Finentropy and the next big thing

There's a great post on the next big thing in crowdfunding by Reuben Levy where he lays out three emerging trends in the space: Fragmentation, institutionalization, and electronification.

Reuben's salient points are:

• Number of originators continue to grow (he estimates 600+ currently) and are expanding beyond consumer and small business
• Institutional investors are targeting the marketplace loan space in mass and are interested in deploying capital across multiple platforms
• Technology must evolve to fulfill increasingly sophisticated needs, which include: enhanced performance reporting, streamlined trading, and consolidated account views

I have discussed these phase II--what Reuben calls 'second-order'--players and argue that the continued success of crowdfunding platforms is heavily contingent on robust infrastructure buildouts. What would the stock market be without the NYSE or Bloomberg, for example? Orchard Platform is in the pole position here and smart money agrees.

The larger point here, however, is not about the growth of marketplace lenders but a rather simpler notion:

“As the number of players, products, and transactions in the financial ecosystem continues to expand, so too will the complexity of that ecosystem.”

*Headscratch* Well...duh.

Let's think through this for a minute, though. Ten years ago I might have had a checking account at Bank A, a CD with Bank B, and a brokerage account at Wirehouse C. If I were a little on the crazy side maybe I had some money in private investments too.

Fine, a bit laborious but I could count on a combination of my accountant, tax specialist, and investment adviser to sort through the figures and tell me: This is what you made last year. This is what you owe the government. This is how you much you should save or reinvest.

The picture looks a lot more jumbled now.

I might have a Bitcoin wallet at Coinbase which I use to fund loans on BTC Jam alongside investment accounts at LendingClub, Zopa, and CreditEase (note the several jurisdictions here) with participation in a couple AngelList syndicates to boot.

*Headscratch*

Yeah, not so easy.

What of the multinational corporation with exposure not only to a multitude of different sovereign currencies but also various local crypto-currencies? How does one construct an accurate personal or, even hairier, company balance sheet in this world? What does GAAP or IFRS mean in this context?

The question Reuben implicitly asks here--and which I find fascinating--is fairly plain, though the solutions to it are far from:

“How will we construct and deploy the necessary protocols and regulations to improve the connectivity and interoperability of the global financial ecosystem?”

Fred Wilson asks a similar question in a post regarding digital money accounting. As Fred notes, it would be hugely helpful to have a Mint.com for all digital money services with a centralized, real-time dashboard of one's many accounts.

A few upstarts are mentioned in the comments section: Tapeke, LibraTax, Bitcoin Taxes. These companies are innovative and provide useful data aggregation, analysis, and visualization functions on the front end. On the back end Yodlee and Fiserv are proven information providers and have greatly simplified communication between platforms in recent years.

Yet I wonder whether the piping--and, more importantly, the data flowing through the piping--is robust and dynamic enough to keep pace with the accelerating complexity of the financial ecosystem.

“Bitcoin and Blockchain are revolutionary developments in payment networks. We need a concomitant improvement in financial data.”

This consideration undergirds Bernard Lunn's fervent advocacy of XBRL and his concern with its premature demise. Though adoption of XBRL was mandated by the SEC for all publicly-listed companies and the rollout for US stocks is now complete, uptake of the new standard has been pathetically slow.

As Bernard notes, XBRL remains a hidden technology and it will perhaps take another country or a plucky small-cap CEO to utilize and popularize the taxonomy. Yet whether it is XBRL or OFX or some other as-of-yet unheard-of or uncreated data-stream format, this much is clear: The necessity for improved standardized reporting for financial information is pressing.

There is a lot of work to be done here and a lot of dollars, euros, bitcoins, etc. to be made.

As with the net neutrality issue, advancements in the space will move more quickly and effectively under the aegis of a dedicated coalition of government representatives, incumbent players (i.e. financial institutions), and upstarts. It remains to be seen if entrenched interests will be as slow to move.

And so to bring it back to Reuben:

“Yes, infrastructure is the next big thing in crowdfunding. It is also the next big thing, period.”

Continued infrastructure buildout is a must if we are to harness and benefit from the expanding finentropy during this fintech Cambrian explosion. That means ensuring we have the proper data available and the right piping to move it.