Ingredients for Fin Tech Success
Lower cost and ease of use are obvious factors for success but they do not fully describe all of the facets that are important to assess the viability of a Fin Tech venture. Ingredients that are essential for Fin Tech success include:
- Utilization of emerging technologies: While it may seem inherently obvious, successful Fin Tech must utilize the latest technologies (i.e. cloud, open source, data analytics, etc.) in ways that are directly linked to the core business. One needs to only look to the example of Webvan in the dotcom boom for a company that claimed to be a tech venture when it was really an expensive bet on bricks and mortar. The winning formula for Fin Tech will be situations where technology truly is central to the business plan.
- Disintermediation: The ability of a Fin Tech company to perform a task or to deliver a service at a lower cost is a key factor to success. In the cases of marketplace lending or asset management, for example, tremendous opportunities exist because traditional businesses are conservative, enjoy strong profit margins, and are often beset by difficult economic conditions.
- Disaggregation: As a corollary to disintermediation, disaggregation is also a powerful success factor for Fin Tech companies. For example, peer-to-peer companies like Lending Club or Kickstarter break the traditional chain of delivery in such a way that they do not face the same regulatory constraints (e.g. SEC, Federal Reserve or local banking regulators, etc.) of the incumbents. Breaking the chain offers challengers the opportunity to focus on the most vulnerable or lucrative areas of an industry and incumbents have a difficult time in responding because their integrated operations cannot be so easily disentangled.
- Democratization: The application of technology makes it possible to deliver products and services that were previously only available to high tier clientele to a mass audience in a cost effective way. A great example exists in wealth management and investing, where educational tools and complex algorithms make it possible to deliver a wide range of services to a large group like never before. Being able to go down-market in a cost-effective way presents great opportunities in many fields.
- Customer Experience: It has become table stakes for consumers to receive solutions that are intuitive, personalized, and integrated across all delivery platforms, from desktop to mobile device. However, user experience aka UX is easier said than done and the difference between winners and losers in a particular offering will likely come down to the one that provides the best experience for the customer. In many cases, a powerful UX interaction can create a unique customer interaction that was previously unattainable and represents an opportunity for a Fin Tech entrant to not only meet but also beat the incumbents.
The View from Maven Wave
While Fin Tech achieved buzzword status in 2014, it is by no means a brand new phenomena. Bitcoin and PayPal were started all the way back in the 20th century (1998). However, a confluence of more recent macroeconomic and technology developments has created fertile ground for Fin Tech to flourish. In the first case, the Great Recession has created profound economic dislocation and has left existing businesses in a weakened or threatened state. As the economy begins to recover, it is only natural that new ideas and new companies have the chance to take root among the ashes.
With regard to technology, the continued maturation of the cloud, the widespread adoption of open source and Agile methodologies, and the ubiquity of mobile combine to create a technological mix that is a perfect environment to support new ventures that challenge the old and champion the new.
The factor that will drive success in Fin Tech, flexible and adaptable development for a data-driven superior customer experience, match the principles that drive our work at Maven Wave. Fin Tech has been percolating for several years now and shows great promise to deliver many new opportunities in the next few years. While it may seem to be early days for Fin Tech, it may well be, as Larry Summers recently told the FT, “…not the beginning of the end, but…perhaps the end of the beginning.”