FinTec 2016 – quo vadis? – Part II: The cultural challenge

The honeypot of investor-money is becoming bigger and bigger. This will cause an ongoing number of start ups– maybe in an inflationary way. I am afraid that the majority of those start-ups will be “lipstick on the pig” concepts. Real, true innovation will remain the minority. Not to talk about disruptive innovations.

Today´s status of what we understand as “FinTech“ will develop and change by new upcoming enterprises, ideas and concepts. Also existing companies will change and by that modify the “FinTech”-definition.

There is an essential development I would like to point out: we will see some enterprises of the FinTech scene – in the very near future – which will apply (or already have applied) for a banking (in whatever way and extent) license. Those FinTech companies have understood, that they only can improve the value added for customers (processes, product offers etc. ) and fully own the customer if they have a banking license. Means: Having no license and e. g. working as an app-based service on top of a third party´s core bank system has no chance of an own strategic development in the long run.

Why do I think so? if that fintech company has no license:

  • the “production bank” decides indirectly and directly regarding the fintech strategy;
  • a fintech without license only can offer what the “production bank” is able or willing to offer as a product.
  • by that the fintech accepts the fact that the current products and offers must not be improved.

Having no license, a fintech is endangered to only work as a “presentation layer” in the way a marketing agency could do as well.

Deciding now for a regulatory license, one strategic challenge might be solved. But others are coming up: Who is executing the modified strategy? Who becomes member of the board? Not every FinTech founder can be a bank´s boardmember. As a bank´s boardmember one must prove certain abilities, abilities a Fintech founder simply cannot show in his CV.

The solution to that problem looks simple: Why not getting a banker (see the types of founders) on board? Banks not only currently lay off people. There should be at least one who could join an executive board of a regulated company. However with that step it is – again – not done: A licensed company needs at least two members in an executive board who are accepted by regulators. And those two will not remain alone again: There will be risk management, compliance, you have to talk with regulatores and auditors. The whole company will change by that. What in the old days was a well working „quick but dirty“ approach will not be possible any more.

At the end of this process the founders normally will exit the company – at least operatively. The culture – and with it the essential asset of that company – will have changed in such a way that the company and its day to day work does not seem to be attractive anymore to the founder and his team. But: leaving the company – at least in my eyes – might be a mistake. The ongoing change could be a great challenge to the founder growing into regulated financial services. But of course you need to want that.

Looking at such a (potential but higly likely) development, the challange is to maintain an entrepreneurial culture even within a regulated company. We must be able to bridge regulation and innovation. We must unite those two worlds without scaring the one or the other part.We have to understand that – even being regulated – the real strength of the enterprise is the speed of development as well as the bravyness to go ways traditional insitutions, banks etc. don’t go. We must recognize that a banking license is an asset as well as the corporate culture itself – in particular for the customers of such a company.

Companies that do not understand this critical point will face two kinds of development:
– entrepreneurial-culture beats license-culture: nice offers but free of real innovation. The lack of a regulatory license will create a lack in strategy and sustainabilty.
– license-culture beats entrepreneurial-culture: the founder team will leave the management, everything will be compliant but without any innovation. That could happen e. g. after a take over by a bank.
Clearly, both developments are not wanted.
Summarizing it:
  • They are back again, the entrepreneurs within in the financial services industry.
  • These founders claim direct customer contact and relation.
  • Being a b-t-b supplier for banks is only second best.
  • This mainly is driven by the rules of the investors.
  • The motivation of the respective founders has to be checked: e. g. is that concept only exit-driven or do they want to change the world.
  • The idea of business must be checked as well. An App might be nice but maybe that is not succificiant to set up an enterprise on that idea
  • Within financial services industry one can create more value holding a license than without it. This should be written into the DNA DNA of the enterprise from beginning on, because also a young company must make long-term thoughts and decisions.
  • And finaly, regulated companies are not necessarily boring and slow. That is not a matter of regulation. That is more a matter of the decision makers wanting that or not.

FinTechs have the chance to prove all that within 2016, the chance to prove that regulated companies do not have to be boring, dreary and grey. I would regard this to be the real revolution in the banking world.


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