In the February edition of Finance Monthly, Grow Advisors summarised the World Economic Forum meeting in Davos and its focus on fintech underpinning the 4th industrial revolution. In this month’s edition they highlight fintech’s ability to go beyond just improving convenience for customers and right into the heart of a delivery model.
Today, fintech goes beyond leveraging technology to transform banking services. It strikes at banking’s very innovation core and delivery models.
From new approaches to commercialisation, collaboration models and the breaking down of internal silos, fintech is challenging how financial services are prepared, presented and consumed at retail and institutional levels.
Delivering tomorrow’s leading financial services will not be dissimilar to serving up a Michelin star gourmet dining experience. A different approach, one we term Cafe Fintech, where multiple best-of-breed ingredients are fused to deliver superior financial services and enhanced customer experiences.
In today’s traditional approaches, incumbent financial services organisations have built end-to-end capabilities in-house, under one roof. Everything from front-of-house services, such as customer on-boarding, account management and customer advisory, through back-of-house services ranging from risk management, payments, transactions and settlements.
The traditional approach results in large, multi-layered organisations, designed and built around capability silos, where significant overheads are created to support communication and coordination between silos. The result is a higher cost to serve, and in many circumstances, untimely and inconsistent customer service with associated customer pain points. Significantly too, effecting piecemeal changes in response to an evolving marketplace involves lengthy and costly projects, where compatibility and legacy concerns arise. And all this, at a time when customers are demanding increasingly agile and accessible services; legacy approaches pose tangible business risks.
Through fintech, new business models offer viable alternatives. By embracing this shift, incumbents are preparing to address both the opportunity presented by an evolving customer base, and the threat posed by newcomers.
The Emerging API Ecosystem
In stark contrast to the traditional approach, tech startups and others are re-creating core financial services from the ground up. From e-wallets, payment gateways, ID verification, KYC, AML and others, these building blocks are designed to be integrated and run with others.
Commercialised via licensed APIs (automated programing interface), features can be scaled, switched on, switched off – and replaced. The increasingly advanced range of APIs now on offer begs the question – why develop standalone in-house solutions? From a pure innovation cycle point of view, they offer a credible alternative to acquiring or buying out companies seen as threats to incumbents.
For example, it is possible today to combine several APIs to create an online lending service capable of connecting issuers and borrowers, including the algorithms allowing participants to set their own market rates. Throw in payment gateways, custodian services, AML and online KYC checks, and you have a market ready platform.
The above can be delivered inside 4 weeks through commercially available APIs – and a well-coordinated approach.
Following e-payment services, online lending is already the fastest growing vertical in fintech today, attracting over a quarter of all fintech investment dollars in major markets.
Over time, services will be iterated, with underperforming features cut, and others bolted on as a result of data analytics and insight. From blockchain to artificial intelligence (increasingly available today) there’s nothing stopping incumbents delivering financial services so efficient and appreciated, they will replace Netflix or Uber as the case studies of choice.
Because banks will become tech firms, just as tech firms will become banks, (or at least offer banking services). This convergence across industries via technology exists today and is accelerating.
Given incumbents’ brand power, relationships with millions of existing customers (and their pain points), the case for better innovation and commercialisation models is clear.
The API Supermarket
Think of the API ecosystem as a supermarket of hundreds of ingredients or features. Some can be consumed raw without preparation. But in order to deliver the best experience, the combination, presentation – and timing – will deliver a competitive edge.
However, awareness and intent to innovate is only half the challenge. Knowing which ingredients are available, at what price, and how they combine is the remaining challenge for those looking to excel through fintech. Dealing with multiple technology providers is not without its hurdles.
We coined the term Cafe Fintech to convey important parallels across two very different industries. A Michelin starred restaurant, where the best professionals in their chosen areas of expertise are brought together to offer unrivaled service. From front of house, comprising Maitre’d, Sommelier and Waiters; to the heart of the operation, the kitchen, comprising Head Chef and Sous Chefs.
The first and most critical role starts with the leader or initiator of the business model (front of house), who is responsible for the overall coordination of service partners who participate in the ecosystem. They take on the strategic responsibilities of setting the long-term roadmaps, defining the optimal business models and advising on best practice, as well as pitfalls to any particular approach. Front of house also covers legal support and compliance, ensuring clients build within acceptable frameworks.
Today as front of house, Grow Advisors advise on how to get the best service from Cafe Fintech. This starts with understanding a client organisation’s digital culture, and alignment with future goals and opportunities in terms of customer service. Drawing parallels, this means ensuring the best table, appropriate lighting and ambience. From there, we discuss the menu and courses. Recommending the specials (best practice), to advising on pairing dishes with drinks, and ensuring impeccable service. The menu, a collection of dishes, comprises features which in turn are made up of technology ingredients. This is where Cafe Fintech jumps into action, in the kitchen.
A team comprising different sous chefs, led by a head chef is a hive of fintech activity. Each sous chef, a leading technology provider, is selected for his individual skill in a particular field, and acutely aware of how his contribution adds to the overall experience. The head chef ensures all components are seamlessly integrated and is responsible for the overall customer experience.
What would you like to eat today?
Today, we are developing a range of Fintech Cafes, each comprising an expert team delivering digital services to address opportunities in different verticals. From automated wealth solutions, to capital raising and online lending. Each cafe comprises the best in class chefs.
Fintech has become more mainstream, yet still leaves many organisations with unanswered questions on exactly how to incorporate meaningful technological innovation into their businesses.
By recognising that the evolving landscape is much more dynamic and accessible, we hope a greater number of organisations will take a seat at the table.
For more stories like this please view the latest magazine http://www.finance-monthly.com/magazine/