Fintech is hot, so the world tells us: VCs and private equity (PE) firms, large IT companies and a wide range of start-ups all agree. A cynic, however, would say that two worlds could hardly stand further apart: innovation vis-a-vis banks and insurance companies. A financial services organization by its very nature has a long-term view on anything, stability as part of its DNA and solidarity as its backbone. And a long-term view does not spontaneously align with the speed, agility and instant nature of today’s society. Stability has an uneasy relationship with constant change and solidarity has to be reinvented to find its place through personalized customer experience.
So what makes technology developments within financial services organizations qualify as fintech? If you want to embrace the future, make sure your partner has a majority of these characteristics and is not the fabled "lipstick on a pig."
- Digital DNA centric: Customer centric, agile, simple, redesigned
Too often—even in start-up designs—we see translations of today’s practices and procedures in a workflow built with new technology. These so-called optimizers have a place in the value chain and can help organizations improve digital access in their current environment. But fintech should go further: Processes must be redesigned and simplified. There is no other way for existing organizations or new players than going digital: to open up existing cores or to build from scratch. This trend is as big as “automation” was in the ’80s: a giant leap forward.
- Instant, open and mobile: The new norm for connectivity
Please stop debating this: These are all irreversible societal changes that we see and experience every day. Stop debating it and look for omnichannel; use that time to develop an open, mobile solution instantaneously available with all relevant context. This is not a generational segmentation; we no longer speak of millennials but of “Generation C”—the connected customer who reaches across all ages and lifestyles.
- Regulation is an opportunity
All too often disruptive startups claim to shy away from the establishment, to make a new market. But even the Ubers of this world have to operate within the law. And as much as we may complain about the EU and consumer protection bodies, these same institutions create a massive market and playing field for new technology. Making connections and using data for enhanced propositions sounds great. But be sure that things will change in 2018 when the General Data Protection Regulation (GDPR) kicks in. On the other hand, PSD2 creates a totally new and open financial services landscape—make sure to be educated and part of it.
- Fair and acceptable to the world
For too long, financial services were primarily the domain of those who fully participated in society, preferably with stable financial backgrounds. The more assets, the better the service levels one could expect. New technology makes it possible to service every customer in a “fit for purpose” manner: Accounts can be as cheap and easy to assign as mobile phone numbers and the ultra-wealthy can have a 24-hour virtual concierge. More access to financial services means more economic participation, business development opportunities and better financial health. What started as a moral and political topic has found a firm place in the investment agenda of PEs and VCs too.
- Embrace the eco system
Ownership is out, access is in: access to a wider ecosystem of business partners. You do not have to own or build something yourself to derive value from it. In an open API system, relevant third parties can be your last mile to a new customer segment. The way forward lies in building relevant networks and opening them up so customers can choose for themselves who they find relevant. This speeds up your time to market, your relevance and the richness of the customer experience. Ecosystems can simultaneously be entered to try out new markets, new customer segments or new vertical offerings. But beware: When finding good partners and striking the right deal the devil is in the details of the cultural fit. Can large organizations work with small, agile ones? Will your teams align? The “how” is as important to success if not more, than the “what.”
Optimizers, Transformers and Disruptors
So here you are and the boardroom agenda is set: five vital ingredients. Now you need to decide which game to play: survive and optimize, or change and transform or disrupt and start afresh. When talking about a grid of optimizers, transformers and disruptors, we do not just talk about the technology firms, the enablers, but also about your ambition level to become a 2020 player.
It is a useful framework to position your company, the ambition and its market to help you along. It helps investors understand the ambition levels, how fast things might go, how much money these companies might need, and which other resources are essential. As disruptive as technology and societal changes have been of late, nothing changes abruptly or overnight in business. Disruptors will come, yet some will grow and become an established part of a new world, while others might fail.
So take a step back and pierce through the cloud of being a change agent of the new world. Now, take a critical look at yourself and your partner. There is space for all types of players to make the transformation we as an industry face. We need optimizers—players who give the industry tangible, short-term benefits on the road to digitization. We need transformers—those who do not change the rules of the game, but who rethink and redesign workflows, transaction processes and entire business flows. And yes, we need disruptors—those who help the industry shape a new (and level) playing field with fresh opportunities in areas no one could foresee.
The resources needed, the outlook, the potential of return and the addressable markets differ. Optimizers can become transformers after a few years of experience. Transformers, however, hardly ever become disruptors; the DNA is too different. It has happened at times but then in a new company with a new team and vision, as some organizations have developed with totally new brands, teams and technology.
As one of the names on the ‘Women in Fintech’ list, Conny Dorrestijn has wide international experience in start- and scale-ups in the fintech sector and the need for collaboration with the existing financial services industry. Dorrestijn serves as a judge for the 2017 BAI Global Innovation Awards. Catch her appearance on the BAI Banking Strategies podcast; the episode airs starting March 20.