Financial technology has been an incredible growth sector for investors and innovators. But relatively soon, blockchain will become the only part of fintech that matters.
The fintech success story of the past fifteen years has been defined by massive developments in electronic and online payment systems, with companies such as PayPal, Venmo and Stripe becoming household brands. (Not to mention the evolution of monoliths like American Express, Visa and Mastercard.)
Just three years ago, venture capital funding for fintech companies exceeded $140 billion. But since then, investment in the sector, especially in its early stages, has shrunk to levels not seen since Barack Obama was in the White House, totaling just $25 billion by 2023.
Warning: I am a big admirer of fintech. This is where I spent most of my career, first at Braintree (acquired by PayPal) and later as Head of Product at Venmo. I have seen firsthand how these companies have transformed society’s habits around money.
But after diving down the rabbit hole with smart contracts and crypto, it became clear to me that blockchain is the new foundation we were looking for to create a new global financial system.
Building anything related to traditional financial payments is complex and requires developers to take on a lot of scope: collecting user data, integrating payments, and handling security, risk, and compliance. If any of these components fail, the entire system is doomed to failure. That brings a lot of responsibility to each project, and often requires small armies of developers.
So much time and resources are invested in overcoming risk and compliance barriers that you rarely see real innovation in building fintech products. Ultimately, many of these barriers have to do with the complex web of regulations and requirements, which has only become more complex as the fintech has grown.
Blockchains not only solve these problems, but also eliminate them. Universal accounts mean there is no need to collect user data. Blockchains’ public and immutable ledger provides a single, universal and flexible payment system. Self-custody means developers do not have access to user funds, which greatly simplifies security, risk, and compliance considerations.
In short, blockchain has eliminated many of the responsibilities that developers normally have to take on when building applications. This allows small teams to deliver unique, valuable products to millions of people.
Just think of the impact that DEX pioneers like Uniswap and dYdX have had, emerging from the minds of individual founders to quickly rival large centralized corporate exchanges in terms of trading volume, and then continuing to maintain absurdly small development teams.
Critics like to claim that crypto developers “don’t want to follow the rules,” but the reality is that blockchains and public key cryptography make many of the old rules irrelevant.
As an industry, crypto is naturally burdened with regulatory inconsistencies and blind spots. Applying old rules to new systems with radically different characteristics would never make sense.
Innovation in fintech is hampered by the increasingly outdated traditional financial system. Blockchain gives fintech a new future because it develops from a much stronger technical foundation whose possibilities have only just been explored.
Ben Mills is co-founder of Meso, a payment platform that connects banks and blockchains. Before Meso, Ben spent a decade building payments products as an early team member at Braintree (acquired by PayPal), as Head of Product at Venmo, and working on Solana Pay at Solana Labs.