Fintech and the Good Society

What Shiller didn't predict.

Robert J. Shiller is a Yale professor and Nobel Prize Winner. He is probably best known for predicting both the 2000 stock market bubble and the real estate crash that led to the subprime mortgage meltdown.

In 2012, Shiller published “Finance and the Good Society”, where he makes a case that we should reclaim finance for the greater good and that we need more financial innovation - not less.

At the time, the consensus was that we should curb financial “innovation”.
This 20-second video is a good summary of Shiller’s constructive approach:

We should regard the 2007-2008 crisis as an opportunity. Now we can move ahead to the 21st century, we have much better information technology, much better understanding of finance, so let’s move ahead.

Remember when we used to talk about “Information Technology”? It was also the time of “Financial Engineering”. A term that Shiller still uses predominantly.

Based on a recent conference, it seems that he regards Fintech as a continuation of Financial Engineering. I wouldn’t usually argue with a Nobel Prize Winner, but I think they need to be separated.

Even if we forget the subprime crisis for a while, the recent feats of financial engineering by Softbank (on the Nasdaq, or Wirecard) are a good reminder of its impact. It’s hard to argue about its broad benefits over the last decade. Don’t get me wrong I used to live and breath derivatives and still admire them. Those mathematic models are a thing of beauty. But as Shiller wrote:

There is a very human tendency to be a bit too attracted - perhaps distracted - by the symmetrical and the beautiful. […] It is in the facilitation of the full variety of human activities […] that finance manifests its most genuine beauty.

On the other hand, Fintech’s contribution is certain. I will take just one example: in Kenya, only a quarter of the population had access to essential financial services before the launch of M-Pesa, a mobile phone-based money transfer service. Now financial inclusion has become quasi-universal, bringing alongside numerous economic opportunities.

And it’s not just about inclusion, equality and diversity are also frequently impacted. We discussed in-depth about the positive impact of Fintech on society with Olivia Minnock of Fintech Alliance.

But just lowering the costs of transactions by a few bps for individuals and businesses is also a positive impact. Jack Bogle saved a trillion dollars to investors with the introduction of low fees indexed funds (made a video about it). How many trillions can be saved just by lowering payment processing fees and admin costs on a global scale?

It’s a significant opportunity that will make society better, and those that will contribute to it will probably be building a few unicorns along the way. An exciting place to be!

We live in the most exciting time in financial history and really what i believe is that our children our grandchildren are going to look back at the period we're in right now and realize how fundaments happened not only the field of finance as we know it but also money.

Henri Arslanian, on The Fintech Files Podcast (25/08/20)


What’s happening on:

🎧The Fintech Files Podcast

Recently published on the podcast dedicated to enterprise fintech:

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➕The Maths

I’ve been looking at the stats of the cumulated views (on YouTube) and downloads (audio), which total 3.8k.

  1. Since mid-May, we posted an episode per week (give or take)

  2. The cumulative download and views growth rate is 40% per month.

  3. The average reach per episode is also growing steadily (red line above)

The latter stat is the most interesting one. You’d expect the overall reach to grow as you post more, but it wasn’t sure that each new episode would grow the series. This compounding effect is one of the great benefits of posting episodic content.

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