Scaling up Fintech Innovation
- A perspective by Sudhir Pai CTO Financial Services Strategic Business Unit, Capgemini
Innovation is now typically associated with digital innovation based on an ecosystem and platform approach that integrates all the key elements of the system within a coherent whole. It this approach that is enabling cyber-physical integration across the system using IoT platforms for example, mass customisation, personalised solutions, rapid response, instant evaluation of feedback and adjustment of service in real-time, etc. With the advancement of Industry 4.0 platforms, manufacturing is already experiencing this change globally.
The digital technologies that underpin Fintech are only now beginning to mature. It is difficult to gauge at present the degree and extent of impact Fintech will ultimately have on the Financial Services landscape. With innovation accelerating the pace of change in the sector more than ever, Fintech will doubtless remain central in the industry’s aim to gain market share by catering to customer’s financial and particular personal needs. Incumbent banks are expected to remain as the cornerstone of the FS sector, however disruptive value will truly be felt by end customers once Fintechs’ find a way past the next hurdle to innovation – scale up. Like most other sectors, Fintechs’ have also realised that starting-up is relatively easy compared to scaling-up. Scaling-up requires particular strategies, approaches and capabilities from the outset.
Experience suggests that over 95% of Fintech companies fail when they reach the scale-up phase. The ability to grow and retain an active customer base with the available funding runway often dictates success and failure for Fintechs. This is where incumbents can make a difference in Fintechs’ fight for survival. For banks, the challenge is to not let traditional risk management methods hinder the development of innovation. They need to be able to harness the full value of innovation, by establishing supportive governance structures to embed and scale Fintech offerings into the core business.
|Harness value||Longevity of partnership||What if the Fintech founders decide to cash out?|
|Risk exposure||How do incumbents make sure the security, data privacy and compliance of their core business are fully protected?|
|Dependency on niche skillsets||How to minimise reliance on niche assets and skillsets such as proprietary machine learning algorithms?|
|Leverage front-end capabilities||Should branch staff offer Fintech products to customers?|
|Scope of applicability||Is there a use case in other geographical locations with different regulatory conditions?|
|Governing for impact||Speed to test and iterate||Traditional methods of procurement, commercial and legal constructs can slow down the pace of innovation.|
|Metrics to define success||The way ROI’s are measured by business units may not align with the innovation agenda.|
|Time to monetisation||Business Unit’s priorities may not align to innovative ideas i.e. in terms of time to market, costs, infrastructures, etc.|
The table above should also include reference to challenges regarding capability required for scaling-up that would be addressed for example through business model development that is focused on scale and global reach from the outset (rather than an afterthought), including also training, and establishing the right technology platforms for sale-up. This would be relevant to the comments below as well.
Incumbents that embrace Fintech often set up separate business, or adopt a multi-speed approach. In these cases, governance and decision-making are often based in different sets of criteria to the normal ways of working, in order to accelerate the delivery of innovation outcomes. This approach helps to validate the technological concept and marketability with end customers, however to achieve sustained ROI, banks need a response on how to scale and embed Fintech solutions across the enterprise both locally and internationally. How can the Fintech become an integral part of the core business value proposition within an ecosystem? A good place to start is from the enterprise business model and associated operating model. Adaptive organisational changes need to be made that address the cultural evolution of people and processes within the enterprise ecosystem, rather than just technology.