The fast-moving nature of blockchain and blockchain-related events is that sometimes opportunity comes when you least expect it. The only thing I can say is:

Be ready.

So it was when I was asked a couple days before a Shanghai fintech event held at the posh Ritz-Carlton Hotel in the Lujiazui financial district of Pudong by Profit & Loss, a London-based monthly business magazine that covers the FX (foreign exchange) currency and derivative markets. Blockchain and cryptocurrency is an admittedly very small part of this universe, but P&L is visionary enough to realize that the sector is certain to be part of the way forward. They even have a new magazine targeted toward institutional investors specifically for blockchain assets. It's called On The Block.

Such was the scenario in the precious few hours I had to spare to prepare for the fintech panel I was to be on at the Profit & Loss conference. I used that time to gather my thoughts about the current state of these edge markets. It was an interesting experience and I thought, "Hey, why not share my thoughts here in a series of posts?" So here you go.

Question 1: Everyone always talks about fintech “disrupting” financial markets. Is it really that disruptive of a force? Will fintech companies prove to be competitors or partners to financial services firms?

As usual, complex phenomena are never really well characterized in black-and-white. Similarly, fintech firms should be arrayed along a spectrum between disruptor and partner, not as either one or the other. Over time, even that essential nature is destined to fluctuate over time.

Visa has got to be THE example of OG fintech. Fintech before it was so cool to shorten those seven hard-to-pronounce syllables ("financial technology") down into the two that we know and love so much today.

Bank of America started Visa in 1958. They called it BankAmericard. Ironically, the innovative concept was born via a concept that should be very familiar to the connoisseur of blockchain assets. Yep, the Visa phenomenon began when Bank of America "airdropped" 2 million credit cards on the state of California in 1958. They lost over $20 million in the endeavor. The pioneers that thought up the whole project were fired. But, in the end, the company had proven the viability of an all-purpose revolving credit card account. Today, the publicly listed company that became Visa Inc. (V) is now worth more than $300 billion.

Thus, the core motivation for fintech has been, and always will be, disruption. But, technically, that disruption can come from within the very establishments that need to be disrupted. So, the role of a fintech company is destined to vacillate between disruptive competitor and partner. The key, simply, is to create an environment where the five competitive forces, as theorized by Harvard professor Michael Porter, can be unleashed upon, and sustainably exist within, the market.

To return to the example of Visa, it started as a disruptor of its own company. So much so that Bank of America had to move the company out of its control in 1970. Shhhhhh! 🤫Don't tell any long-term BAC stockholders they could have had an extra $300 billion asset that would basically double the value of their stock.

Under private ownership of a collection of international banks, Visa settled in for decades as an indispensable intermediary for the traditional financial services industry. From disruptor to partner in about 15 years. Time moves a little faster these days, of course. Thanks to the exponential nature of technology's S-curve.

Square is a perfect example of a "fintech disruptor" these days. The "other company" founded by Twitter CEO Jack Dorsey is now worth 20% more than the microtexting platform that made him famous. Square is a bleeding-edge US fintech company that is "revolutionizing" (this is the vocabulary of fintech disruptors!) the small business payment services, accounting, and business analytics industry. And, oh yeah, it has a Cash app that has more users than Paypal and lets you buy Bitcoin. And guess what? Visa owns 10% of it.

Disruptor, yeah. But also, eventually, partner. That’s the nature of the relationship between new fintech and traditional finance. Like yin and yang, they both need each other to evolve and succeed.

Stay tuned next week for another answer to a burning fintech question!

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