By Brandes Elitch
CrossCheck Inc.
In October I attended the Money 20/20 conference in Las Vegas, my third time as an attendee. The show bills itself as the world's largest marketplace for ideas, connections and deals in payments, fintech and financial services. Since the attendees include over 11,500 industry professionals from 4,500 companies in 85 countries, 300 journalists, 400 speakers and about 400 startups, that statement rings true.
According to Medici Research, in the third quarter of 2018, the total value of acquisitions among 62 buyouts of fintechs was $11.3 billion; the sum total of investments among 460 deals is $11.39 billion. These staggering numbers explain why the show's attendance is so high.
The conference is held at the Venetian Hotel in downtown Las Vegas. Sessions were all in close proximity and limited to 20 minutes, which is an improvement over the typical 45- to 60-minute conference sessions. It forces presenters to get their message out quickly and concisely. It was also helpful to have the sessions organized by track, with the subsequent sessions in that track held in the same room.
Topics covered included artificial intelligence and deep learning; regulation and regtech; digital identity and biometrics; globalization, cybersecurity and fraud; fintech for social good; the fintech revolution; banking and personal finance; next gen commerce and retail; blockchain and crypto; alternative lending and credit, payments and platforms; breaking news and fintech views; and digital marketing. There were, of course, various receptions (poolside and exhibit hall) and an "Industry Night" at the Omnia. This show is famous for its hackathon and for its platform for startups. Startup Academy is limited to 100 first-time attendees who have raised less than $3 million in equity funding and have been incorporated less than three years. The Pitch Challenge whittles these down to the top 24 startups. On the show floor, Startup City had 58 startups in booths ready to talk one-on-one with attendees. The issue for startups is to not run out of cash before getting traction; the show gives them more visibility to more investors in one place than anywhere else.
The theme of the show was The Money Revolution. This revolution began a while back in payments. Some people say it started with Square, and that opportunities for disruptors to take on the incumbent regulated financial institutions came about because banks exited the payments business in the 1990s (I'm not sure that is altogether true). There were three motivating factors: mobile ubiquity, API plugins and open source software. The revolutionaries now are focused in three areas of attack: reshaping behavioral change, transforming business and reducing intermediary costs.
The revolutionaries believe that banks are "dinosaurs" and the Internet giants will provide the platform ecosystem going forward and handle the overall client relationship. Survivors will be successful based on their size and efficiency, and technology will change the economics and business models of the financial services industry. As evidence, Gartner said that by 2030, 80 percent of financial firms will either go out of business or be rendered irrelevant by new competition, changing customer behavior and advances in technology.
Let's look at one example from the show, the presentation from Carvana, who says they want to fix the process of buying a car and make it "invisible." Here at CrossCheck, our primary business is supporting new car dealers, so I was interested to hear this talk, from one of the insurgents in the revolution. There were some interesting points which I had never thought of quite this way before.
For example, they say that a factory franchise new car dealer has to invest tens of millions of dollars to buy a huge parcel of real estate and then tens of millions of dollars to build out the showroom and service facility to meet the demands of the factory. And the only real purpose of this is to get the consumer to come in for a test drive.
Their question is: Is it worth it for the customer to do this, or would it be easier to just buy and finance everything online and have the car delivered to your house, so you don't have to take a test drive? They say the car dealer is a dying business. Is this true, given that there are 16,794 of them doing business today? Carvana, which sells used cars, doesn't have the manufacturing and distribution costs a factory dealer does.
It takes the average consumer about four hours to complete the whole transaction at a dealership, and consumers generally find the experience unpleasant. At Carvana, you can manage your trade in and sign the sales contract online. The company says its reduced cost structure will save the consumer $1,500 on the average purchase, and 85 percent of its customers need financing, so it works with Allied Bank to provide that and to commoditize receivables.
Carvana brings the car to your house and offers a seven-day, money-back full return policy. You can return the car for any reason. There's also a 100-day/4,189-mile warranty because it fully reconditions cars. Frankly, this is a powerful incentive for the average person buying a used car, although I'm not sure it's significantly different from other "no-negotiation" dealers like CarMax. But will Carvana carve out a section of the market for itself? Absolutely, as long it can deliver a better customer experience than other dealers. And the deck is stacked in their favor.
There are other examples in fintech in personal finance, investing, insurance, mortgages, loans, etc., and more than 100 companies in the vendor hall presented their offerings for the next generation of their niche industry.
One of the most interesting talks came from Chris Skinner, whose blog "thefinanser.com" is a must read for payments executives all over the world. Skinner spoke in a "boxing ring" environment, where the audience was in a circle all around him wearing earphones. He said we are in the third generation of fintech. The first generation was to "destroy, disrupt, and unbundle the bank." The second was when banks began to work experimentally with a few fintechs and startups. The third generation is where banks recognize they need startups for innovation and change because they cannot do this internally – too many fiefdoms and too many silos.
Skinner caused a light bulb to go on for the audience when he said, "Fintech is about doing what we do today cheaper and faster, with technology, whereas 'techfin' is about doing things completely differently with technology." This is a big distinction.
In the past I was involved with SBA lending at a community bank. The process of applying for a loan is a nightmare for a small business and typically takes months. A business usually has to hire a consultant to write a business plan and pull together all the exhibits that the bank requires. The majority of applicants are turned down.
But what if the bank could leverage data and technology to quickly assess the credit risk and approve the loan in a few minutes through an SMS text message? What if the process could be initiated via a voice-enabled device, which would authenticate the individual's identity with physical and behavioral biometrics, device intelligence and digital behavior? That is fintech thinking.
One of the sessions gave some "homework" to the attendees, which I thought was interesting. First, suspend your disbelief in new solutions, and find eight to 10 disruptive trends that could impact you. Second, pick three to four technologies/solutions that are most unlikely to happen. Third, say yes, and identify the five things that would have to happen for each of these disruptors to succeed. This is the way a venture capitalist might think in trying to pick one of the dozens of opportunities that he or she is shown every month.
Certainly one of the biggest success stories in fintech is this show itself. It started in 2012 and has grown to the point where there are Money 20/20 conferences all over the world, including Europe, Asia and China. In 2014, the two founders, Anil Aggarwal and Jonathan Weiner, sold the enterprise to London-based i2i Events Group for a deal valued at $100 million – just another example of the opportunities in this space, which you would not likely have thought about six years ago. 
Brandes Elitch, director of partner acquisition for CrossCheck Inc., has been a cash management practitioner for several Fortune 500 companies, sold cash management services for major banks and served as a consultant to bankcard acquirers. A certified cash manager and accredited ACH professional, Brandes has a Master's in Business Administration from New York University and a Juris Doctor from Santa Clara University. He can be reached at brandese@cross-check.com.
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