FinTech Is The Future Itself

fintech susanne chishtiBy Susanne Chishti, co-editor of The FINTECH Book (available through Amazon)

Cutty Sark, UK’s legendary sailing ship built in 1869 transported tea across the world. Lots of incremental innovations and design improvements made the clipper to one of the fastest sailing ships in its time. Unfortunately, the owners did not see the disruption coming when steam technology took over and soon steam ships came to dominate the global trade routes. As a result Cutty Sark became a training ship and today you can admire her, beautifully restored at a dry dock at Greenwich, east London overlooking the shiny skyline of Canary Wharf’s financial center. Will banks and insurance companies face a similar fate, will it just be a question of time until some of them turn into museums as one author of The FINTECH Book (published by Wiley in April 2016) predicts?

Disruption is part of our lives: What happened to Kodak and its film business when they missed the trends towards digital photography? What happened to Nokia who owned 49.4% of the global smartphone market in 2007 and ignored the launch of the iPhone that same year? What will happen to the UK after the Brexit?

Completely independent of UK’s Brexit vote, disruption has started in financial services – summarized by the term FinTech. JP Morgan CEO Jamie Dimon warned of the growing competition by FinTech startups when he said in a letter to shareholders in April 2015:

“Silicon Valley is coming …. There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking.”

Since 2010 more than $50 billion has been invested in almost 2,500 FinTech companies by venture capitalists, private equity firms, corporates and other investors globally. In 2015 alone the value of global FinTech investment was $22.3 billion (an increase of 75% compared to 2014). Deal-flow especially in Europe and in Asia was strong and now represents already more than one third of global FinTech financing activity (with almost two thirds still taking place in North America).

Successful FinTech IPOs dominated 2015 with PayPal, Square, WorldPay and First Data achieving multi-billion-dollar valuations. So why is FinTech so “hot”? What does FinTech offer that some incumbents can’t do themselves?

Since the financial crisis two goals dominated many corporate strategies across financial services – one objective focused on regulation and the other on cost-cutting/operational efficiency.

Accenture published a study in early 2015 where bank managers were asked if they felt that they were equipped for the digital age and the honest response was that 80% said that their banks were only “somewhat or minimally equipped for the digital age.” So during these last years leading financial services companies were focused on regulation, internal cost-cutting initiatives, and most IT investments were spent on incrementally improving legacy technology.

At the same time thousands of smart entrepreneurs globally started their own businesses trying to improve all aspects of finance. Some FinTech firms that fall into the category of Business to Consumer propositions are often classified as “disruptors”. Competitive FinTech can pose threats to established players in various ways such as dis-intermediation or loss of the client relationship, the loss of relevance or loss of revenues as the margins get squeezed due to higher competition.

In addition to these new disruptive FinTech start- and scale-ups, technology giants have started to embrace FinTech, too: Google, Apple, Facebook, Amazon and Alibaba (GAFAA) have redefined the customer experience.

the fintech book

These disruptive forces will completely change the way we bank and insure ourselves and our businesses. So what can existing banks, insurance companies, and other financial services providers do when they are attacked from all sides with such force?

The answer is collaboration. Half of all FinTech firms are so called “business to business” (B2B) players and they want nothing more than to work with incumbents, licensing their software and often offering “white label services” where banks and insurance firms can continue to use their well-known brands even though the new service was developed by a FinTech startup.  Collaborative FinTech solutions including big data analytics, predictive algos, KYC/AML etc should be a win-win for both established and new players leading to reduced development cost and shorter product launch cycles, smaller operating costs and risks and new digital business models which could not have been developed inside a large and less agile organization.

FINTECH Circle Innovate supports tech savvy leadership and strong digital boards among financial incumbents to recognize these changing market drivers, make strategically right decisions and execute these with the best FinTech partners that can be sourced to fit their business models and customer segments to guarantee long-term relevance, growing market share and strong valuations.

The goal should be that banks do not end up as museums as the beautiful Clipper Cutty Shark did but reposition themselves by replacing their legacy systems with scalable and safe banking platforms in order to integrate the best-of-breed FinTech solutions for all customers while at the same time benefiting from B2B FinTech solutions internally and across their mid- and back-office functions.

As the impact of Brexit on the UK is less than clear, it will be even more important to create powerful future vision for UK’s financial sector combined with a sense of urgency, to make financial services compelling again for customers, partners, shareholders and employees.

(Source: The FINTECH Book: The Financial Technology Handbook for Investors, Entrepreneurs and Visionaries, the 1st globally crowdsourced book on the financial technology sector – Chapter “FinTech is the Future itself”. Amazon Bestseller in “Financial Services Books”)