Author: FINDER

by Jonas Röttger – PhD student FINDER Project

The current global state of Mergers and Acquisitions

Mergers and acquisitions (M&A) is an annularly multi-billion dollar business that grows constantly. Current figures supplied by the Institute for Mergers, Acquisitions, and Alliances (IMAA) indicate a long-term growth trend in the number of transactions per year. Even though the number of transactions has dropped by 8% in the last year, the value per transaction has increased by 4%, implying a boost of high-priced deals. A recently published study by Deloitte polled 1,000 executives (750 at US-headquartered corporations and 250 at domestic-based private equity firms) of which 79% anticipated an increase in M&A deals in the upcoming twelve months. In summary, M&A is an influential and growing part of business activities. From an academic perspective, however, the question remains; why exactly the field of M&A is constantly expanding despite the often-cited low success rates.

The current gap in M&A research

Research indicates that M&A events can lead to pervasive outcomes for companies and individuals. History shows that more than half of all M&A deals fail to meet their financial expectations. Assuming rational management the high failure rate is problematic to align with a balanced risk appetite strategy of a company. Being aware of low chances of success should have decelerated non-organic growth and pushed firms towards different strategies. However, the average volume per transaction has steadily increased. Thus what is driving firms to continue these high-risk approaches? Academia struggles to deliver explanations for the drivers of acquisitions’ outcomes and there is ambiguity about which indicators to take into consideration when evaluating acquisitions. So do studies omit information if they attest M&A to be seldom value-adding? To tackle these blind spots the Warwick Business School hosted a conference to bring together practitioners and academics. For two days they were discussing future trends in M&A and exchanging the latest research.

Learnings from the conference

The conference was addressing four different research angles on mergers and acquisitions. These were strategy and stakeholder management, behavioral dynamics and technology, the role of context in M&A, and best practices in tech M&A. Every topic was covered by a practitioner and an academic each delivering a keynote which was followed by paper presentations. Finally, the academic and the practical keynote speaker provided feedback on the papers and the floor was opened for discussions. Giving the general setting of an academic conference, the fact that researchers were able to receive feedback from practitioners was an interesting approach to check for relevance beyond the academic community. This presented a challenging but fruitful opportunity for presenting researchers.

What is new on the practitioners’ side?

Practitioners from different occupations participated in the conference: M&A consultants, employees working in M&A departments of corporations, and businesses that provide software solutions to support M&A target selection and integration processes. A general trend is to bring decision-support systems into M&A and to analyze data that goes beyond financial figures. Consultants gave insights on how they applied automated analysis to advice companies on the required skillset for specific vacancies. By analyzing LinkedIn profiles of employees working for successful competitors they were able to derive gaps in terms of positions, functions and skillsets for their clients. This showed how publicly available data can be transformed into advisory information for talent acquisition. Although the availability of data has to be increased as well as long-term studies will have to proof accuracy and precision of such automated decision-support systems.

In addition, a cloud-based platform that supports, tracks and advices on decision-making in M&A was presented. This software underlines the general trend of decision-support systems and potentially represents a great opportunity for researchers to get fine-grained data on complete M&A processes. Thereby an end-to-end view on acquisitions could be gathered empowering a holistic perspective.

What is new in the academic debate?

Academic contributions focused on different stages of the M&A process. For instance presented research provided insights on how the likelihood of becoming a target is related to the number of stakeholder relations, how the involvement of financial advisory influences the bidding process and how the codification of information and organizational experience affects the post-merger integration process. However, a general trend is showing that academics are acknowledging the complexity of M&A by applying new research angles. Academics were stressing former relationships of targets and acquirers in forms of alliances, shared clients and business agreements. The idea to look at relations as value-creating streams enhances the research debate by adding a systemic perspective.

By applying systematic approaches, such as network methods, on an individual level even more insight could be generated. Especially in post-merger integration processes: Who is interacting with whom in which projects? As presented by practitioners openly accessible data sources (e.g. LinkedIn) might be a starting point to explore this possibility. However, this data has its limitations and network-based approaches most likely benefit from access to companies’ data. Accessibility of data is a general limitation of M&A research which will be discussed in the subsequent paragraph.

Practitioners and Academics – Where should they meet?

Empiric academics rely on snapshots of fragmented parts of an acquisition to derive at conclusions. That is rooted in the academic need to develop models that balance the number of variables to the number of observations and the mere fact that access to data is often limited. The quality and relevance of research depend heavily on the access to data. Collaborations between practitioners and academics can foster understanding of aspects that can only be obtained by studying firms from the inside. Moreover, these insights can be transformed into guidance for decision-making which provides support in target selection, target evaluation, deal-making, and post-merger integration. Researchers can offer firms additional data as well as analytical tools and skills. Furthermore, researchers are interested in finding the real cause which is often difficult to detect if a company is in the middle of an M&A process. There is a need to communicate these abilities and proof their incremental value.

Academics which aim at developing and proofing theories want to build models that generalize from observations and have predictive power on new cases be applicable on new cases. With more and more tools that formalize and structure M&A processes and generate data, the need and the opportunities for academics to apply their methodological skillset will rise and the general understanding of M&A will improve. However, if the academic community is missing the inside perspective they risk not gaining leverage on ongoing debates in M&A.

Collaborations between academics and practitioners could help to close the gap in M&A research and empower firms to make better decisions. The Warwick Business School managed to take the first step in this field and created a platform for fruitful discussions and development of new opportunities

By Jonas Röttger – PhD student FINDER Project

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?

Interested in the answers to (some of) these questions? Interested in the workshop by Prof. Dr Henk Volberda? Keep an eye out for updates to come via this page, LinkedIn and/or Twitter.

FINDER, a competitive Marie Curie Research and Training Program funded by the European Committee stands for: Fostering Innovation Networks in a Digital Era.

The FINDER program sets out to Foster Innovation Networks in a Digital Era. Appointed Marie Curie FINDER PhD Fellows will investigate the innovative collaborative arrangement amongst organizations – grassroots, incumbents and the wider society – as they inclusively explore digital technology for new product or market development. Unique features of this European Industrial Doctorate are: a) an in-depth investigation of innovation dynamics at emergent ecosystems and complex organizations, b) industry-led complementary training in the domains of Professional Innovation Management, c) a bespoke program of FINDER network events that bring together doctoral researchers, academics, practicing managers and policymakers interested in innovation and d) a total of 18 months placement at one of Atos’ major European business hubs in Frankfurt – Germany.

Vacancy: 1 Marie Curie PhD Fellowship in Strategic Management – focused on Fintech Networks (1.0 FTE) – FINDER PROJECT, workstream #5:
Effective strategies for enhanced social payoff under digital transformation

This project within FINDER looks into the societal impact of digital transformation, and the way that sustainable strategies by organisations can benefit a society, during and after a digital transformation. Organisations individually and collectively play critical roles in sustainability aspects of the digital transformation, as they develop new products, processes, and technologies, establishing common industry standards and negotiating for regulatory support. Next to institutional forces effectuating social payoff, strategic action by organisations may also instill (unforeseen) social payoff to society, as resources get reallocated elsewhere, and as employees get reemployed, potentially infusing external innovation. Because of the magnitude of the challenges and the complexity that comes with such paradoxical forces, the digital transformation needs to be investigated from a sustainability perspective. FINDER intends to answer questions such as: What are the roles, challenges and opportunities for incumbent firms and newcomers for a sustainable transition to digital technologies? How can organisations overcome struggles over the meaning of sustainability, within and across organisational fields, as the digital ecosystem unfolds?

Responsibilities

The FINDER programme, a research collaboration between Radboud University and Atos, an international leading information technology services company, sets out to Foster Innovation Networks in a Digital Era (FINDER). You will investigate the innovative collaborative arrangement amongst organisations – grassroots, incumbents and the wider society – as they inclusively explore digital technology for new product or market development. The keywords defining the programme are digital transformation, collaboration, strategic reorientation and value creation to society at large.

FINDER will accommodate five high calibre and full-time PhD positions, facilitating first-class PhD and in-company training at the crossroads of Fintech academia and business. The FINDER Marie Curie Fellowship allows for an outstanding compensation package which includes a competitive salary and travel allowance. For this purpose, we are looking for intellectually curious candidates who aspire to gain a doctorate in the discipline of Management.

The FINDER research scope spans industries and job functions, requiring candidates to synthesise complex information and to approach problems nimbly in a manner that can be transferred to both academics and practitioners. It demands a sophisticated understanding of the context in which business is done, the effect of technology in driving these collaborative processes and of the stakeholders involved. FINDER’s integrated curriculum prepares students to drive change at the vanguard of business and technology by challenging them to consider multiple perspectives and to create innovative solutions to problems that are not only profitable to business but also relevant and responsible towards society at large.

As a Marie Curie FINDER PhD Fellow you will be responsible for:

• Delivering prescribed project objectives on time and within budget.
• Collaborating with other researchers at the Institute for Management Research (IMR) at Radboud University and Atos Europe.
• Communicating and providing information to academic and industrial supervisors including regular attendance at formal supervisory meetings.
• Conducting doctoral research while being placed at Atos studying the selected Frankfurt fintech initatives, in order to support a dedicated impact case.
• Attending and preparing reports for regular meetings with other members of the FINDER team, to report progress, agree future work and exchange data/experience.

Work environment

Radboud University (RU) in Nijmegen is one of the largest Dutch universities acclaimed for the quality of teaching and research. RU has seven faculties (including the Nijmegen School of Management) and enrols over 19,899 students. It was internationally ranked 156th by the QS World University Rankings and occupies a prominent position in Europe. RU is currently successfully coordinating 114 European Commission Research projects and 41 H2020 projects, ten of which are MC ITN projects.
The Nijmegen School of Management (NSM) is a leading academic centre of research and higher education, focusing on institutional and managerial issues within complex organisations. The FINDER programme, a research collaboration between Radboud University and Atos, a global leader in digital transformation, an international leading information technology services company, sets out.

Atos is a global leader in digital transformation with 120,000 employees in 73 countries and annual revenue of € 13 billion. European number one in Cloud, Cybersecurity and High-Performance Computing, the Group provides end-to-end Orchestrated Hybrid Cloud, Big Data, Business Applications and Digital Workplace solutions through its Digital Transformation Factory, as well as transactional services through Worldline, the European leader in the payment industry. With its cutting-edge technologies and industry knowledge, Atos supports the digital transformation of its clients across all business sectors. The Group is the Worldwide Information Technology Partner for the Olympic & Paralympic Games and operates under the brands Atos, Atos Syntel, Unify and Worldline. Atos is listed on the CAC40 Paris stock index.

What we expect from you

• hold a (Research) Master’s degree;
• evidence of independent research skills;
• experience in empirical research;
• demonstrable ability to work independently, to prioritise tasks, manage time and meet deadlines;
• fluency in English;
• proactive and self-organising;
• willingness to relocate;
• strong interpersonal skills;
• high motivation to perform rigorous academic research and collaborate with industry;
• excellent communication skills, including a high standard of written and spoken English;
• willingness to work flexibly where necessary to fulfil the needs of the research project, including international travel and completing the industrial placement.

Desirable

• affinity with the FinTech theme;
• affinity with new technology and forms of collaboration as technology and new business model drivers;
• knowledge of social network modelling;
• knowledge of R (statistics program) or other advanced statistical modelling programs; or advanced qualitative research methods.

What we have to offer

• employment: 1.0 FTE;
• the gross starting salary amounts to €2,266 per month based on full-time employment, and will increase to €2,897 in the fourth year (P scale);
• in addition to the salary: an 8% holiday allowance and an 8.3% end-of-year bonus;
• as a FINDER Marie Curie PhD Fellow you will be appointed for an initial period of 18 months, after which your performance will be evaluated. If the evaluation is positive, the contract will be extended by 2.5 years;
• you will be classified as a PhD Candidate in the Dutch university job-ranking system (UFO);
• generous benefits from the Marie Curie apply for the first three years (including relocation and extended conference funding facilities and a travel allowance), after which, in the fourth year, standard Dutch university job-ranking system (UFO) conditions will apply;
• training and research on the intersection of academia and business;
• generous travel allowances for conference and research purposes;
• you will be able to make use of our Dual Career Service where our Dual Career Officer will assist with family related support, such as child care, and help your partner prepare for the local labour market and with finding an occupation.

Other Information

You should meet the Marie Sklodowska-Curie EID program eligibility requirements (Note: at the time of recruitment, researchers must not have resided or carried out their main activity (work, studies, etc.) in the Netherlands for more than 1 year in the 3 years immediately prior to the reference date

For more information about this vacancy, please contact Ms Linda Buis of the Project Management Office FINDER – Fostering Innovation Networks in a Digital Era – Marie Curie Initial Training Networks (ITN): r.buis@fm.ru.nl

THE VACANCY HAS BEEN CLOSED

by Tze Yeen Liew

Aware of the mass adoption of cryptocurrencies, central banks around the world (a whopping 70%) have been considering the merits of adopting a central bank digital currency (CBDC); which is ironic given that the bitcoin was initially conceived with the tall order of subverting central banks. A spate of publicized discussions by central banks about the feasibility of digital currencies have dominated headlines since 2017: the Reserve Bank of India, Central Bank of Canada, Bank of Korea, the US Federal Reserve System, the Bank of Sweden, the Swiss National Bank, the governments of Kazakhstan and Japan, and even the Bank for International Settlements — widely considered to be the central bank of central banks, have all examined the macroeconomic implications of CBDCs within the context of their local financial systems.

Although most of the central banks mentioned still view CBDCs as a pipe dream, the idea is steadily gaining traction given there are speed, cost and re-conciliatory benefits to be reaped from replacing electronic cash with blockchain based digital currencies. The two latest banks to chip in their thoughts are the Bank of England and Norges Bank (the Central Bank of Norway), who have taken different approaches to exploring the topic — although the implications of the technology are at best, hypothetical and non definitive.

Bank of England (BoE)

Drawing on both UK and US central bank data, the Bank of England recently issued a pedagogical paper constructing 3 theoretical econometric models to examine whether central bank digital currencies (CBDCs) should be used as an interchangeable asset in lieu of existing bank reserves. It also explores the suitability of CBDCs as an interbank settlement medium and a retail payment medium.

Norges Bank

In contrast, Norges Bank released a hypothetical case study on the impacts of digital currencies accepted as legal tender in the economic and regulatory context of Norway. It proposes possible conceptual frameworks that could be adopted by Norges Bank, and undertakes several cost benefit analyses to determine the best use of central bank digital currencies in the present day; whether as a payment instrument or a value storage instrument. Unlike the BoE’s paper, the case study serves as a qualitative assessment of CBDC’s –seeing that cash usage is now at the lowest point in Norwegian history.

Both central banks have prefaced their papers with a disclaimer that they have no concrete plans to instate central bank currencies, whether presently or in the distant future. However, they intend for the papers to be a resource for additional discussion and hopes that stakeholders can build on their findings.

Banks and Bitcoinertia: Are Bank Bitcoins still Bitcoins?

Although the release of these papers by central banks lends some gravitas to the upward trajectory of cryptocurrency adoption, it is noteworthy that all of them have chosen to refer to their iteration of cryptocurrencies as CBDC, and nearly all of the central banks in existence have announced that none of them will be issuing CDBCs in the next three years. One can infer it may be to distance itself from the negative clout surrounding cryptocurrencies, the ramifications of which are all antithetical to the operational characteristics of a central bank (volatile, fraudulent, speculative, money laundering, illegitimacy etc.). The more concrete answer to it, if we take these white papers at face value, is the sheer complexity of mobilising the infrastructure required to implement cryptocurrency at the scale that is needed.

But the biggest conundrum of all is conceptual and strikes at the core of cryptocurrency: Is cryptocurrency, which ultimately is a network of decentralised, unregulated blockchain ledgers, still considered cryptocurrency when the ‘permissionless’ element is taken away by a bank that choose when and what to issue?

 

 

By Remco Neuteboom, Senior Vice President, Chief Digital Officer, Global Financial Services, Atos

We believe that many technologies have reached a tipping point and that we’re now entering a time, within the next four years, when the importance of doing the right thing will begin to balance innovation. As stated in the Atos thought leadership publication, Journey 2022: Digital Dilemma’s, digitalization is becoming more and more about the ‘art of the permissible’, rather than the ‘art of the possible’. This will be especially true for the Internet of Things and artificial intelligence, two technologies that can have a far-reaching impact on social issues like privacy and equality.

This emerging crossroads of ethics and technology is a fantastic opportunity for the banking industry. Many of the big high street banks have long included a socially conscious message in their ethos, and well they should. More than any other industry, the banking sector has the power and the opportunity to do good. To build business models that support both the economy and people.

In order to achieve this, we believe that right now is the time for the banking industry to start to build a digital code of ethics into their business models. Technology can be a great enabler of fairness within the banking system – if guarded carefully.

We also believe that this will be a unique selling point for banks, considering the central and trusted role they play in our everyday life. So, what is our advice for the banking sector as they adopt emerging technologies?

Data dangers

The speed of business transformation has left governments and legislators behind the curve in terms of understanding the wider impact these digital disruptions will have on society and people. In no area is this more the case than in the use of data. As more and more means of generating data emerge (including IoT networks, drones, social media platforms, autonomous cars, etc), questions on data ownership, data usage, and privacy protection demand an answer.

Although new data legislation and regulation have indeed been developed (like the privacy protection regulation GDPR, and the seemingly opposing data sharing directive PSD2), more will need to come as these technologies and others continue to develop. Particularly in the banking sector. After all, there cannot be a point at which your bank has access to personal data that may work against an individual. If this ever happens, the consequences will be dramatic, and the sector will have irrevocably broken its sacred bonds of trust with society.

Can you undo?

Proper handling of all that data coincides with the maturing of artificial intelligence, which gives us a tool to not only cope with the sheer volume but also helps us to draw the best conclusions and make the best business decisions. As you build a machine learning algorithm for AI, it begins to learn and evolve and eventually draw its own conclusions.

Not only can machine learning allow a system to evolve, but the algorithms used for this are only as unbiased as the programmer or data scientist who built them! In the end, an organization will still be responsible for justifying the decisions it takes, whether they’re made by a machine or a person.

And so we come to the ‘ethics by design’ principle. We must build access into the system to allow for reversal or even a total switch off function. People, therefore, must always remain a vital part of the process.

To automate or not?

This discussion on the effects that artificial intelligence can have on a bank’s treatment of its clients can leave the impression that it may be best not to automate at all. A seemingly logical conclusion, but not very realistic. The volume of data that needs to be handled and the growing strain of industry regulation would mean that the financial repercussions of (continued) fully manual processing of banking functions would cause an immediate collapse of business models. And of course, then there would still be no guarantee of ethical behavior.

The balance between automation and human work can be explored though. The physical bank is an important differentiator for the traditional players to use to their advantage. As AI can give your customers the most personalized experience, the physical bank branch can reach the equally (if not more) intimate results through direct human interaction. Again, the question is not if AI can replace the bank’s contact with clients, but how AI can best be applied within certain channels, to improve the client’s experience with their bank.

Create the culture you need

But the most important factor will be cultural. This can be the hardest part of an organization to change. Culture will decide how much digitalization we are willing to embrace, both from a client relationship perspective and from a workforce perspective. And even though culture is difficult to change, culture by its very nature will naturally evolve. We, therefore, recommend building code of ethics (either self-regulated or imposed by a regulator) that is flexible enough to deal with continued technological change – because it focuses on principles, giving the right direction on how to deploy emerging technologies without fixating on specific temporal examples.

In the end, what we have been talking about here is adopting Corporate Digital Responsibility – Corporate Social Responsibility (CSR) for the digital era. We believe this area will become as vital to business as CSR has been. Not just because it is the right thing to do, but also because it will position a bank as a leading force for our society’s digital journey and so set it apart from its (emerging) competitors.

So in conclusion, our advice is that one must be ahead of the curve on this issue. Like our CEO Thierry Breton stated in his foreword of the Journey 2022: Resolving Digital Dilemma’s: wait and see cannot be a viable option for digital transformation.

 

Note from the FINDER Project Management Office:
The article above links to the FINDER working stream #5 Effective strategies for enhanced social payoff under digital transformation, in which we FINDER intends to answer questions such as:

• What are the roles, challenges and opportunities for incumbent firms and newcomers for a sustainable transition to digital technologies?

• How can organisations overcome struggles over the meaning of sustainability, within and across organisational fields, as the digital ecosystem unfolds?

 

 

 

On the high and lows of cryptocurrencies
by Tze Yeen Liew

Aware of the mass adoption of cryptocurrencies, central banks around the world (a whopping 70%) have been considering the merits of adopting a central bank digital currency (CBDC); which is ironic given that the bitcoin was initially conceived with the tall order of subverting central banks. A spate of publicized discussions by central banks about the feasibility of digital currencies have dominated headlines since 2017: the Reserve Bank of India, Central Bank of Canada, Bank of Korea, the US Federal Reserve System, the Bank of Sweden, the Swiss National Bank, the governments of Kazakhstan and Japan, and even the Bank for International Settlements — widely considered to be the central bank of central banks, have all examined the macroeconomic implications of CBDCs within the context of their local financial systems.

Although most of the central banks mentioned still view CBDCs as a pipe dream, the idea is steadily gaining traction given there are speed, cost and re-conciliatory benefits to be reaped from replacing electronic cash with blockchain based digital currencies. The two latest banks to chip in their thoughts are the Bank of England and Norges Bank (the Central Bank of Norway), who have taken different approaches to exploring the topic — although the implications of the technology are at best, hypothetical and non definitive.

Bank of England (BoE)

Drawing on both UK and US central bank data, the Bank of England recently issued a pedagogical paper constructing 3 theoretical econometric models to examine whether central bank digital currencies (CBDCs) should be used as an interchangeable asset in lieu of existing bank reserves. It also explores the suitability of CBDCs as an interbank settlement medium and a retail payment medium.

Norges Bank

In contrast, Norges Bank released a hypothetical case study on the impacts of digital currencies accepted as legal tender in the economic and regulatory context of Norway. It proposes possible conceptual frameworks that could be adopted by Norges Bank, and undertakes several cost benefit analyses to determine the best use of central bank digital currencies in the present day; whether as a payment instrument or a value storage instrument. Unlike the BoE’s paper, the case study serves as a qualitative assessment of CBDC’s –seeing that cash usage is now at the lowest point in Norwegian history.

Both central banks have prefaced their papers with a disclaimer that they have no concrete plans to instate central bank currencies, whether presently or in the distant future. However, they intend for the papers to be a resource for additional discussion and hopes that stakeholders can build on their findings.

Banks and Bitcoinertia: Are Bank Bitcoins still Bitcoins?

Although the release of these papers by central banks lends some gravitas to the upward trajectory of cryptocurrency adoption, it is noteworthy that all of them have chosen to refer to their iteration of cryptocurrencies as CBDC, and nearly all of the central banks in existence have announced that none of them will be issuing CDBCs in the next three years. One can infer it may be to distance itself from the negative clout surrounding cryptocurrencies, the ramifications of which are all antithetical to the operational characteristics of a central bank (volatile, fraudulent, speculative, money laundering, illegitimacy etc.). The more concrete answer to it, if we take these white papers at face value, is the sheer complexity of mobilising the infrastructure required to implement cryptocurrency at the scale that is needed.

But the biggest conundrum of all is conceptual and strikes at the core of cryptocurrency: Is cryptocurrency, which ultimately is a network of decentralised, unregulated blockchain ledgers, still considered cryptocurrency when the ‘permissionless’ element is taken away by a bank that choose when and what to issue?

 

Fintech acquisitions: prone to failure?
by Tze Yeen Liew

Industrial observers have raised concerns about acquisitions and partnerships by existing financial institutions gradually cannibalizing the lofty ideals that many fintechs were built on — disrupting the financial landscape by removing financial intermediaries that do not add value to the global economy, and empowering consumers to take charge of their personal finances and investments. Kerim Derhalli, who founded micro-investment app Investr in 2013 after leaving his position as Head of Equity Trading at Deutsche Bank, believes that firms are only into the business of financial technology and not ‘fintech’ per se if they are just helping existing financial intermediaries marginally improve their existing processes. At BusinessCloud’s ‘The Future of FinTech’ event, he further elaborates that fintech is ‘the manifestation in the financial markets of the information revolution’; the democratisation of financial data previously only within the stranglehold of large financial institutions.

In spite of valid criticism, the ongoing pattern of aggressive fintech acquisitions by established financial institutions shows no sign of slowing down.

Gjensidige’s digital banking unit acquired

Not too long ago Nordea, a leading bank in the Nordic region,  announced that it will be acquiring Norwegian insurer Gjensidige Forsikring‘s digital banking unit for EUR578 million cash, effectively adding 176k customers and EUR4,840 million of their assets onto their balance sheet. With the acquisition of Gjensidige digital platform, Nordea will also be distributing Gijensidige’s insurance products to its own 900,000 customers. The acquisition, Gjensidige believes, aims at providing opportunities for the insurer to expand its customer reach through synergising with a leading Nordic bank that is also receptive to their digitalisation and innovation priorities.

Just days prior to Gjensidige’s acquisition, Bloomberg reported that that French payments processor Ingenico Group SA is being targeted for buyout by several firms; including private equity giants CVC Capital Partners, Hellman & Friedman, and Bain Capital — all of which were actively vetting through ‘Europe’s hottest fintechs‘ for the next acquisition target. As of March 2018, Ingenico remains unacquired, even though it has taken over fintechs Paymark and Bambora.

Fool hardy, not fool proof

Contrary to the optimism permeating from these acquisition sprees, multiple studies point to the sordid truth that 80% of acquisitions, both tech and non-tech, fail. A failed acquisition is defined as one that brings no added value to the acquirer or acquired. A survey of tech acquisition literature from 2002 to the present shows that the 80% fail rate is fairly consistent (McCarthy and Aalbers, 2017; Vester, 2002; Graebner and Eisenhardt, 2010, Evans, 2004). Cisco, one of the world’s largest tech conglomerates, are anomalous for having managed to reduce the failure rate of their own acquisitions to 70% mainly by acquiring en masse and spreading out their risks.

The reasons for failure are manifold. The extrinsic factors are primarily related to geographical distance between the acquirer and the acquiree, which increases monitoring, transactional and information transfer costs; and decreases the efficiency of tacit, or ‘soft knowledge’. Cultural disparities, on the other hand, have a lesser negative impact on tech companies (McCarthy and Aalbers, 2017).

The intrinsic factors, on the other hand, point to ineffective structural integration and coordination: Lack of integrative decision making, integrative systemic processes and holistic changes required from both companies (Bannert and Tschirky, 2004). Specific to the acquisition of small tech firms by larger incumbents, integration helps acquirers “use the acquired firm’s existing knowledge as an input to their own innovation processes (leveraging what they know), but hinders their reliance on the acquired firm as an independent source of ongoing innovation [leveraging what they do]” (Puranam and Srikanth, 2007).

A gambler never makes the same mistake twice, just three or four more times

As we can see, tech acquisitions are not without their challenges, especially in the rapidly expanding EU Fintech domain. Despite irrefutable evidence that acquisitions are futile in 2 our 3 instances, the strategic benefits that result from a potentially successful acquisition emboldens companies into taking those risks. Tech acquisitions are also made by incumbents to quickly expand ‘key pipelines’ (Puranam, Sing & Zollo, 2003). A recent case in point is the recent deal between BBVA and ABN AMRO, as they attempt to expand their joint digital reach with new solarisBank investment by funnelling a whopping EUR 56 million into the small startup.

German fintech solarisBank announced a successful EUR 56.6 million financing deal, the second highest to date for a German fintech after Kreditech. Their latest Series B funding round is a combination of new funding from Spanish BBVA, Dutch ABN AMRO and Visa as well as renewed investments from current investors Arvato Financial Solutions and SBI Group. The deal follows a broader trend of financial incumbents rapidly acquiring stakes in emerging fintechs around Europe.

The financing deal is notable as solarisBank happens to be the world’s first banking platform with a full banking license. Founded in March 2016, the company offers “banking-as-a-platform” technology to corporate clients all around Europe and offers products in three categories of banking: digital banking and cards; payments and “e-money”; and lending and deposits. The company is also distinguished for its use of modern RESTful APIs in speeding up the integration of its modular services.

Although BBVA and ABN AMRO’s financial backing of solarisBank heralds the first major investment forays by large European banks in the German fintech scene, it dovetails with the broader existing strategies of both finance heavyweights in undergoing digital transformation. BBVA believes that acquisitions in emerging fintechs will hasten BBVA’s growth in the ‘banking as a service (BaaS)’ area, and has recently acquired major stakes in various other digital banking startups all around the world; including Silicon Valley gig-oriented banking platform Azlo, Finnish online business banking service Holvi, the UK’s mobile only Atom Bank, Oregon-based checking account startup Simple and new fintech venture capital partnership Propel. Today, approximately 42% of BBVA’s customers access their banking services online.

Despite changes in investor lineup, Berlin-based fintech incubator Finleap remains as solarisBank’s largest investor with a stake of 30%, followed by BBVA. The new funds will be used to help further geographic expansion, the fintech said in its press release, as well as the continued development of its online banking platform and the launch of new products. solarisBank has received capital injections in excess of EUR 95 million over the past two years, with initial seed and series A funding rounds closing at EUR 12.2 million and EUR 26.3 million respectively.

ABN AMRO has also completed a slew of its own fintech investment and acquisitions via its in-house Digital Impact Fund (DIF). The fund also owns four other fintech companies: US cloud-based lending platform Cloud Lending Services; US cybersecurity firm BehavioSec; Swedish finance planning app Tink; and an upcoming blockchain-based energy trading platform. With its latest investment in solarisBank, ABN AMRO intends to expand the clientele base of its own subsidiary Moneyou, by allowing the banking platform to access solarisBank’s customers and stakeholders in Germany.

Easier said than done

The key element to avoiding acquisition failure is to ensure that an effective integration strategy is in place, and best practices vary immensely according to the industry and cultural peculiarities. An interesting example: A 2004 empirical study 228 financial acquisitions in the US banking industry (Zollo and Singh, 2004) highlights that: 1. Codifying and formalizing acquisition knowledge and know-how into systems, manuals and tools is strongly correlated to positive acquisition performance; 2. The level of integration between two firms significantly enhances performance and; 3. Replacing top managers in the acquired firm is a sure-fire way to negatively impact both sentiment and performance.

A tech based acquisition, however, would require a different strategy that is cognizant of the role that independence plays in driving innovation especially if both firms are in the same line of business — and therefore needs to be capable of guiding the acquirer in striking the right balance between the two extremes of full structural integration and maintaining full operational independence. In fact, acquirers who often buy small tech-based firms for their tech capabilities often discover that the post merger integration process has all but destroyed the innovative capabilities that made the firm an attractive target in the first place (Puranam and Chaudhuri, 2009).

The FINDER questions

The FinTech industry poses its own set of unique challenges being an amalgamation of both the finance and tech industries. One might easily infer that the an effective integration strategy is a middle path between existing strategies of the aforementioned industries, but that would mean ignoring the glaring asymmetry that exist between both the acquirer (larger, hierarchical, established, and more often than not; a financial or banking incumbent that is trying to improve its digital capabilities) and the acquired (a smaller, younger, more tech-than-finance competitor that is often sought out by the former for knowledge grafting). What would be the best form of symbiotic existence for both firms in the EU context, such that the spirit of innovation and competition is retained postmerger? How can insights from network analysis and literature deepen our understanding of the rapidly changing fintech ecosystem?

 

 

 

 

During the second half of 2018 we began our search for five PhD fellows. About 360 applications landed on the desks of our selection committee. The applicants reached out to us via the vacancy on the Radboud University website or via our partners in this ambitious project. The origin of the applicants was quite diverse; we received applications from (amongst others) The Netherlands, United Kingdom, Brazil, India, Indonesia, Iran, Iraq, Turkey, USA, Germany, Russia, Poland, South Africa, China, Kenya, etc.

The selection committee interviewed 37 candidates for the FINDER program. These interview rounds were mostly set up following this scheme:

• First interview with one or two members of the Selection Committee
• Second interview with Selection Committee member & Academic partner
• Third interview with Selection Committee member & Business partner
• Fourth interview with Selection Committee member & Academic partner & Business partner

Writing assignments were given in between interviews to be discussed / evaluated during upcoming interview. Also, the three phases of training were discussed during these interviews:

• Phase 1:
  Each ESR will spend their first 10 months of doctoral training at Radboud University. The intensive study of literature, attending taught modules of their doctoral program and interactions with their supervisory team will enable them to prepare for their industrial placement and data collection at Atos.
• Phase 2:
  After 10 months in The Netherlands ESRs will relocate to Atos in Spain or Germany for 18 months. This period will be devoted to intensive industrial training and data collection. To enhance on-going supervision, the lead academic supervisors will visit ESRs at Atos premises, with other meetings organized by communication technology. ESR will attend training at Radboud University.
• Phase 3:
  ESRs will spend the last 8 months (and more) of their doctoral training at Radboud University to focus on writing up their thesis and working on manuscripts for publication.

It is with great please that we introduce you to our PhD Fellows:

James Ellis is currently completing his Master’s degree in Globalization & Development Studies at Maastricht University, where his research centers around a Science & Technology Studies analysis of drone usage among farmers in South Africa. Prior to that, he has worked since 2012 as a broadcast journalist in the United States Air Force, through which he has gained dynamic experience in leadership, management, strategic planning, and naturally, journalistic research. Furthermore, his rise through military ranks and recognition for quality work afforded him the opportunity to attend formal leadership, management, and entrepreneurship courses and go on to apply the concepts learned therein to a wide range of settings. After leaving the full-time military, he has pursued the establishment of an academic career in order to leverage his unorthodox range of experiences and lessons from around the world into current, ongoing management research in hopes of implementing unique arguments into the process of research, publication, and theory-building.

Barbara Voelkl is a PhD fellow in the FINDER working stream focusing on alternative business models in digital ecosystems. With BSc degrees in Psychology and Business Administration and a MSc in International Business, her research interest lies in the intersection between digitalization and human behavior. More specific, she is enthusiastic about revealing the cognitive and behavioral aspects of collaborative business models in and between new ventures and incumbents. After studying and gaining initial work experience in Germany, Norway, The Philippines, Japan and Taiwan, she highly values intercultural teamwork as well as a cross-cultural research context.

Tze Yeen Liew was a Research analyst at Holland FinTech responsible for curating and producing fintech-related insights for stakeholders before she joined the FINDER program at Radboud University. Tze Yeen holds a Bachelors degree in Finance, Accounting and Management from the University of Nottingham and a Masters in Migration Studies from the University of Oxford, where she also received the Queen Elizabeth Departmental Scholarship. Tze Yeen’s prior academic experience is diverse, stretching from corporate governance to migration policy. Her research interests encompass structuring and analyzing characteristics of learning networks that exist between financial incumbents and acquired fintechs.​

The profiles of the other two PhD fellows will follow.

 

Online financial decision making holds the future. And various fintech companies are jumping on board of this trend. But how do people come to decision making on these platforms, and how does new technology allow for more inclusive or even social investment decision making?

As part of the FINDER research agenda, Voleo Inc. serves as a case-study-in-point on this terrain. The FINDER program is proud to be working with this innovative fintech start up to explore some fundamental research questions that link technology, behavioural decision making and dynamic social networks.

Voleo is a Canada-based mobile fintech company that is transforming the retail investing space through its powerful, collaborative investing platform. Voleo has increased retail investor participation in the stock market by breaking down barriers to entry, facilitating trust and improving financial literacy. As an interesting example of successful scale up of fintech technology and entrepreneurial activity, the Voleo platform is being white-labeled by major financial institutions around the world as an innovative product to engage and retain a new category of investors.

In their press release on this FINDER cooperation Thomas Beattie, CEO of Voleo, stated, “Dr. Aalbers has extensive knowledge in the field of collaboration, and his team at FINDER are doing important work in researching and uncovering insights about organizational and consumer behaviour. There is a clear synergy between Voleo’s objectives as an emerging technology, its users’ objectives as part of a community, and FINDER’s goal of understanding social interaction in the digital age. We are especially excited to apply learnings from this study and equip our users with new tools in the coming years.”

From the FINDER program perspective, due to Voleo’s differentiated positioning in the online brokerage industry and their unique approach to social investing Voleo was top of mind when deciding upon the final configuration of consortium partners for the FINDER research scoping. The welcoming spirit to work close with some of our FINDER PhD fellows, and the willingness to help them understand the business side of things make Voleo in a valued research partner. We are looking forward this collaboration.

To find out more about Voleo, please visit their website: https://www.myvoleo.com

Read all about Voleo being selected for the FINDER project in their press release: https://ir.myvoleo.com/newsroom/index.php?content_id=103