The risk of backing the wrong fintech horse

Jonathan Burridge

May 30, 2019

Jonathan Burridge (pictured) is development director at JLM Mortgage Services

Earlier this month I attended a roundtable event held by Mortgage Introducer, sponsored by Foundation Home Loans, and concerned with a discussion around technology in general – and specifically fintech – and how the mortgage market might change as a result.

There was, of course, a lot of positive talk around how new systems and software, Open Banking, AI, APIs, etc might all fundamentally shift our sector, and there’s no shortage of runners and riders, with plenty of financial backing, looking to be first past the post and take the winner’s spoils.

However, I thought it was important to sound a note of caution here, especially for those businesses – namely advisery practices – who might be at the sharp end of such activity because there are plenty of cautionary tales which abound when it comes to technological development and the choices to be made.

Indeed, given the sheer number of start-ups, developers, entrepreneurs, etc, all focused on being the ‘go-to’ tech service for advisers, then there has to be a real risk to businesses that they back the wrong horse in this particular race. Think back and we all remember VHS versus Betamax, DVD versus Minidisc, and the like – can any of us say with conviction which solution will be the one that turns out to be the winner?

The problem, of course, is fuelled by a similar mindset held by the venture capitalists and investment bankers who are backing such ventures. Money is flowing into these operations in great swathes, mostly predicated on FOMO – that is Fear of Missing Out; the worry being that the one horse they don’t back actually turns out to be the one that has the staying power to finish the course.

In a sense, you could say that we’re back in ‘dot.com bubble’ territory here because the investment numbers are huge, with many businesses being valued on the promise of future returns. Returns which, in all probability, have a very good chance of not materialising.

If those charged with finding the mortgage market equivalent of Google, Amazon and Netflix have little idea of which business might be next Tiger Roll, then what chance do advisery firms who are no doubt bombarded with marketing material from these tech ‘thoroughbreds’ suggesting they are the next big thing and how firms would be stupid not to back them.

Don’t get me wrong, we’re not a luddite business – far from it. We have a ‘robo advice’ proposition called Virtual Adviser and we can see the real and tangible benefits that come with certain tech offerings, particularly around cutting down on admin, utilising client data and working more closely with lenders.

However, as we all know there is no such thing as a ‘sure thing’ and we are likely to find, as time progresses, that those who have backed such ventures might start to get seriously cold feet if it looks like their investment is not going to deliver the return they envisaged. At that point, all bets are off, and those firms who did pin their rosette to that particular nag, might find that they moved too quickly.

I’m mixing my metaphors here but there’s an old phrase which says, ‘When the busboy says buy, you sell’ – in other words, the real money has already been made prior to the point when the opportunity seeps into the general consciousness.

I would therefore urge advisery firms to exercise caution about which fintech horse they do back – at the moment it’s an incredibly busy field to choose from and the likelihood is that it will only get busier. Understand what will work for you and don’t be smittened by a firm professing to give you the best odds – at this moment no-one truly knows who will win the race and anyone who suggests they do, are not really to be trusted.

Make your ‘bet’ from an educated standpoint – it’s more than likely that the best bet today is to go ‘each way’.

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