Every industry has its nomenclature. And sometimes, terms get thrown about interchangeably — when, really, they refer to very different things.
Such is the case in financial services, where “FinTech” is often used to describe financial technology vendors.
“A firm that offers financial technology is not necessarily a FinTech,” said Provenir Managing Director Paul Thomas, who thinks the distinction between the two needs to be clearer. While this might seem like a minor point to some, Thomas — whose company provides real-time risk decisioning solutions to FinTechs and traditional financial services institutions — said the differences between the terms will play an important role in the future of the industry.
“FinTech is a term that’s become synonymous with innovative, agile and digital-first financial services companies,” said Thomas. “These companies are using new technology to play into rapid shifts in expectations around customers’ experiences.”
While this definition of FinTech in itself doesn’t exclude financial technology vendors from falling under the FinTech umbrella, “it does hold them up to an additional set of standards if they want to align themselves with these types of forward-thinking companies.”
On the Precipice of Extinction or Evolution
According to Thomas, financial technology vendors have traditionally maintained a symbiotic relationship with financial institutions, from the technology they use to the way they go to market.
“Those firms worked in kind of an equilibrium, supporting each other’s growth,” he noted. And these relationships are still a major component of the industry, with many financial organizations relying on monolithic, hard-coded technology provided by technology vendors.
These solutions once provided the functionality that banks needed and the experience consumers expected, but the changing regulatory environment, advancing technology and increasing consumer expectations have created a much more challenging landscape, according to the executive.
“As an industry we’re walking toward a ledge, but we have all of this information in front of us that shows us how we need to change. So, at this point we’re kind of like a dodo – we can stay as we are and keep walking toward the edge of extinction, or we can be part of the evolution,” Thomas said.
While this is a simple way of explaining the current state of the industry, Thomas was quick to point out, “It would be naïve to say that evolution will look the same for everyone, but it is fair to say that the FinTech disruption is pushing the dodo to the edge at a much faster pace.”
New Delivery, Not New Products
Thomas noted, too, that FinTech products aren’t necessarily different from those offered by financial institutions. FinTechs are “public and candid” about what they are trying to do as they leverage open-source technologies, web-based services and all manner of new infrastructure — not to just nibble away at the periphery of the banks or financial services business, but also to compete against their core banking products, he said.
These firms “may not be changing the products entirely,” said Thomas, but what’s important is that “they get to market quickly, they create a better customer experience, they decision faster and in turn, they experience phenomenal growth.”
The Promise of FinTech
When an organization partners with what they believe is a FinTech, they expect, and are often relying on the business and its products to possess, certain attributes, such as agility, nimbleness and a quick-to-market focus that will let them achieve key business goals.
“There’s often a disconnect between what a business shows and what’s going on underneath, especially when it comes to technology. It’s almost like an iceberg: The client sees a small, nimble solution, but underneath looms a technology monolith that’s difficult to turn and slow to get around,” Thomas said.
He also weighed in on the role financial technology vendors have to play in the future. “As technology companies, we have to acknowledge that we’re playing a leading role in how the industry develops. How can we expect banks to transform if they’re relying on technology dodos instead of agile, forward-thinking FinTechs?”
The central tenet here, for all traditional financial services firms, including technology vendors, is recognizing the need not just for change, but a shift to a more agile approach where they can deliver products with the same speed as their FinTech competitors. “It’s no longer good enough to talk the FinTech talk; you have to be able to walk the walk,” said Thomas.
This means companies will have to drastically reshape business models. Pointing to Provenir’s own evolution, Thomas shared, “A few years ago, we looked like a traditional technology vendor, but to stay relevant, we have had to reshape our business, so it feels and behaves more like an agile FinTech player.” The changes to the business model, which included a move to SaaS-based managed services as well as a new digital sales and marketing strategy, have given the firm tailwinds to see deal flow grow by 20 times across a time frame of three years.
For the industry to evolve, all players within the space will need to take on an agile and nimble FinTech approach, said Thomas. This includes working with partners – whether it’s for data, marketing, sale or technology – whose businesses share those attributes.
“FinTech is more than just the nuts and bolts of technology; it’s a way of thinking that includes the tech, the people and the business processes,” he noted.
As a way to prevent unfair competition, the Financial Stability Board (FSB) said in a report on Sunday (Dec. 8)…
Bank of China announced that it has issued 20 billion yuan ($2.8 billion) in blockchain-based bonds for small- and micro-sized…
Alibaba’s Jack Ma warned SoftBank’s Masayoshi Son that having too much money can lead to a “lot of mistakes.” “You…
The Apple Card is planning to offer 0 percent installment financing on iPhones by the end of 2019, 9to5Mac reported…