A lot has been discussed about the challenges in the financial services sector – like the subprime crisis, the credit crunch, collapse of the banking sector as a whole, and stimulus packages to keep the institutions alive. We all know that over the last 25 years, the large financial institutions around the world have been built on layers of unregulated greed and profits, which have led to not just their own fall, but literally bringing down the entire global economy into a major recession.

As effects of this recession come to an end, and optimists like me feel that the worst is behind us, I have come to reflect on how things can be different moving forward. Yes, we all know that governments around the world are doing a lot with the taxpayers’ money and generous stimulus grants. But, is there a big opportunity for entrepreneurs to fundamentally retool this entire industry? Is there a fundamental relocation happening in the financial services industry? And how can venture capitalists, entrepreneurs, and business leaders benefit from this tectonic shift?

Opportunity #1:
New Regulations grip Large Institutions

Globally, large financial institutions like Citigroup, Goldman Sachs, Bank of America, UBS, and ICICI are now dealing with an increased overload of regulations and oversight. This is a hundred billion dollar problem for them – the amount that these firms are directly or indirectly spending to manage this greater scrutiny and regulation. The era of ‘free’ and unbridled financial services is now history. Hedge funds, private equity firms, and consumer credit card divisions are all now under greater accountability to the regulators. The good part of this new climate for entrepreneurs to now is to look at ways in which they can fundamentally design their own startups, to take advantage of this industry relocation. One can come up with software tools (like what we are doing at Metricstream.com) and consumer Web 2.0 financial services (like prosper.com and kiva.org), which are designed from the ground up to help these large slow moving financial institutions in their reform process. Changes of this magnitude bode well for entrepreneurs, as history has shown.

Opportunity #2: