“Bitcoin is a bubble!”
“But how about the endless possibilities of the blockchain?”
“Nothing but pixie dust!”
I found myself in the middle of such discussions when teaching finance MBA students at HEC Paris. The idea was to discuss challenges in regulating fintech companies, but the debate quickly turned to the technical aspects of blockchain, decentralised applications and token economies.
American economist Paul Volcker once said: “The only useful thing banks have invented in 20 years is the ATM.” Mr Volcker has a point. Banking services are pretty much what they used to be 40 years ago.
But this status quo is changing at breakneck speed thanks to fintech. Artificial intelligence is affecting almost every aspect of our financial lives, from credit scoring to regulatory compliance. And the blockchain enables financial services that no longer rely on traditional intermediaries such as banks.
This has created a clash of cultures in business schools where finance professors are faced with rowdy students who declare the entire financial system is obsolete and requires a reboot.
In a recent Financial Times column, Helen Barrett points out that fintech is regularly among the worst-rated courses at business schools, despite the obvious appeal to students and topical relevance. So what can business schools do about it?
There are two aspects to this clash of cultures that make it difficult for business schools to include fintech in their curriculum. First, many of the crypto enthusiasts do not have a background in finance and misunderstand elementary concepts of financial theory. They care more about consensus mechanisms than adverse selection and only shrug at the intricacies of corporate finance.
An example of this is to use the term cryptocurrency for bitcoin, ethereum, and other alt-coins. But bitcoin is neither a medium of exchange nor a store of value, both necessary conditions for it to be a currency. Only niche companies accept bitcoin as payment and the price of bitcoin has dropped more than 60 per cent since mid-December. So much for store of value.
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Second, most faculty at business schools do not understand the details of the underlying technology.
Take initial coin offerings as an example. Launching a successful ICO is difficult. Start-ups need to give a detailed description of their technology in a white paper, start advertising the ICO, build a community, and ultimately build a prototype to bootstrap their token economy. All of this happens with minimum involvement from traditional financial institutions and a maximum focus on the underlying technology.
Teaching fintech at both HEC Paris and at the University of Cape Town, I have learnt two things.
Business schools must embrace collaboration with computer scientists. To make this work, computer scientists need paths to tenure at business schools that do not require publishing in coveted journals because computer scientists publish mostly through conference proceedings and are appalled by the idea of waiting months for a referee report. This is less of an issue at top business schools but too many institutions are stuck in their disciplinary silos.
A cultural shift is also necessary. Business schools need crypto experts to contribute their unique technical understanding.
At the University of Cape Town, the faculty of commerce — working with the statistical science and computer science departments — has introduced a new fintech masters programme. The degree focuses on hard skills and coding and has seen extraordinary demand. HEC Paris has a joint masters in data science for business together with École Polytechnique, which also focuses on hard skills.
Second, the traditional classroom paradigm needs to be broken up. It is not enough to have case studies of successful fintech companies; students actually need to get their hands dirty. UCT, for example, ran a 10-day blockchain boot camp and hackathon — #UnlockTheBlock2018 — with blockchain company Linum Labs.
Bitcoin is volatile but fintech is here to stay. The last time we saw such rapid technological development was in the late-1990s. When the dotcom bubble burst, companies like Apple, Google, Amazon and Facebook emerged and changed the way we do business. There is no reason to think that this time will be different. Business schools would do well to open their doors to those driving the fintech revolution.
The writer is a visiting professor at HEC Paris. He is an associate professor at the African Institute of Financial Markets and Risk Management at the University of Cape Town
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