Is Fintech just a smoke screen?
Article Content includes:
· The difference between Banks and Fintech
· Fintech developments still needed
· KPI and performance management challenges for banking and Fintech
For those interested in the world of finance it is almost impossible not the have heard about the Fintech (financial technology) changes disrupting all areas of banking and financial transactions. There are many observers (including myself) calling this a revolution. But will it just be shown as a smoke screen?
Fintech is not changing what is done, only how they are done.
Banking and finance has several sectors which Fintech is helping to address the old methods and process steps. Here Fintech is not significantly changing WHAT is done but rather HOW things are done. Looking at capital markets the need to identify competitiveness, create new information management systems and solve more complex asset management models still remains. The method of making these steps clear, efficient and leaner is ongoing and yet the operational models become less relevant when replaced with improved operating models of user experiences.
How does Fintech target the full population?
For banking we are yet to see scaled advertising and marketing practices to bring Fintech outside of London, Singapore, New York and into the towns and villages that hold the broader population. To target the youngest members of society only may be an attractive initial step, yet the maturity of service and product portfolios for a representative population is needed to bring these innovations to the forefront of every day purchase and financial transactions.
Regulation and Risk
When you travel from nation to nation there are different regulatoryrequirements, opportunities. A development around these protective statutes has been the innovation of cryptocurrency’s offered as payment methods. This may be fine for small low risk purchases or the much more voiced illegal finance transactions, however for these solutions to mature and penetrate society a form of risk management will need to be created to establish trust for full integration within the wider population.
Fintech and plumbing
The money (note I avoid the word cash) transacting between one account and another is inefficient in its current structure. There are huge opportunities to fix the plumbing between points and this is where all the interesting talk about Fintech is. For Fintech this plumbing is the value of the transaction and not so much many other additional value added service options. This point may be debated and proven wrong in some circumstances however many Fintech companies fall within this initial trap.
Creating a global business from a shed.
We know the stories from HP to Honda or from Danfoss to Harley Davidson that has created global impacts on daily lives from the initial startup phase in a shed or garage. This early startup feel and buzz suits perfectly well with the software development and creative innovational designs needed to break away from traditional methodology of financial transactions to a few swipes and taps on a mobile phone to complete a transaction. On the journey to such scale is the continued need to balance and retain a creative environment whilst ensuring outstanding and reliable customer experiences are maintained.
Change the shape of goal management and performance management in finance
Most banks still retain some form of classical deep hierarchical structure. On the occasions that this is disrupted, often a full banking organization chart demonstrates my point. Banks have made great strides to create new structures with a flatter operating functional design, yet it still does not provide the agility that many other industries experience.
Fintech companies and banks have some “let’s meet in the middle” work to do. The old metrics, measures and management styles of banks will not suit well with T shirt wearing coders from Fintech who will create the new customer experience touch points. There will be a need to change performance management and goals through a more open feedback mechanism and up to date transparent reporting systems.
Part of the reason for this shift in change is based on the work from PwC with the University of Southern California and the London Business School (see below link). The crux point is a difference in satisfaction and motivation within the workplace. The study shows that the younger generation workers operate from different value sets than the prior generation. The key difference is proving a challenge to the very operational culture of banks. Older values such as control over work (which links nicely with regulatory control), clear career opportunities and pay scales are replaced by valued appreciation of good work, the need to work on interesting and collaborative teams plus flexibility. These significant areas will need to link back to the banks mission, vision and affect the full culture at work.
So Fintech has a need to embrace strict regulations, compliance and robust systems in a banking business adjusting from its core. There will be an advantage of some M&A activity to embrace the best of both worlds but the scale and size of these changes will create their own friction that will require innovative leaders and a workforce willing to experience the changes underway.
The metrics and KPI’s of today’s banks and Fintech companies will need to change. As both sectors become closer together we may just see that the Fintech noise has been a fantastic smoke screen in change management for old banking structures. There is no question that managers and leaders from the traditional banking world understand a need for radical change but are concerned about the consequences. These types of changes have been seen in manufacturing with off shoring and outsourcing operations. The changes will need to be seen and embraced in the finance world for competitive advantage and an enhanced customer experience.
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Further Reading and Reference
Video case study of KPI’s in an accounting business (6 minutes)
Video interview How Fintech challenges the banking sector. (2 minutes)