Fintech: from Solid to Plasma


Not a day goes by that I do not read or hear about how is finally disrupting the financial services industry. Entrepreneurs and traditional VC firms fueled the first wave of frenzy by respectively building and funding fintech startups intent on disrupting the status quo. These same actors fueled the second wave where many existing startups pivoted b2c to b2b models and started selling to finserv incumbents &; many new startups went b2b directly too. We are living the last innings of this second wave in my opinion as most finserv incumbents have now woken up to the reality of technology change in their industry. It remains to be seen how the third wave will shape up &8211; I have my own views which I will reserve for a future blog post.

Most finserv incumbents claim to have seen the light and profess their new found fervor towards adopting new technologies. &;Adapt or die&; some say. &8220;Let&;s partner with fintech startups&8221; others declare. &8220;We have to integrate these new technologies within our existing business models&8221; others assert.

Fine, yes, maybe.

To the risk of being provocative, most of these views are equivalent to peddling horse manure at a fishmongers&8217; market. In other words these views are inadequate and originate from a fundamental misunderstanding of the new norm every corporation, big or small, is or will very soon be faced with when it comes to technology.

Technology should not be viewed as a discrete building block anymore, where one decides on a technology solution, buys/rents/partners with hardware and software, and runs such a solution mostly in the background, separate from and supporting the &8220;real&8221; business. I would characterize this view as the &8220; state&8221; view of technology.

To the risk of being even more provocative, any finserv incumbent that treats enabling technologies and fintech startups as solid building blocks of matter to adapt, integrate and implement within their existing business models will fail.

Rather, technology should be viewed as the &8220; state&8221; vector that will reinvent how a corporation is architected, where technology and business ideas fuse together to create vastly different ways of delivering value to users, consumers and customers. To be a tad more precise, it will be more and more difficult to discern between business models and technology as technology becomes more pervasive throughout a corporation.

This means finserv incumbents need to think about a) the human resources they need to attract and retain to run a plasma state business, b) the business models they have to or can create due to technology changes, and c) the strategic focus they have to or can chisel due to technology changes. Adapting by mere addition to protect a legacy business will fail. Adapting through fusion to create new paradigms is the key.

The technology world we live in is making available to us new perspectives:
&8211; peer to peer models
&8211; decentralization of decisioning models
&8211; scalable trust graphs
&8211; intelligent automation
&8211; news way to understand and share risk
&8211; instantaneity of transaction processing
&8211; frictionless value transfers and value sharing

It stands to reason that these new perspectives will be part of the core of what it means to be a finserv corporation too.

I do realize achieving &8220;plasma&8221; properties is easier said than done. The best fintech startups exhibit such traits from inception &8211; they live and breathe the fusion of business and technology. For a finserv incumbent the proposition is somewhat more complex. I have the utmost respect for many of the industry&8217;s leaders. To speak only of , most CEOs and Chairmans are sharp visionaries and leaders, and contrary to many pundits I believe they mostly &8220;get&8221; the challenge they are faced with. Their problem, as a very astute Managing Partner of a bank corporate venture fund I know puts it, is the pesky contingencies of day to day life where running behemoth organizations is a non trivial endeavor. In other words, to date, not enough executive bandwidth is dedicated to the plasma view I am outlining.

We are currently witnessing massive a/b testing within the banking world &8211; I use banks as a proxy for all finserv incumbents and my comments apply to insurers equally &8211; where C-suite executives are tinkering with:
&8211; innovation labs
&8211; on balance sheet venture investing
&8211; off balance sheet investing via corporate venture arms or traditional VC funds
&8211; hackathons
&8211; accelerators and incubators

We witness this a/b testing via industry buzzwords and initiatives such as API banking, digital banking, omni channel banking, proof of concepts, pilot projects, partnerships and joint ventures with startups.

I am convinced what we are witnessing is but an intermediary stage towards a more comprehensive incumbent response &8211; at least for those incumbents that will successfully transition to the future. I have advocated in previous posts that one of the responses incumbents need to articulate is a platform strategy, see here. I am even more convinced this approach will only be successful if it includes, at its core, a strong fusion of business models and technology.

Focusing back on fintech startups, what I wonder is, both for those vying to be service providers to finserv incumbents as well as those competing against them, what will be their evolving natural responses and business strategies in light of eventual finserv incumbent plasma success.