What is Fintech? (Hint: It’s not about the technology)
He looked just like Captain James T Kirk, and I felt like I was programming the USS Enterprise to fly.
He was my computer science lecturer – just like my school-boy hero – except he wore a white lab coat. One of my first projects when learning to code back in 1979 was to write a retail bank statement application.
I used a computer language called COBOL which I hand-wrote in block-capitals, character by character, line-by-line in pencil onto paper coding sheets.
Three days after writing the code, I’d get forty A3-sized pages of computer core memory dump on my desk.
It would take a morning to figure out that I’d missed a full stop, and start the whole process over again.
The next day, these sheets would be typed onto punched cards by teletype operators.
I then had to wait another day for computer operators to feed these punched cards into a giant ICL mainframe computer.
As laughable as this sounds now, at the time this was the cutting edge. Back then it was what we’d now call fintech.
Back to the future
37 years later, every month, I still get printed statements from my bank – exactly like the ones I built in 1979. The bank can’t turn them off! I’ve asked. Computer says no.
When I access my retail bank account online, the whole experience is based around monthly statements.
Last week, I asked my business bank why I couldn’t look at ‘statements’ online that were more than 6 months old. I was told the systems couldn’t do it. Computer says no.
I happen to know that retail banks still use the same sort of technology I learned to code on in the 1970s.
Today we call that stuff: legacy systems… the polar opposite of what we now think of as fintech.
It’s not about the technology!
The term “fintech” has only taken off in the last 18 months or so.
Is fintech merely a contemporary technology that is used to enable a financial service?
Or, is it a financial services company offering a technology-enabled financial service? A retail bank with a pretty mobile app stuck in front of a 1970’s back end?
Or, is it a technology company offering a financial service? A contactless card, or phone app stuck in front of a 1970’s back end?
Enter, the ‘tech’ firm
Let’s take a step back…
Uber is neither a taxi firm offering technology-enabled services, nor a tech company offering taxi services. Rather, it’s about on-demand personal transportation that happens to be provided by a technology-enabled firm.
Netflix is neither a broadcast TV network, nor a tech company offering broadcast TV programs. Rather, it’s about on-demand access to film & TV entertainment when and where I want it. It just happens to be provided by a technology-enabled firm.
Breather is neither a Regus-style office-space lettings company, nor a tech company offering serviced office space by the month. Rather, it’s about peace and quiet on demand for me to work, meet or relax, that just happens to be provided by a technology-enabled firm.
There is something entirely different about so-called ‘tech’ firms like Uber, Netflix and Breather that makes them truly remarkable and wildly successful. They are part of a new class of firm.
Are successful fintech firms:
- technology companies (Murex, Misys, OpenLink, SunGard, Google, Apple) offering financial services, or
- financial services firms (HSBC, Lloyds, DTCC, SWIFT, LSE) offering technology-enabled services?
I would argue they are neither.
Instead, successful fintech firms like TransferWise, Lending Club, Xero and SoFi are, like Uber, Netflix and Breather, part of a new class of business altogether.
This new class of firm is defined by their fundamental focus on three things:
- Desired customer outcomes
- Remarkable customer experiences
- Innovative business models
As McKinsey reported recently, ‘digital’ companies are leaving their non-digital counterparts in the dust when it comes to market share and profit growth.
Desired customer outcomes
‘Tech’ firms solve for a desired customer (consumer, business or social) outcome more directly than has ever been possible before.
They solve for outcomes that digital technologies now make technically possible and economic. But, they don’t confuse ends with means. They understand that the customer only cares about what you can do for them: outcomes. Customers don’t care about how you achieve it: as long as it’s reliable and legal.
The trick these firms pull off is that they recognise the opportunity, solve for it, and position their offerings in a way that addresses the outcome desired by the customer.
We need banking but we don’t need banks” – Bill Gates, 1997
TransferWise and WorldRemit understand that nobody wants a bank account, but they do want to easily send money to their family and friends abroad.
Netflix understand that nobody wants to watch TV but they do want to unwind with Breaking Bad as and when they’re ready to unwind – without being interrupted by ads.
Remarkable customer experiences
‘Tech’ firms understand that the customer now expects a remarkable experience. This experience needs to be remarkable and delightful across all relevant channels from mobile, tablet, web, social, physical, Virtual Reality, whatever.
The experience also needs to be remarkable and delightful along the entire customer journey from awareness to acquisition, to retention, to referral.
You don’t have to be everywhere, just everywhere your customer is and cares about. And that’s changing all the time. Nobody said this was going to be easy!
For a bit of fun, I couldn’t help put this in as a brilliant example of the sort of unremarkable experience we’re all too familiar with:
Innovative business models
‘Tech’ firms have innovative business models in at least one respect, or some novel configuration of the building blocks that make up a business model: customer segments, value proposition, channels, revenue streams, customer relationships, partnerships, resourcing, activities and cost structures.
The most successful ‘tech’ firms have the deepest understanding of who their customers are and what they care about (segments) and their corresponding value propositions, channels and revenue streams.
They exploit the opportunities opened up by digital technologies to reach and build relationships with those customers, throughout the customer journey, across all relevant channels.
They partner with, resource and fund their own activities in ways that were inconceivable just a few years ago, through crowd-funding, and software-as-a-service partners for example.
Finally, they incorporate innovative digital technology as part of their solutions whether that be Blockchain or Big Data or Open Source or Machine Learning or Virtual Reality or Artificial Intelligence or [insert latest shiny technology of the day here]
If you’re a startup then your business model needs to also be repeatable and scalable because being a startup is all about growth.
So, what is fintech?
I think this is the wrong question, as technology in itself is ephemeral, and customers don’t care about it.
Lots of companies would claim to build, or buy or offer ‘fintech’ technology but that doesn’t really help us here.
A better question is…
What is a fintech firm?
A fintech firm solves for a desired customer outcome with a solution that involves (moving, borrowing, lending, saving or investing) money, through a remarkable customer experience, and with an innovative business model.
Is your company a fintech firm?
Can only a startup be a fintech firm? No. As Steve Blanks says, a startup is “an organization formed to search for a repeatable and scalable business model“.
Can an incumbent bank or other financial institution become a fintech firm? In theory, yes, but they would need to fundamentally transform themselves along the three dimensions outlined above. Goldman Sachs is making strenuous efforts to transform itself into a digital bank.
Startup banks like Starling, Mondo, Atom, Fidor and Secco are all attempting to reinvent the bank from the ground-up. Time will tell whether they’re on to something or will come to be seen as simply, faster horses.
Can a traditional tech vendor (like Murex, Misys, OpenLink or SunGard) become a fintech firm? Again, yes, but only if they transform themselves to focus fundamentally on customer outcomes, remarkable experiences and innovative business models.
To boldly go…
Back in 1979, a monthly statement sent to my home, showed exactly what I’d (or my parents!) earned and spent, and how much was left. It was just what we wanted, and, kind of remarkable.
What’s changed since the 1970s is our expectations. Our expectations have changed because technology has made so much more possible.
In a world where virtually every industry is being disrupted at warp speed, financial services could just be the final frontier, and fintech firms could just be the means to take us there.