On November 29th, 2018 the FINDER Project was kicked-off during an event where both the academic and business side involved in this project were represented. This kick-off event took place at Radboud University where the competitive Marie Curie Research and Training Program – funded by the European Committee – FINDER, was officially launched. FINDER stands for: Fostering Innovation Networks in a Digital Era.
Prof. Dr Paul Hendriks (Dean Faculty Administration, Nijmegen School of Management) welcomed all participants to the event, including members of the various boards and committees within the FINDER program, representatives on Atos’s side, academics from Radboud University, KU Leuven, Vrije Universiteit Amsterdam, Rotterdam School of Management and RijksUniversiteit Groningen as well as other attendees.
The program entailed sections in which Dr Rick Aalbers, Mr Remco Neuteboom, Mr Pedro Soria Rodriguez and Dr Saeed Khanagha elaborated on some elements of FINDER, such as the training objectives (doctoral training at Radboud University, secondment and professional training at Atos & network training events) and also outreach and project management.
During the kick-off event the FINDER website was formally launched. The website can be found here and will be periodically updated. You might want to keep an eye out for updates on the page “Recent News”.
To top it all off, the attendees were treated to two inspiration seminars. The first seminar was hosted by Mr Chris Vialle (Partner Monitor Deloitte in the Nordic region) and the second by Prof. Dr Henk Volberda (Rotterdam School of Management).
In this blog we will pay attention to the seminar by Chris Vialle (member of the External Advisory Board of the FINDER Project): “Beyond Fintech; a pragmatic point of view on fintech and disruption in financial services”.
Chris elaborated on the past four years in which the World Economic Forum and Deloitte have had a partnership for research purposes. The research, engaging 150 experts, sought to answer pivotal questions surrounding trends in financial services. One report following the research concentrated on Fintech (and beyond). Two terms were briefly touched by Chris: “disruption” and “fintech”, as these terms have been used in so many ways that an operational definition of both terms might be in order. Chris stayed close to the term “disruptive innovation”, which is frequently abused to monger fear. A term first claimed by Christensen in the 90’s. Disruptive innovation, contrary to evolutionary or even revolutionary or radical innovation is innovation that through a different set of values (often low priced) overtakes an existing market and created a new market. The traditional T-ford example which displaced horse drawn carriage. Fintechs are defined as small, technology-enabled, new entrant to financial services; many Fintechs (small, technology-enabled new entrants) came into existence with the goal of overtaking incumbents as the new dominant players in financial services.
Around 2015 there was a global entry of several innovative forces that raised fundamental question about the future of payments. Mobile payments, alternative payment rails and seamless payments for example, raised questions like:
- How might the dominant form factor of payments change?
- Will incumbent payment networks be able to respond to new entrants’ payments infrastructure?
- What role will payments play in the broader suite of offerings from financial institutions?
- Will the rise of multinationals (e.g. ApplePay) lead to global payment convergence?
We also witnessed the entry of several new forces that changes the online and mobile banking ecosystem which have the potential to change the way consumers bank, and raises questions like:
- Would virtual banks be able to capture market share from incumbents?
- How would the emergence of banking platforms affect developments in digital banking?
- How would banks be able to deploy digital solutions with legacy architecture?
Fintechs have changed how financial services are structured, provisioned and consumed, but have not (yet) successfully established themselves as dominant players. Areas in which they have succeeded:
- Fintechs have seized the initiative – defining the direction, shape and pace of innovation across almost every subsector of financial services – and have succeeded as both stand-alone businesses and crucial parts of financial value chains;
- Fintechs have reshaped customer expectations, setting new and higher bars for user experience. Through innovations like rapid loan adjudication Fintechs have shown that the customer experience bar set by large technology firms, such as Apple and Google, can be met in financial services.
But it’s not all glory for Fintechs as they have some short fallings as well:
- Customer’s willingness to switch away from incumbents has been overestimated. Customer switching costs are high and new innovations are often not sufficiently material to warrant the shift to a new provider, especially as incumbents adapt;
- Fintechs have struggled to create new infrastructure and establish new financial services ecosystems, such as alternative payment rails or alternative capital markets. They have been much more successful in making improvements within traditional ecosystems and infrastructure.
- Despite having failed to disrupt the competitive landscape thus far, Fintechs have laid the foundation for future disruption. Some financial institutions however have turned the thread of Fintechs into an opportunity, but the accelerating rate of change represents a serious threat.
During the presentation a lively discussion took place. Though some questions were answered, the overall conclusion was that the subject(s) at hand actually raised even more questions. Some principal points of discussion / questions raised are listed below:
- Why does one fintech based innovation succeed and another not so much or just plain right fails? E.g. ApplePay vs card payments: the optionality is there but you don’t see anywhere near the same (high) volumes. And one of the key reasons is that the difference between the convenience of using ApplePay versus any other typically card payments (the US is very big in usage of card payments) is that the difference is not big enough to justify that sort of that change. Change is on a micro level, on a macro level the difference is not big enough; it has not led to the curve that you would expect or that you would see in e.g. WeChat in China.
- In the US there it’s very easy to connect several bank accounts and there are a lot of Fintechs that provide services on those bank accounts. They give you an overview of where you are on your account, but this has not led to any disruption there (yet). You see that a lot of these Fintechs struggle to get a significant market penetration, plus they keep struggling with the question: what is my business / what is my business plan? Over time you see a lot of them issuing a great app and a lot of people used it to get an overview of where they are with payments. The US is very much credit oriented so you don’t always know where you are, it’s not a debit environment – at least from a Dutch perspective as we’re used to that. In a debit environment you always know what your financial situation is, at least it used to be the case. In the US it’s very much a credit environment, so there is a delay there and then they gave you the overview but they didn’t have a business model supporting it.
- One of the discussions within banks and Fintechs is, because they all benefit from people using less cash, how to go about that? How do you get people to using less cash? The answer may sound simple: the behavior (towards payments) needs to change. The person behind the counter cannot see what’s on a e.g. card or mobile payment (account), which makes it easier; in a way it is an invisible payment. It’s really the acceptance level that makes it disruptive into the mold. The ability to change it into a non-event, creates that there’s also no preferred method.
- Are Fintechs disruptive? A new entrance into the financial services ecosystem needs legitimacy and reliability. These can only come when they receive support from the already well established firms because that gives them reliability. There is also the matter of regulatory change, which is necessary to make this possible, but which is – of course – very slow. So, Fintechs could be disruptive but because of institutional regulations and lack of legitimacy of new players, it will not be the case, at least not very fast.
- When a Fintech experiences problems, e.g. ApplePay faced problems regarding the collaboration amongst themselves as they had the condition of one-on-one relationships, exclusive relationships, a lot of soul searching is mandatory, also from a bank’s perspective. Banks wonder where it leaves them in all of this, they engage in all these kinds of activities, but the question remains: where is the value capture? You can air all kinds of things, but if there is no broad business model that actually helps you capture the value … where does that leave you as a bank? Who has the superior economics? Who in the value chain has the value capture?
- There is also the “last man standing issue”: if you’re the last man standing having an ATM machine and you take that away, that is very detrimental to your brand. But will ATM machines disappear? For example, in the UK: for years they said ATM machines will die but we have been spending 20 years to service that even though in the beginning they said it’s going to disappear: 20-30 years later it is still there.
- Banks no longer define what the financial services ecosystem should be like: Fintechs are coming in and other companies, or business to consumer type of applications these days define what the financial services ecosystem should be like. An important fact to keep in mind. Core business moves to the cloud. Even though the actual movement of customers is grossly overestimated. A lot of customers don’t change banks / bank accounts. Contrary to banks fearing this, we don’t see the actual moving of money. The reason behind this could be trust. The trust that is there, is still not at a tipping point. Still enough so to not put the trust in someone else. Trust is a factor, but also the emotional attachment to your bank account. Is a contributing factor. Although the industry is afraid that everything will be gone, and the infrastructure is in place to have everything gone in a minute, it does not happen.
Questions specifically linked to the research questions of specifically projects 2 and 3 within FINDER were brought up too:
- What firm and individual levels factors give rise to the organization’s adaptability in response to disruptive forces. Which is interesting because old dinosaurs now have to adapt and they are historically bad at adapting because they’re the safeguard. How do they do that?
- Yes, you (as a bank) can now buy innovation from a fintech. Yes, you can buy a platform from Atos but what does it all mean? Who in the chain will have the superior economics ?
- How do digital ecosystems unfold over time? Banks were afraid of Fintechs, but nowadays working together with Fintechs; how will this evolve over time? You see multiple platforms. How did these merge and compete over time? Driving the value?
- How can platforms create competitive advantage and a premium? There are based on differentiation, so not just on volumes, but who are the ones that do differentiation type of strategies? Where do they get a premium mark up of what they do? What would be the factor of customers actually moving, immigrating? How about the digitally enabled / disabled?
- What will customers actually make to move?
- What is the context of retail banking in all of this?