailed as the future of insurance, identity, exchange and property tracking– mostly by people without skin in the game (media, banks, governments and consultants). Meanwhile, founders & VC’s with skin in the game, who tackle big problems in finance, are usually not talking about blockchain and not using it. Here are some of them: m-Pesa, LTSE, Lemonade, YueBao, LendingClub, Wealthfront. Isn’t it strange?
Technology serves us best when it solves a real problem. The financial system has huge problems: financial inclusion, friction in payments, low access to asset management, system risk from off-balance sheet derivatives… we can go on and on. Is blockchain, a database that someone invented in 2008, the solution to these problems that have existed for dozens/hundreds of years?
Let’s take an example. Can you use a blockchain to simplify and improve the settlement process in the FX market, assome articles suggest? Yes, you can. Blockchain is a database, and you can build anything with it. But would you?
From the startup in 2008 to date, we announced at least 10 unique partnerships between Leverate and other companies. They cost tons and, at times, took all the brainpower and sweat we had. Every single one of these partnerships has failed (channel partners aside).
When I listen to startup founders, I sometimes notice the abuse of the word “partner”, and it reminds me just how unclear we were around the partnerships we took. I’ve heard this word from startup founders to describe what I would otherwise call “client”, “vendor”, “distribution channel”, “an opportunity to get some PR”, “another company that we want to have an integration with because it’s cool” or in the worst case “an established company in the industry who thinks we’re neat but we’re not sure what’s in it for us or them”.
Undefined partnerships are dangerous. And they often come with the promise of some PR, especially in fintech, where banks and consulting companies enjoy setting up accelerators and hanging out with the cool kids (startups). This has been funnily described as the fintech zoo. An executive at a bank or established company may talk to a startup about partnership opportunities that can generate a mention or two in the press, but…
We need to talk about something, fellow fintech folks: the word ‘blockchain’ has left the ground and started going completely out of control recently. It takes only a quick look at Twitter’s #blockchain page to get that.
I started suspecting when well intentioned marketing people of a large bank used it non stop in a fintech event in Hong Kong. Banks seem to be all over the blockchain right now. I doubt that this technology can solve any acute problems for HSBC or Citibank, but I get them. “Blockchain” sounds cool and they’re too rich and too threatened by Bitcoin (the asset) to ignore the technology behind it.
On another event I heard the following question from an investor: ‘I got pitched by several blockchain startups. Would you advise me to invest in them?’. Yesterday TechCrunch joined the bandwagon and announced that the blockchain might be the next disruptive technology. For serious media that wants to look deep into the future, it’s a fair title and it can invite a serious discussion (which the Bitcoin community doesn’t lack). But the content mostly glorified ‘blockchain’ as a buzzword, and that’s wrong.