Not All Innovations Are Disruptive, But This One Could Be


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I was listening to a financier talking about fintech companies the other day, and he claimed that their work products are all sustaining innovations and not disruptive. He was referring to Clayton Christensen, a Harvard Business School professor and an expert on disruption. In his research and writings, Christensen has pointed to various markets that were disrupted by outsiders, including the American car industry, disrupted by cheaper Japanese car manufacturing; fixed line telephone firms, disrupted by cell phone makers; and the mainframe computer industry, disrupted by PC manufacturers.

Rubbish.

There is a flaw in Christensen’s work, which is that incumbents often fail to respond when challenged by outsiders, which makes their situation worse. That was true of Kodak and Nokia, where the change was fast and the management teams were weak. American car firms—Ford, General Motors and Chrysler—have not disappeared because of competition from Toyota and Honda; instead, they responded proactively and survived. AT&T, with $168 billion revenues in 2016, is hardly dead either. And IBM, with $80 billion revenues, is still going pretty strong.

Equally, Christensen points to industries that produce commodity products such as phones, cars and computers, where there may be giants, but the giants are not protected by layers of law and regulations like banks are. That is why banking has not been disrupted to date, and is unlikely to be in the future.

Christensen does make an important point, although it’s not as radical as those who refer to his work believe. If a weak competitor enters the bottom-end of the market, he argues, they may have the opportunity to disrupt the market if the incumbent does not respond. That is true, and that was the case with Kodak and Nokia. Ford, AT&T and IBM did respond and survived the change.

That is the case with any change however. As Charles Darwin noted: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

How true.

We really need to understand the difference between sustainable innovation and disruptive innovation in order to see if there is any disruptive change in banking. According to Matt West:

Sustaining innovation comes from listening to the needs of customers in the existing market and creating products that satisfy their predicted needs for the future. Disruptive innovation creates new markets separate to the mainstream; markets that are unknowable at the time of the technologies conception.

Sustaining innovation improves what is there today; disruptive innovation replaces what is there today. Hmmm. I blogged about this over on The Next Web, stating that there are three streams of fintech innovations:

  • Those that serve markets that banks don’t serve
  • Those that improve the customer journey by removing friction
  • Those that work with banks to eradicate inefficiencies, for example, in customer onboarding

Obviously, the latter two categories are sustaining innovations, as they improve what is there today. The first category is interesting though, as it is creating and serving new markets. In my blog, I pointed to SME financing and crowdfunding, but that’s not a true example of disruption. That is an extension of what’s occurring today.

However, I do see one example of disruptive innovation out there. I think about this one often. It is clearly disruptive, but is it noticed by the incumbents? Have they responded?

Not yet.

What is it?

I’m tempted not to say, but that would be rude. It’s financial inclusion.

There’s loads of discussions about financial inclusion and the use of mobile wallets in Sub-Saharan Africa to provide cheap and simple money transfers between people without bank accounts. This is serving the bottom end of the market, and Christensen defines disruptive innovation as: “A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

Oooh. We have one. Are the banks noticing?

How Can Your Bank Tap Into the Internet of Things?


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The Internet of Things (IoT) has officially moved beyond hype. IoT is now well known and defined—basically putting data-gathering sensors on machines, products and people, and making the data available on the Internet—and companies are already using IoT to drive improvements in operational performance, customer experience and product pricing. Gartner predicts we’ll see 25 billion IoT data-gathering endpoints installed worldwide by 2020.

While IoT is delivering on its promise in a wide range of industries, many bankers are still struggling to find the value in finance, an industry largely built on intangibles. We see two primary IoT opportunities for banks:

  • Direct use of sensor data (location, activities, habits) to better engage customers and assess creditworthiness.
  • Partnering with companies that manufacture or integrate sensors into products to provide payment services for device-initiated transactions.

Engaging customers and assessing creditworthiness
Like most businesses, your bank can simply use IoT to understand—and serve—customers better. Banks are already implementing smart phone beacon technology that identifies customers as they walk in the door. Customers who opt in can be greeted by name, served more quickly and generally treated with more personalized care. You can also take advantage of sensor data outside of the bank to market more relevant services to customers. For example, data from sensors could alert your bank when a customer’s car goes into a repair shop; after the third service call, you might offer the customer an auto loan for a new car. This type of tailored service and marketing can change a customer’s relationship with your bank dramatically: Pleasant experiences and valued information are a time-tested path to loyalty.

IoT sensor data can also supplement traditional methods for predicting creditworthiness and protecting against fraud, especially for customers with little or no credit history. For example, if a small business HVAC contractor applies for a commercial loan, you can request access to data from shipping and manufacturing control sensors to track the flow of actual product into buildings. This can help the bank confirm how the business is doing. For product manufacturers, you can track and monitor goods, including return rates, and if the return rate is high the bank can adjust the loan pricing and decisions accordingly. Leveraging alerts on credit cards and processed payments can provide information about where and how often an individual or business is making purchases, providing clues about creditworthiness without requiring access to detailed credit card records. In short, with billions of sensors all over the world, IoT will offer you more data that can help you assess creditworthiness and prevent fraud.

Providing payment services for device-initiated transactions
To illustrate the potential of IoT, proponents often cite the “smart” refrigerator, which senses when a household is low on milk and automatically orders more. Similarly, in the commercial space, sensors can automatically trigger a call for maintenance when a piece of equipment is due for service. In these device-initiated transactions, your bank could partner with the providers to offer payment services as an integrated component of the IoT package.

On a more local level, as small businesses begin to take advantage of IoT sensors to automatically reorder supplies—paper, toner, medical supplies, salon products—your bank can tie payments into the IoT-triggered reordering system. In addition to broadening your market for payments, being part of this solution can strengthen attachment to your bank among small businesses in your community.

Start with the end in mind
This is undeniably an exciting time in banking. Between fintech offerings and IoT applications, it’s tempting to move quickly for advantage, but we all know that investments are far more likely to pay off when you treat the process with rigor and resist the urge to grab bright shiny objects. IoT is no different: Before you start buying systems and aggregating data, know what problems you’re trying to solve and what data you’ll need for the outcomes you want to achieve. In banking, the most promising returns on IoT investment are likely to be found in improved customer experiences and marketing effectiveness, reduction in loan default and fraud, and growth in your payments business. But with all the dramatic changes unfolding, who knows what innovations might be ahead—your bank might find opportunities for IoT no one else predicted.

 

Contributed by: John Matley, Principal, Deloitte Consulting LLP;Akash Tayal, Principal, Deloitte Consulting LLP;William Mullaney, Managing Director, Consulting LLP

The Year of the FinTech Rooster


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One of my key forecasts for 2017 is that the fintech buzz will continue, but not in the United States. We need to look to China instead. This is fairly obvious as that country saw the biggest rise in fintech investments in 2016, while investments in the U.S. cooled off. This is pretty well summed up in Citigroup’s Digital Disruption report. The second edition just appeared, and opens with:

The rise of the Chinese dragons reflects a unique combination over the past decade of incredibly rapid digitization and the simultaneous rise of the Chinese mass middle class, along with poorly prepared incumbent financial institutions facing off against entrepreneurial e-commerce and social media ecosystems. It is no surprise to us that China accounted for over 50 percent of total fintech investments globally in the first nine months of 2016 and was the only major region where fintech investments increased in 2016–in fact doubling in China in the first nine months of 2016 versus the same period in 2015.

Most notably, China saw one of its fintech giants emerge on the world stage as Alibaba—the country’s largest online e-commerce company—went global. Payments powerhouse Ant Financial (once a subsidiary if Alibaba just as PayPal was once a unit of Ebay) announced that it seeks European and American clients using its AliPay service. And Alibaba founder and Executive Chairman Jack Ma has risen to the same heady heights as Amazon founder Jeff Bezos, or even higher if this year’s World Economic Forum in Davos, Switzerland is anything to go by. Ant is already growing at a phenomenal rate, having gained about 100 million new users in 2016, which took its total above 500 million—or nearly 10 times larger than the world’s biggest banks. Its ambitions don’t stop there. In an interview with CNBC at Davos, Ant Financial CEO Eric Jing said that “we have an ambition to be a global company. My vision (is) that we want to serve 2 billion people in the next 10 years by using technology, by working together with partners _ to serve those underserved.”

The company has never been understated in its ambitions—but to its credit has realized most of them. This is because Chinese internet giants like Tencent, Baidu and Alibaba started in a very different place compared to American internet giants like Facebook, Amazon and Google. The American companies formed to replace old institutions like bookshops. They had a strong, integrated financial system in place, and a well ordered commercial structure. When the Chinese firms began, there was nothing in place to replace. Sure, there were big banks, but these were state owned and had little focus upon customer service or innovation. That has all changed in the last 20 years.

Maybe that’s why, when the chairman of one of the world’s biggest banks was asked recently how technology would change finance, he pointed to the rise of Ant Financial. The veteran chairman—who was not willing to be quoted by name—noted that the Chinese group had acquired a “huge amount of data” and “a great ability to make credit decisions.” The tone of jealousy was hard to miss.

This is because the Chinese internet giants began with a clean sheet of paper and have expanded across China and now the world with their innovative designs. That design began with commerce and communication—Alibaba started as a platform for mum and pop stores to sell their wares—and has expanded into a social and financial ecosystem that can serve all needs through a mobile app. Alibaba and Tencent run not just an internet service, but a payments platform, a social network and more. It is all embracing and fully networked, far more than anything seen outside China.

Between the data analytics that can be applied in that ecosystem, deep learning and contextual commerce capabilities, it’s no wonder the banks are jealous. They should also be concerned, as the Chinese payment model is bound to expand globally and then be copied by the likes of Facebook and Amazon. Happy Chinese New Year!

Fintech Intelligence Report: Marketplace Lending


	intelligence-report-cover.PNGAs noted throughout our 2017 Acquire or Be Acquired Conference, partnerships between a bank and a tech company can take on many forms — largely based on an institution’s available capital, risk appetite and lending goals. With fintech solutions gaining momentum, many advisors at this year’s event encouraged banks to look at viable alternatives to meet consumer demands, maintain and expand their lending revenue and give formidable competition to those looking to take that market share.

Fintech lending has grown from $12 billion in 2014 to $23.2 billion in 2015 and is expected to reach $36.7 billion in 2016, a year-over-year growth of 93 percent and 58 percent in 2015 and 2016. This market, according to Morgan Stanley Research, is expected to grow further and reach $122 billion by 2020.

With this in mind, we invite you to take a look at our new Fintech Intelligence Report on Marketplace Lending. The research paper, developed by FinXTech, a division of Bank Director, and MEDICI, a subscription-based offering from LetsTalkPayments.com, explores current market dynamics along with technology and partnership models. As noted in this report, the gains of new fintech companies were widely thought to be at the expense of banks; however, many banks recognize the potential value from collaboration and have built relationships with fintechs.

Tell us what you think! As we work to provide you the latest information and research as it pertains to the financial services industry, we would appreciate your feedback on the Fintech Intelligence Report. Please email us your comments and/or suggestions at news@finxtech.com.

Reflections on Fintech at Bank Director’s Acquire or Be Acquired Conference


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I spent the first part of last week in Phoenix at the Bank Director Acquire or Be Acquired (AOBA) conference and as always I came away feeling like I knew more about industry conditions and expectations than I did when I got on the plane. If you are a bank executive, you should probably be there every year and may want to consider taking your team on a rotating basis every year. If you serve the industry in some way, you must be there as well. If you are, like me, a serious bank stock investor, you need to be there at least once every few years to stay on top of how bankers feel about their industry and how they plan to grow their banks.

The mood this year was much more upbeat than last year. All the concerns about low interest rates, regulatory costs and other potential headwinds have been blown away by a blast of post-election enthusiasm. Bankers were almost giddy in anticipation of higher rates, a stronger economy and possible regulatory relief. Everyone I talked with during my three-day stay was upbeat and enthusiastic about the future of banking.

There has also been a tremendous change in bankers’ view of fintech of late. Fintech companies have often been viewed as the enemy of smaller banks, and I have talked with many community bankers who are legitimately concerned about their ability to keep up with the new high-tech world. One older gentleman told me at Bank Director’s Growing the Bank conference last May in Dallas that if this was where the industry was going, he would just retire as there was no way he could compete with the upstart fintech companies.

Over the course of the last year, however, a different reality has begun to set in. Fintech companies have discovered that the regulators and bankers were not ready to concede their traditional turf and consumers still like to conduct business within the highly regulated, insured-deposit world of traditional banking. Banks have begun to realize that instead of relying on their traditional practices, much of what fintech companies are doing could make them more efficient and enable them to offer services that attract new customers and make those relationships stickier.

It has become apparent to many of the bankers I chatted with that fintech is not a revolution but an extension of changes that has been going on for years. Drive through bank branches and ATMs were also thought to be revolutionary developments when they were introduced, and today they are considered standard must-have items for any bank branch. Mobile banking is just another step along the evolutionary scale. More customers today interact with their mobile devices than through traditional means like branch visits, phone calls and ATM transactions. That’s not going to change, and bankers are adjusting.

Chris Nichols of CenterState Bank spoke in a breakout session about using fintech to improve the bottom line. He pointed out that if you used the traditional banking approach based on in-branch transactions it cost about $390 per customer per year to service your clients. Using the same cash required to build a branch and spending it to improve the bank’s mobile offering could bring the annual cost per customer down to just $20 a year. Processing a customer deposit costs the average bank about $2 if done in a branch and just $0.20 if done via a mobile phone. Nichols also suggested that acquiring a C&I loan customer could be as high as $14,200 when done via traditional banking methods, but the expense drops to just $3,060 if the transaction is done on a mobile platform.

The proper use of fintech, according to Nichols’ presentation, should also allow banks to lower their efficiency ratio and increase their returns on assets and equity. That is the kind of news that gets bank CEOs and boards excited about expanding the use of technology even if they still carry flip phones and use AOL for home internet.

While you can expect to see partnerships between bankers and fintech companies expanding in the future, bankers will use the technology that reduces costs or creates more revenue streams. They will offer the mobile payment and deposit services customers demand today. The litmus test for technology is, “Does it make or save me money or dramatically improve my customer relationship?” If the answer to these questions is no, then banks will pass on even the most exciting and innovative fintech ideas. They are bankers, after all, not tech gurus.

Community Banks to Fintech: We Need You


fintech-2-1-17.pngWhen Terry Earley, the chief financial officer of Yadkin Bank, a $7.5 billion asset bank in Raleigh, North Carolina, gets to work each morning, he sees an online dashboard showing him all the details of the loans in his bank’s pipeline, what is closing and when, and more. “If you don’t know the information, you can’t manage your company,’’ he says.

Upgrading from cumbersome Excel spreadsheets, he can easily see which lenders are pricing loans lower than others, and quickly react in terms of lender training and managing the bank’s loan portfolio. “A lot of times we try to manage [by] anecdote,’’ he says. “But what does the data tell you? The information is key.”

Like a lot of other community banks, Yadkin is increasingly using partnerships with technology companies to improve its operations and better meet customer needs. At Bank Director’s Acquire or Be Acquired Conference in Phoenix, Arizona, which wrapped up yesterday, Earley and other bankers talked about M&A and growth strategies, as well as how they were using technology to improve profitability and efficiency. In Yadkin’s case, the bank signed up with PrecisionLender, a pricing and profitability management platform, when it became a $1 billion bank several years ago. Then, it partnered with technology company nCino, which operates a secure cloud-based operating system, when it became a $4.5 billion bank, to get access to a quicker commercial lending origination platform. [For more on how banks are using the cloud, see Bank Director digital magazine’s Tech Issue story, “Banks Sail Straight Into the Cloud.”]

Even investors are getting excited about the plethora of off-the-shelf software available to help smaller banks become more competitive with larger institutions. Joshua Siegel, CEO of asset manager StoneCastle Partners, said he thinks banks have a lot of room to improve efficiencies with technology and take out back office costs, as well as offer better customer service. The software to do this is becoming increasingly available and affordable to do so. Siegel was happy to see banks as small as $150 million in assets offering online personal financial management tools superior to what regional banks are offering, because the regional banks are sometimes held up trying to develop their own software in-house.

While some financial technology companies are directly competing with banks for small business loans or payments, such as payments provider PayPal or online lender Kabbage, other financial technology companies want to sell their technology to banks.

Instead of only seeing the potential threats, there are reasons for the industry to see financial technology as a tool that can help them compete with bigger banks, which control most of the nation’s deposits. Small banks can use software to speed up their lending operations and the time it takes to open an account, and make the entire experience of doing business with a bank easier and simpler.

Somerset Trust Co. in Somerset, Pennsylvania, is using a fintech company called Bolts Technologies to quickly validate identities and open accounts for new customers. Radius Bank, a $1 billion asset bank in Boston, Massachusetts, is using a variety of partnerships with fintech companies to support its branchless bank, including a robo-advisor software company called Aspiration.

“From a cultural perspective, we look at whether they share our values,’’ said Radius Bank CEO Mike Butler. “It needs to be true partnership. If we’re just in it to try to make money off each other, then it’s not worth it. But if there is a benefit in terms of both of us wanting to create a better customer experience, then you have a great partnership.”

Do Bank Management Teams Need to Change?


technology-1-31-17.pngU.S. Bancorp’s retiring CEO Richard Davis said that just before walking on stage at Bank Director’s Acquire or Be Acquired Conference in Phoenix, Arizona, yesterday to give the keynote address, he had to check President Donald Trump’s twitter feed to make sure nothing had fundamentally changed about the banking landscape.

In a world when the president can change the rules of the game with a single tweet, sending a company’s stock price soaring or sinking in a single chirp, and where customer demands are changing in the face of game-changing technology, the management teams of the future may need to be nimbler than they might have imagined a decade ago.

Keeping up an environment like this is hard to do. But a growing recognition among many attending the conference was that banks were going to have to get more agile and accept changes to the way they do business.

Huntington Bancshares’ CEO Stephen Steinour said at the conference that he’s less worried about 10,000 fintech companies than by technology giants such as Apple and Google. “They have a capacity to invest at a level most of us in the industry can’t think about,’’ he said. “If we give up on payments, we have a huge challenge in the future.” Steinour said that online lenders have technology that banks can learn from. “Speed is important,’’ he said. “We are eminently capable of meeting those challenges and offering great customer service.”

Joshua Siegel, CEO of asset manager StoneCastle Partners, which invests in community banks, agreed that banks are probably more resilient than many people give them credit for. But he said that many banks have been slow to adopt technology and management teams are often a barrier to making changes.

U.S. Bancorp’s Davis said boards can have a role in this transition, by keeping up with changes in the industry and holding management accountable. Small banks have traditionally lagged big banks by a few years in terms of adopting technology, but in some cases this will no longer work, he said. “You can’t be OK with catching up two to three years later,’’ Davis said. “You can’t lag anymore.”

Some banks also are looking to hire workers who are comfortable with change, who are more comfortable with technology and could propel the bank forward. “We tell them the one constant here is change,’’ said David Becker, the president and CEO of the First Internet Bank of Indiana. “If you are uncomfortable with that, don’t waste your time or ours.”

But bank management teams might need to change how they operate, too. Younger generations are more racially and ethnically diverse, and they are more focused on having a career with a purpose, and more likely to leave when don’t feel their needs are met. Young people might be more receptive to banks as employers, despite the poor reputation banks received following the financial crisis, if they feel that banks are making a positive impact on their communities. Getting better at telling the story of how banks make a positive contribution to their economies is another way that bank management teams could influence the future of their institutions, Davis said.

Aside from being comfortable with a diverse workforce, Davis said he polled the executive team of the Minneapolis-based bank in terms of what they were looking for in future C-suite executives, and they came to the conclusion that a whole different set of qualities would be needed than what had been needed nine years ago. Back then, strategic thinking skills were a major requirement. Now, his bank also needs managers who are great communicators.

If you can’t sell your story, nobody cares,’’ he said. His bank is looking for highly ethical people who are lifelong learners, and are curious. “Do you care? Do you look forward to making a difference? Or do you just accept things?’’ he asked. “Well in that case, go away, because the world is curious now.”

Departing Administration Leaves Gift of Fintech Principles


fintech-1-16-17.pngIt may strike some as odd that President Barack Obama’s National Economic Council just published a “Framework for FinTech” paper on administration policy just before departing, but having been a part of several conversations that helped to shape this policy perspective, I see it from a much different angle. Given that traditional financial institutions are increasingly investing resources in innovation along with the challenges facing many regulatory bodies to keep pace with the fast-moving fintech sector, I see this as a pragmatic attempt to provide the incoming administration with ideas upon which to build while making note of current issues. Indeed, we all must appreciate that technology isn’t just changing the financial services industry, it’s changing the way consumers and business owners relate to their finances—and the way institutions function in our financial system.

The Special Assistant to the President for Economic Policy Adrienne Harris and Alex Zerden, a presidential management fellow, wrote a blog that describes the outline of the paper.

I agree with their assertion that fintech has tremendous potential to revolutionize access to financial services, improve the functioning of the financial system, and promote economic growth. Accordingly, as the fabric of the financial industry continues to evolve, three points from this white paper strike me as especially important:

  • In order for the U.S. financial system to remain competitive in the global economy, the United States must continue to prioritize consumer protection, safety and soundness, while also continuing to lead in innovation. Such leadership requires fostering innovation in financial services, whether from incumbent institutions or fintech start-ups, while also protecting consumers and being mindful of other potential risks.
  • Fintech companies, financial institutions, and government authorities should consistently engage with one another  . . .  [indeed] close collaboration potentially could accelerate innovation and commercialization by surfacing issues sooner or highlighting problems awaiting technological solutions. Such engagement has the potential to add value for consumers, industry and the broader economy.
  • As the financial sector changes, policymakers and regulators must seek to understand the different benefits of and risks posed by fintech innovations . . .  While new and untested innovations may increase efficiency and have economic benefits, they potentially could pose risks to the existing financial infrastructure and be detrimental to financial stability if their risks are not understood and proactively managed.

A product of ongoing public-private cooperation, I see this just-released whitepaper as a potential roadmap for future collaboration. In fact, as the fintech ecosystem continues to evolve, this statement of principles could serve as a resource to guide the development of smart, pragmatic and innovative cross-sector engagement much like then-outgoing president Bill Clinton’s “Framework for Global Electronic Commerce” did for internet technology companies some 16 years ago.

Departing Administration Leaves Gift of Fintech Principles


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It may strike some as odd that President Barack Obama’s White House’s National Economic Council just published a “Framework for FinTech paper on administration policy just before departing, but having been a part of several conversations that helped to shape this policy perspective, I see it from a much different angle.Given that traditional financial institutions are increasingly investing resources in innovationalong with the challenges facing many regulatory bodies to keep pace with the fast-moving fintech sector, I see this as a pragmatic attempt to provide the incoming administration with ideas upon which to build while making note of current issues.Indeed, we all must appreciate that technology isn’t just changing the financial services industry, it’s changing the way consumers and business owners relate to their finances—and the way institutions function in our financial system.

The Special Assistant to the President for Economic Policy Adrienne Harris and Alex Zerden, a presidential management fellow, wrote a blog that describes the outline of the paper.

I agree with their assertion thatfintech has tremendous potential to revolutionize access to financial services, improve the functioning of the financial system, and promote economic growth. Accordingly, as the fabric of the financial industry continues to evolve, three points from this white paper strike me as especially important:

  • In order for the U.S. financial system to remain competitive in the global economy, the United States must continue to prioritize consumer protection, safety and soundness, while also continuing to lead in innovation. Such leadership requires fostering innovation in financial services, whether from incumbent institutions or fintech start-ups, while also protecting consumers and being mindful of other potential risks.
  • Fintech companies, financial institutions, and government authorities should consistently engage with one another… [indeed] close collaboration potentially could accelerate innovation and commercialization by surfacing issues sooner or highlighting problems awaiting technological solutions. Such engagement has the potential to add value for consumers, industry and the broader economy.
  • As the financial sector changes, policymakers and regulators must seek to understand the different benefits of and risks posed by fintech innovations.While new and untested innovations may increase efficiency and have economic benefits, they potentially could pose risks to the existing financial infrastructure and be detrimental to financial stability if their risks are not understood and proactively managed.

A product of ongoing public-private cooperation, I see this just-released whitepaper as a potential roadmap for future collaboration.In fact, as the fintech ecosystem continues to evolve, this statement of principles could serve as a resource to guide the development of smart, pragmatic and innovative cross-sector engagement much like then-outgoing president Bill Clinton’s “Framework for Global Electronic Commerce” did for internet technology companies some 16 years ago.

Want to Go Fast, Go Alone. Want to Go Far, Go Together.


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There was a plaque in my father’s office that is attributed to the late David Ogilvy, often called “The Father of Advertising. It read, “Search the parks in all your cities, you’ll find no statues of committees,” which I always interpreted to mean, “YOU need to make something happen; don’t wait on others to get going.”

But going it alone in the banking industry is extremely difficult because of the complexities around regulation, underwriting, competition and the thousands of vendors that serve it. Combine that with record breaking investment in financial technology and the next few years may very well serve as our “big bang” and usher in a new era of banking.

I’ve observed how companies seeking to make a real impact within the industry rarely do it alone. While we need committees in business, maybe what we need more is a “virtual committee,” or community of fintech players, to better understand the nuances within the landscape. The value of this fintech community is to provide industry intelligence, serve as a sounding-board for new ideas and foster relationships to move you faster in achieving your organizational goals.

The fintech community should also include thought leaders, published research and reports—and most importantly, peers from outside your organization. Even competitors can be valuable resources for your company and contribute to your personal development.

The banking segment will likely see more action than the rest of the economy. In the future we will probably witness the following:

  • The adoption of a new fintech charter
  • A relaxation of the regulatory burden
  • Improved bank earnings, helped in part by rising interest rates
  • Increased customer expectations

Individuals and organizations that embrace the industry as a community and foster relationships will have a competitive advantage.

Why Dramatic Change in Banking is Hard
Many of the products and services that banks offer are mature, even bordering on commodity status. Technology advances we see in our industry tend to fall into a few categories:

  • How banks deliver products (channel)
  • Customer insights and recommendations (managing their money better)
  • Ease of doing business (speed, simplicity and service)
  • Tweaks to traditional business models (sources of funding, hyper-focused segmentation)
  • Operational improvements (automated processes, enhanced security and improved regulatory compliance processes, to name three)

Many of the platforms we used today are in the process of being either rewritten or replaced. According to one vendor, the life cycle of fintech moving forward will be five years or less on average.

The technology that the vast majority of financial institutions use today is a result of decisions spanning over many years and engagements with a lot of vendors—typically from dozens to hundreds of relationships.

Media, fintech executives and investors have a tendency to focus on new and shiny technology without an appreciation of how hard it is to run a technology company in the financial industry, much less what it takes to achieve long-term success.

Agents For Change
Vendors looking to grow their businesses seek focused education and networking opportunities. Organizations such as the Association for Financial Technology, or AFT, enable vendors to learn about technologies, which organizations are doing well, and gain industry insights that help provide a perspective for decision-making. This particular fintech community includes companies of all sizes that have implementations in virtually every U.S. financial institution.

Ultimately, people do business with people, and fintech advances won’t happen until two people or two companies agree on a shared vision. Finding your community, and being a good citizen within it, will enable you to grow professionally and help your company succeed and make a positive impact.

Additional resource: “What You Need to Know About AFT Fall Summit 2016” by Kelly Williams.