Future of Fintech - An Interview With Angel Lorente
By Angel Lorente — Founder & Master FinTech Connector
The following blog is a republishing of an interview posted on the Difitek blog on December 9, 2017. The interview was between Markus Lampinen, the CEO and Co-Founder of Difitek, interviewing Angel Lorente, the Co-Founder of FinTech Connector and Americas Innovation Leader for Morgan Stanley, about the Future of Fintech.
Please read and provide your comments and thoughts on the Future of Fintech in the Comments section.
DIFITEK: Hi Angel, it’s amazing to have you here. Could you briefly introduce yourself to our readers?
LORENTE: My name is Angel Lorente, I am currently with Morgan Stanley as the Americas Finance Innovation Leader and have over 20+ years of financial services experience in several roles both infrastructure and business facing.
More recently, I have created an exclusive professional networking and membership based company, FinTech Connector. The vision of FinTech Connector is to connect professionals, thought leaders, and investors (the “Enablers”) with Fintech entrepreneurs, start-ups, and idea generators (the “Innovators”) via real world communities and an online platform to collaborate on initiatives and cultivate Fintech ideas into financial services innovation.
I am also a big advocate and supporter of increasing the representation of women and multicultural professionals, entrepreneurs, and students in the financial services industry including the Fintech ecosystem. I served as the Chief Operating Officer and the Chief of Staff for ALPFA (Association of Latino Professionals for America), one of the largest Latino professional associations that helps mentor and empower future Latino leaders.
As you can see, I have been very busy as a financial services leader, master Fintech Connector, and advocate for women and multicultural professionals and students.
DIFITEK: How have you seen the financial services industry evolving in the past decades? Do you think we have learned something from the 2008 financial crisis?
LORENTE: I believe we are at a critical cross road in the financial services industry.
On one side of the road, we have the Fintech visionaries that have been advocating for the disruption of the financial services industry since the financial crisis. They want to make banks more accessible, cheaper, and digitized. We started seeing this disruption happening with various innovations post-financial crisis in the payments, lending, and crowdfunding ecosystems.
On the other side of the road, the financial services executives initially thought of Fintech entrepreneurs as more of a nuisance and not a real threat. They kept an eye on them but didn’t really feel that they had to spend to much time addressing the rise of Fintech startups. If anything, many of them spent money on innovation labs or accelerators to keep the finger on the Fintech pulse or to show their investors and board members that they were being proactive in the tech space.
Fast forward to 2018 and that storyline has changed somewhat. Fintech has risen significantly as a topic of discussion across financial services’ boardrooms and Fintech visionaries and entrepreneurs are feeling empowered by this new change in focus. Many large financial institutions have even come out with announcements that they consider themselves to be “technology companies” operating in the financial services industry.
What we are also seeing is that Fintech entrepreneurs are starting to figure out that banks are a complicated business with too many rules, to many legacy systems, to many products, and to many decision makers so they are taking the approach of “if you can’t beat them, join them.”
The new paradigm is how can the Fintech entrepreneurs and financial services executives come together in the middle of the road, hold hands, and take the path of least resistance to innovating financial services. Also, the easy part of the Fintech train has left the station. What I call the “window dressing” phase of putting a nice app in front of an old banking infrastructure. The issues both banks and Fintechs need to address is how do we make banks better for consumers while upgrading old and expensive legacy systems without compromising the security and trust of the regulators, investors, and customers.
That my friend is where we are today, 10 years after the financial crisis. Lots of work still needs to be done.
DIFITEK: How come that after twenty years at Morgan Stanley you decided to take the leap and jump into Fintech? Are you happy with your decision?
LORENTE: Just to be clear, I am still at Morgan Stanley while creating the global FinTech Connector community. What pushed me into the Fintech space in January 2016 was reading about the new “Blockchain” technology that was powering bitcoin and that would eventually change bank’s back office and finance infrastructure. As a Finance Division executive responsible for a group of financial controllers, I was intrigued by this new decentralized, immutable, and transparent ledger that would revolutionize not only financial services but various other industries.
I took it upon myself to self-educate and get ahead of the potential changes that may or may not disrupt my current job. However, I never thought that I would become so immersed in the Fintech space to learn as much as I possibly can and to become a global connector of Fintech enablers like me with Fintech innovators like the entrepreneurs looking to innovate my job.
Being a FinTech Connector is just a natural extension of who I am, a person that likes to find value in creating successful relationships between two or more people for a common purpose.
DIFITEK: It’s very interesting what you are doing with FinTech Connector to facilitate the connection among top entrepreneurs, innovators and investors located in few key locations around the world. Could you tell us more about this initiative?
LORENTE: FinTech Connector started as part of my self-education on Fintech.
I realized that Fintech was a hot area and financial services professionals like myself were trying to figure out how it would change our professional lives but also how we could get involved in the ecosystem.
On the flip side, many technologists and entrepreneurs were entering the space for two reasons – opportunities to innovate an industry that has long been closed off due to regulation and complexity AND to get some of the venture capital that had been pouring into the Fintech space for the past 5 years.
My idea to create FinTech Connector was born off the fundamental need to bring these two groups of enablers and innovators together to help drive financial services innovation forward for the benefit of all people. I believe that FinTech Connector is increasing efficiency in the Fintech innovation supply chain around the world. We are bringing together networks of innovators, enablers, and Fintech adopting organizations through-out the innovation ecosystem.
Think about it, what better way is there to efficiently tackle complex problems in the finance industry then bringing proactive and forward- thinking professionals with decades of experience in financial services with passionate technologists and entrepreneurs looking for big problems to solve with cutting edge technology. When you bring these two together and sprinkle in a little investor capital the opportunities for cultivating Fintech ideas into successful financial services innovations increases significantly.
DIFITEK: As the Master Connector of this global community you certainly have a privileged view on the fintech industry and the rising stars in the field. Do you have any particular initiatives or trends that really stands out?
LORENTE: Some of the trends that we are currently seeing based on innovators that have shared their ideas with us are around using the blockchain for asset identification and recording, implementing open banking innovation, and cryptocurrency and cryptoasset creation and exchange using a tokenized ecosystem.
DIFITEK: Where are we currently in the fintech wave in your opinion?
LORENTE: As mentioned earlier we are moving from the “window dressing” Fintech wave (nice app in front of an old bank) to focus on changing the way banks do business by innovating the infrastructure rails to reduce cost and increase efficiency. It is about looking at the entire financial services supply chain from the point of trade all the way to the financial statements. Buzz words like Robotic Process Automation, Lean Innovation, Machine Learning / AI coupled with Big Data are now included lexicons on company websites, press releases, and internal memos.
Interesting times for sure and it is only going to get more interesting in the next 5 to 10 years as these innovations move from concept to reality.
DIFITEK: What’s your opinion about what’s going on with the Initial Coin Offerings (ICOs)? Almost everyone is talking about that but very few seem to understand what this is about and the related risks and opportunities.
LORENTE: ICOs is an innovation that has jumped to the front of the Fintech line. It is disrupting the way that money is finding projects in a space that is still more concept than mainstream use case.
For example, Venture Capital usually finds its way to cutting edge technology that is still in the idea phase however the process to get there is onerous, expensive, and time consuming.
What the ICO pioneers have discovered is that there is a lot of money that has been made in cryptocurrencies like Bitcoin that are looking for ways to invest in the next big cyptocurrency or blockchain project. This has led to several concepts or ideas being funded to the tune of millions of dollars with only a whitepaper in hand and a website. This can be a good thing, but it is also a “risky” gamble.
What we are starting to see is a shady element popping up in the ICO space with scams or empty ideas with no real business or consumer value. This is what will lead to greater regulatory oversight which will end up closing many ICO doors.
With that said, we are starting to see several global regulators including the SEC closely watching the ICO space and starting to take a stance on how the ICO market should be regulated. If this happens then what started out as a cutting-edge concept to fund blockchain projects will end up going back to being an onerous, expensive, and time consuming regulated process.
On the flip side, the argument can be made that this is a Ponzi scheme of epic proportions and that it will all come crashing down and many people will be financially ruined. Maybe another financial crisis.
The verdict is still out on ICOs. All I can say is “caveat emptor!”
DIFITEK: PSD2 and Open Banking will become reality in 2018. How do you think this will affect the banking industry? Will they be able to evolve and finally embrace innovation?
LORENTE: I think the banking industry and regulators in the U.S. are not ready for Open Banking. They are taking a cautious path to see how this evolves in other countries while playing around with proof of concepts and doing lots of expensive studies in the area.
Clearly, this is a stall tactic as regulators grapple with the sting of a financial crisis that allowed them to take a stronger control of banks. Open Banking could provide challenges to the regulatory model in place and mean that regulators lose control of the banks they fought so hard to control. Unfortunately, the banks are just caught in the middle between the FRB and OCC pushing them for more checks and balances and consumers and Fintechs pushing them for more transparency and access.
In Europe and Asia, the story is a bit different. The regulators provide banks and Fintechs with opportunities to play nice in the “Fintech sandbox” which has allowed for more experimentation and constructive dialogue. Don’t get me wrong PSD2 and Open Banking will have a sting on the bank’s bottom line, but it may also open opportunities for them to enter areas that they were not thinking about before. Maybe the lines between banks and Fintechs will blur and what you will see is more banks saying that they are “technology companies” in the financial services space.
The next 5 to 10 years, will be critical to see how all this plays out. Will all this be a failed experiment or a paradigm shift in the global financial services industry. Who knows maybe you will be able to download that hot new song and apply for a competitive mortgage at the same time using your Apple account.
DIFITEK: Thinking ahead, five, ten years. What would you like to see have happened with fintech?
LORENTE: By 2023, blockchain goes mainstream and cryptocurrency adoption is at a critical mass opening opportunities for new business, identification and recording of assets where it wasn’t available before, and inclusion of 1 billion new people in the financial services industry.
By 2028, the world is interconnected and financial services pretty much becomes an accessible commodity that you can get anywhere. Banks become a trusted depository and holder of assets and information. Access to the financial accounts are easy, transparent, and available to anyone around the world. Capital providers and capital users come together seamlessly in a well-controlled ecosystem that operates within an infrastructure with appropriate safe guards that are managed by a decentralized network. New services can be plugged into this new financially interconnected world and allow for ease of transaction across borders without having to set a foot into a bank branch, if you so choose. However, to be clear, branches and financial services professionals won’t disappear. They will be retooled to handle new opportunities that come up and that need the sophistication and touch of a human person to handle before they get added to the network as a new feature.
Honestly, I really don’t know where we will end up in 5 or 10 years, but this will be on my “wish list” for my version of the bank of the future!
DISCLAIMER: The following responses are Angel Lorente’s insights and opinions and does not represent the views, opinions, and insights of Morgan Stanley. Any reference to Morgan Stanley is just to set context of Angel Lorente’s experience in the financial services industry.