Fintech has grabbed the attention of the financial services industry, but many smart people differ on what it is and not. That in itself, is not a problem, but I see that many attempt to precisely define it and draw its boundaries. A crisper definition can help our mind deal with it better, but might lead to a wrong clarity, an incomplete picture or even wrong assumptions. We have to be careful to avoid being blindsided by pertinent developments outside our definition, chasing the wrong ideas or treating all fintech ideas similarly. In my conversations, I observe a few issues that results from attempts at a firmer definition of fintech. I list a couple below and will add some over time.
Fintech Affects Only Consumer Facing Financial Services.
Many fintech developments do impact the consumers and some such areas are payments, lending, banking and wealth management. Surely, the services that most people use directly will end up with more ideas as many have an opportunity to face frustrations and come up with solutions that use modern technology to do such services better. But all the plumbing of financial services behind consumer areas and the ones that connect the business world are quite large. They are no less susceptible to powerful ideas from new technology compared to the consumer facing ones, even though they might not have as many people from outside looking at them. A couple of such examples are use of social data analytics for loan decisions and cross-border business payments. Furthermore, strong ideas that affect the general population will tend to get more attention by general media. This does not mean that the non-consumer financial services are immune to fintech. As companies set aside time and energy to look at this, they should refrain from setting a fence for fintech around consumer services, but look at all areas that they are vested in and develop a strategy for it.
Fintech Is A Threat To Our Business And We Should Defend It.
The main narrative so far has been that financial services today is inefficient, and fintech will make it better and efficient. While we can debate about how serious the issue is and how true the prediction will be, an immediate consequence of such a belief is fintech being mostly thought of as a threat and that colors the thinking of how ideas and companies in fintech are looked upon. While it is true that there are many fintech solutions that compete against the conventional products of the financial services industry, that is not all of fintech. I have seen solutions from fintech in areas as diverse as credit card processing and wealth management that are quite applicable and best suited to the incumbents in financial services today. They can play a large part in sustaining innovation in the current financial services, but will require a lens that is more capable of a deeper analysis, rather than one that purely looks at each as a friend or a foe. Certain subtleties in such ideas can have a large bearing on the current ecosystem, if you are willing to peel the layers some more.
I hope to list some more myths in the next few weeks. As many of you watch this phenomenon of fintech, I am curious to know how you deal with it. How do you plan to make the best of it, while guarding yourself against beliefs and assumptions that can lead you the wrong way?
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