When the internet was first created in the 1970’s and 1980’s with the introduction of the ARPANET its early years were focused on the development of infrastructure and protocol — beyond the knowledge and far away from the consciousnesses of the general public.
The establishment of that foundational protocol allowed for a subsequent wave of application layer innovation in the late 1990’s and early 2000’s that has come to dominate the public consciousness (e.g., Google , Facebook , Amazon , etc.). Even though technology at the protocol layer created a ton of value, the application layer has ultimately captured most of the mindshare and the value.
Meanwhile, the television industry has seen a different, but related, phenomenon play out. For many years, cable operators and telcos served as intermediaries between consumers and content. They bundled packages of cable networks and sold them as monthly subscriptions. But with the proliferation of high-speed internet in the household, companies like Netflix began to instead sell and deliver content directly to the consumer, avoiding cable distribution entirely. This has become known as “over-the-top” television and is increasingly driving an unbundling of content.
The same patterns are emerging in financial services. New consumer-facing financial applications are being built on top of old banking infrastructure, while other startups are going around financial infrastructure altogether. Together, they are unbundling the roles of banks and other financial incumbents.
In recent years, financial services architecture has opened up in a way that we have never seen before. Data APIs like Yodlee , Plaid , and Quovo now make it easy for developers to pull user financial data. SDKs like Card.io make it easy to onboard payment cards into mobile apps, financial market APIs like Xignite pull live stock prices, and payments APIs like Braintree and Stripe make it simple for developers to accept payments.
The combination of this development at the infrastructure layer, with what my partner Sarah Tavel notes as the growing distrust of traditional financial institutions, has created an opportunity for fintech startups similar those in internet and television: to create application layer companies with massive mindshare and value capture without having to innovate at the infrastructure layer themselves.
And while some of these startups may piggyback on open financial architecture, others avoid traditional pipes altogether and go completely “over-the-top”. In fact, the next billion dollar fintech startup may not look like a traditional fintech company at all.
Here are a handful of areas where I expect we’ll see these patterns play out:
Transferring money between two parties was one of the earliest problems to plague peer-to-peer commerce on the web.
