Fintech Investment (The untidy agglomeration of finance and technology) has reached a record $91.5 billion, twice the amount in 2020. Last quarter, there were more than 40 fintech unicorns (start-ups valued at more than $1 billion). The industry now attracts about 20% of venture capital. But it looks very much like a repeat of the late 1990s, when investors made ill-fated bets on online finance.

Fintech includes traditional banking products that are conveniently packaged and delivered via Internet platforms or applications.Examples include payment (online payment companies such as Square or Stripe); lending (supply chain finance (late-stage) Greenhill Capital); peer-to-peer lending; buy-before-pay (BNPL) or point-of-sale (POS) financing, such as Afterpay, Affirm, Klarna); and deposits (online banking startups).

Investors include armored money carriers chasing venture capitalists and asset managers, armed with other people’s money. Financial institutions are worried about digital threats to their business, which adds to the usual suspicions.Then, there are former bank executives who are eager to replace their former employers, find a profitable house for their big payday and continue ‘God’s work’.

The secret of financial technology is simple: take a function, digitize it, and add some jargon-“financial engineering” and “technical subversion”. Season generously with mystery; add some eye-catching spruikers or flattering media endorsements. Stir and serve.

The rules of the game are simple and clear. First, disguise the real function.use Disclosure of vulnerabilities, Supply chain finance helps companies treat borrowing as accounts payable on the balance sheet rather than debt, thereby increasing liquidity and reducing leverage.Unfortunately, when the company eventually fails, it will make investors and creditors suffer greater losses, just like what happened in the 2015 Abengoa, Spain, Carillion in 2018with NMC Health 2020. BNPL is nothing more than unsecured personal financial management.

Second, cover up the real economics. For example, in supply chain financing and BNPL, the seller of goods or services immediately receives the selling price minus the discount from the financier, and the financier pays the buyer in installments. The 4% discount is a typical fee charged by BNPL to the seller, which is repaid within two months, which translates into an annual loan shark financing cost of more than 26%. It helps to blur how costs are borne. In the case of BNPL, the retailer, not the buyer, seems to bear the financing cost-the discount. But if they want to maintain profit margins, companies must increase overall prices and punish cash buyers who effectively subsidize BNPL users.

Third, find attractive crowds. Supply chain finance and P2P loans target weaker borrowers. BNPL’s target customers are younger customers with less financial knowledge who have adapted to a free world. Calls for “democratizing capital” will not be hurt.

Fourth, look for financial loopholes in loose supervision. The pressure to embrace innovation and promote credit flows has led to “Regulatory sandbox‘, Fintech companies can test the concept of “innovation” without strict rules. For example, professional supply chain financiers and BNPL companies effectively lend money without being subject to the rules that apply to regulated banks.

Fifth, increase risk to improve profitability, such as issuing high-risk loans, or ignoring returns altogether-very few fintech companies are truly profitable. BNPL does not make money or lacks a clear way to make money, onceExchange, network fees, issuer processing fees, credit losses and funds are all taken into account.

Sixth, ensure that the real risk remains unknown. As GFG Alliance (Greensill’s most important customer) discovered, supply chain finance is short-term and is not suitable for financing long-term assets such as factories and equipment.A highly concentrated Loan portfolio“Best practice” banking businesses that expose a large number of risks to a small number of customers are generally not recommended. Large transactions between financial institutions and related parties are illegal.In the case of Greensail, it seems to have Provide substantial credit to shareholders. It allegedly also funded Non-existent future or expected accounts receivable.

Fintech lenders often conduct soft credit checks and minimal identity verification. Lord Adair Turner, the former head of FSA believes The losses incurred by P2P lending will make the worst bankers look like lending geniuses.

Seventh, seek out investors who are paranoid about digital disruption, whose mobile phones are usually smarter than them. The cause of mental dysfunction is not important, but look for: seeking high returns and growth, being confused about fast-changing technology, gaining wealth and confidence from previous successes, or missing the “ten times” (10 times growth) Shame to invest), the belief in national underwriting with endless asset prices, and of course TINA (no choice).

“Fintech” brands confuse investors and allow new companies to attract capital at high valuations.Greenhill’s Genius is to convince everyone that it has turned the traditional, dull, low-profit, short-term secured loan business for invoices and accounts receivable into a revolutionary business. According to reports, SoftBank invested US$1.5 billion in Greensill and may have lost money now.

Eighth, to raise a lot of cash and use it to build market share. Improving banking technology is obsolete. Most fintech systems consist of an application or user interface that sits on a bulky, outdated system and is held together by adhesive tape. The focus is on accelerating customer acquisition, and companies with a wider range of products may be able to profit from it. Hope to find this buyer before you run out of cash.

The problem is that fintech can reduce bank costs (the cost of transferring funds across borders is punitive) and provide basic, low-cost financial services to most parts of the world that lack such channels. Some fintech companies in emerging markets have indeed provided low-income individuals and small businesses with truly valuable mobile banking, small loans and simple trade financing. Unfortunately, they are in the minority.

There are other questions.The growth of these businesses has promoted the emerging Shadow banking system Their problems may penetrate into the financial markets and require taxpayer assistance. Greensill causes three small banks to fail and investors lose money Approximately 3 billion U.S. dollars. In the name of invention to exempt from proper control and compliance with regulations designed to maintain financial stability, the willingness to “break things” and “fix things later” is clearly dangerous.

What worries investors is that the fintech model may have peaked. E.g, Reserve Bank of Australia, In a decision that may be adopted globally, it will allow merchants to pass on the cost of BNPL services to customers. The survey shows that if there are costs, more competitive areas, and increased competition from banks and credit card providers, most users will not use the service, and the future of fintech is bleak.

The world needs realInnovative but John Kenneth Galbraith finance Diversity, treating them as variants of old designs, is novel only in the short and flawed memory of the financial world. Fintech shows that in a given time, everything that is old is new, and everything that is new is running again.