The Netherlands Organisation for Scientific Research (NWO) has awarded a €15,000 grant to Drs. Rick Aalbers (principal investigator, FINDER project) and Armand Smits (assistant professor Radboud University). The researchers, both employed by the Nijmegen School of Management at Radboud University, will investigate business models in creative industries for complexity and improvement potentialities.
This project will employ qualitative comparative analysis, an innovative research technique that systematically assesses combinations of cases in order to find complex interactions and relationships. In doing so, the grant enables the researchers to build an inclusive knowledge-generating collaboration, using contemporary techniques, between the research and business sectors through dynamic exploration.
Finally, this project will contribute to CLICKNL‘s Knowledge and Innovation Agenda 2018-2021.
The FINDER PhD collective meeting on Wednesday,
October 2nd 2019 at Radboud University has been a major success as
we welcomed our supervisory teams to Nijmegen.
We, the PhD students, presented our recent research activities
and developments to our supervisory promoters: Dr. Rick Aalbers, Dr. Miriam
Wilhelm, Dr. Koen van den Oever, Dr. Saeed Khanagha and Dr. Philipp Tuertscher,
Dr. Professor Koen Heimeriks who all joined this collective meeting. The
supervisory teams have created a very open environment and encouraged us to
express our research ideas and also gave
immediate feedback during the meeting. In addition, they have provided sound
advice on each of our current research work.
In this meeting, Jonas Röttger first presented his
research project regarding the influence of a company’s communication. After
which, Barbara Völkl discussed her research on the digital business models from
the behavioural aspects. S. James Ellis introduced his current study on the strategic
management of different partnerships, followed by Ami Xiaolei Wang who proposed
from her work from the network view to study the firms under the digital
transformation, and lastly Tze Yeen Liew discussed her research on the impact
of the competitive tensions from an academic perspective.
All in all, presenting and discussing our current
academic work, showcasing the diversity of topics, approaches and interests at the
frontiers of sustainable strategies to achieve to value of financial technology
and reflecting its insights from academic research.
The discussions following up on the presentations focused on the importance of the management strategy as a source for the disruption and innovation of financial technology; and the need for a good academic perspective that ensures technology sustainability. The valuable feedback received during the meeting will enable us all to improve our research endeavours in the time to come.
The Canada-based FinTech Voleo is a key project partner within the FINDER project. The investment platform enables groups of friends, families, colleagues and anyone who joins to collaboratively invest and manage a stock portfolio together. Unlike solo investing, investments through Voleo are conducted within investment clubs of three to hundred people and trading decisions are made as a team. With each individual contributing cash and proposing buying or selling actions, the team together takes the final trading decision – “Investing is better. Together”, as Voleo states it.
A major mission for Voleo is to grant access to
trading to people intimidated by the seemingly complex world of investments and
thereby increase financial literacy on a fun and easy-to-use app or web
platform. By following the investment decisions of top-performing clubs or individuals
while having a clear and dynamic overview of the club’s own portfolio and
performance, barriers to investing fade. The currently starting annual Voleo
Student Competition in cooperation with the NASDAQ emphasizes the vision to
encourage investing among ages and demographics.
Currently operating in the United States, Voleo recently surpassed eight thousand registered users partnering with Google’s Digital Strategy program. More information about the Voleo platform and exciting developments can be found on their website or LinkedIn. Stay tuned as the research collaboration progresses!
This short series of editorials is a compilation of a few of the FINDERs’ observations on the definition of the term “fintech.” One that has not yet been standardized in any practical way, the definition seems to differ depending on the context and actors at play. That said, the following entries reflect the FINDERs’ initial considerations of the term and shall be revisited nearer to the end of the four-year research project.
What is a FinTech?
A FinTech is an organization using 21st-century technology and software to provide, ease and automate financial and insurance services of any kind as captured in the NAICS Codes 52. The definition is not restricted to start-ups. These serve however as clear examples of FinTechs as – in contrast to incumbent banks – they mostly focus on one concrete aspect of the financial service world. A FinTech always contains a technological component, a mere business model change does not suffice. An interesting point: currently there are no specific SIC/NAICS Codes for FinTechs, which highlights their bridging position between technological and financial organizations.
Here is a definition from a 2016 article that did extensive research on the Fintech term. My self-made definition is:
The term Fintech is often used as short-term for financial technology or financial services and technology. The term defines a company or a solution that uses technology to provide financial services. Depending on the context, a company’s size (rather a start-up or scale-up than an established company), a company’s portfolio (rather entirely focused on technology for financial services) and the innovative and industry-disrupting potential (rather high) are often consulted to define Fintechs in a narrower sense.
It’s a fairly predictable pattern: [concept] arrives in a place of scrutiny, nobody knows what its boundaries are, [person/group/discipline 1] makes a solid attempt, [person/group/discipline 2] makes a convincing counterargument, the cycle continues ad nauseam and/or until everybody seems to just adopt the definition that works best for them in the current context. It happened with the idea of a European continent (which you might think is separate from Asia), it happens chronically with art (caution: that is a playful Buzzfeed link; a more serious line of discourse can be begun here), and as a matter of fact, it’s even happening to you. Yes, you.
In a way, it’s a very useful process that tests our societies’ epistemological health. There is very probably a name for this process – a name currently owned by [person/group/discipline 3] (until [person/group/discipline 4] convinces us of a better one). The process, in any case, should not be leapfrogged with the belief that a bunch of useless quibbling will be bypassed. Indeed, good things come from these discussions, though it is quite a nuisance for those who want to have immediate plug-and-play conversations about the topic where everybody knows without question what they mean. That being said, I argue that, despite the instinctive tendency to rush for a universal definition, this is not the most efficient use of brain-power when it comes to new, shiny concepts – concepts such as “fintechs.”
A portmanteau of “financial technologies,” it might at first glance seem like a very simple concept to grasp. “Technologies that let me pay for things,” you might posit. Yes, but rarely does a technology alone handle your payments cradle-to-grave. This process is often broken up into different pieces. Therefore, is the company that produces the RFID reader in a contactless terminal a fintech? Maybe; maybe not. This example is one drop in an ocean, but it makes immediately apparent how murky these waters can get. However, the term is ripe for discussion in many circles and some sort of shape must take form in defining what, exactly, a fintech is.
Bounded rationality dictates that we draw the line in a place that makes sense for the current discussion. And yet, powerful players in different domains have rushed to establish what seems like universality in their suggestions. In no unclear terms, the dedicated FinTech Weekly says that companies which engage with finance-related software qualify as fintechs – apparently the hardware side is not part of the club; Merriam-Webster obfuscates this delineation but distinctly points the moniker at products and companies – conspicuously excluding services (such as peer-to-peer financial transacting); Bloomberg opens its gates to “financial-services companies using the Internet, mobile phones, and the cloud”, diving deeper into Merriam-Webster’s pigeonhole and summarily ignoring that the analog history of fintechs that predates the digital age by far (what, after all, was a ledger if not a financial technology?); PwC attempts to take the holistic, conceptual approach, to no apparent pragmatic utility.
While these agents and many, many more very boldly stick their flags in whatever patch of definition-assigning land they can, we’ve been luckily spared from any one of them saying“my definition is the most valid” – yet. It’s very likely that each organization that stakes a claim in defining this term has its reasons for doing so exactly where it chooses – I would argue that it’s what makes the most sense for the conversation at hand. Many will likely try – hard – to muscle their definition ahead of others, and let them waste their energy but pay it no serious mind. “Fintech” as a term will constantly shift in meaning. Why? Because it has the convenient quality of being steeped in the realm of digital technology, and the beautiful thing about digital technology, and specifically the way it innovates, is that just when you think you’ve found its limits and how to handle it, you haven’t.
S. James Ellis and Jonas Röttger, FINDER research fellows, delivered an interactive lecture to Master’s students in Dr. Rick Aalbers’ Corporate Strategy class at Radboud University. The lecture revolved around a case study authored by the FINDER team that examines the various corporate strategies employed by Atos as well as its strategic partnerships with technology hubs. Students were given roles from various actors highlighted in the case study and played them adjacent to their peers, simulating the behaviors of different corporations in an inter-organizational setting and advancing their understanding of what factors contribute to the creation and destruction of partnerships.
The session enabled students to immerse themselves in a real-world business situation learning about the diverging interests of parties involved in hubs and their need to manage both competitive and collaborative relations with various stakeholders. Leading the discussion, the FINDER research fellows stimulated the engaged group with input from the academic perspective and insights from the market of digitized financial services. The underlying case study will be further developed alongside the FINDER project trajectory, allowing students to be exposed to current business challenges and the corresponding academic perspectives.
On September 10th, the FINDER project team held its first symposium at Radboud University in Nijmegen. With all FINDER PhD fellows on board since beginning of the month, the meeting together with the partners from Atos as well as Radboud offered a valuable venue to get to know the whole team and detect possibilities for synergies.
Remco Neuteboom, Atos Group Chief Digital Officer for Financial Services, started the symposium with an introductory lecture on Atos and its far-reaching history of M&As in the setting of the Corporate Strategy course at Radboud University. Understanding the challenges and opportunities in collaborations, among those mergers and acquisitions, builds a significant academic component within the FINDER program. Learning more about strategic deliberations from the practitioner’s side thus adds essential value for the FINDERs to develop practically relevant research proposals.
Following up, Dr. Rick Aalbers and the PhD fellows, with the project team from Atos, dove deeper into more specific topics such as scaling, inorganic growth, technological governance and potential boundaries of FinTech networks. Ivo Luijendijk, Atos Group Industry Director Data Analytics and Emerging Technologies for Global Financial Services, shared contemporaneous insights from the Scientific Community of Atos and expressed the intent of a close cooperation with the PhD fellows. Following up, the team agreed on an update of the FINDER LinkedIn and website towards an active, informative platform intended for academics and practitioners likewise, so stay tuned!
FRANKFURT, GER. – The growing FINDER team convened at Atos’ Worldwide base in Frankfurt on Monday, April 8th, 2019. The multinational, interdisciplinary group traded introductions and immediately got to work setting the stage on trends in the fintech environment. Intuitive as such a first step might be, the importance of standardizing entry knowledge cannot be understated with an academic topic as novel and turbulent as fintech currently is. That turbulence might make “fintech” difficult to pinpoint and create useful conclusions about, but the continued production of knowledge about the topic and how it interacts with society is the quickest way to mitigate these difficulties and, not coincidentally, core to the FINDER focus.
Atos’ partnership in the FINDER program provides a birds-eye view on the development and operation of fintech organizations, which is often crucial for understanding how they originate, evolve, combine, and fail. Remco Neuteboom, senior vice president and chief digital officer of Atos’ Global Financial Services, and Olaf Badstübner, global director of Atos’ Financial Services, provided their professional insights into how the banking sector, often guided by tradition-oriented practices and approaches, interacts most and least effectively with the fintech sector, which often subverts banking institutions in its customer engagement entirely despite the transaction of financial assets.
This is arguably the essence of hype surrounding fintech. Abstracting from the barebones concept of “fintech” as just a mashup of “finance” and “technology,” fintech can comprise the people, companies, processes, and structurations that operate those technologies. Many of these aspects of fintech challenge the ways in which we normally conceive of a financial transaction. Consider the days in which you or your parents wrote checks to pay for, for example, groceries. You (or your parents) wrote the check and gave it to the grocer, but it was ultimately both parties’ banks that determined the terms of the transaction and the time in which it was completed.
In the modern day, you can walk into a store, scan your own groceries, and bump your smartphone against an NFC terminal and carry on with your day. Meanwhile, a whole cascade of processes that no longer orbit around the banks begins. While the Age of PSD2 does not seem to proffer any clear nucleus such that banks were, a major player in the game now is the fintech: a third party service provider whose value added is how it can operationalize the information that you choose to give it and that banks must give it. Considering how ambiguous this new paradigm is, it’s easy to imagine the broad diversity of fintechs that have sprung up to answer the call of consumer demand and structural necessity. These fintechs must start somewhere, which brings the FINDER team to TechQuartier.
TechQuartier is a business incubator that intakes small startups, provides a low-cost cooperative workspace for them, and provides forward guidance for their continued growth. The FINDER team convened at TechQuartier on the second day of the Frankfurt event in order to gain insights from Thomas Funke, managing director of TechQuartier, as well as several fintech founders who have passed through the TechQuartier halls. Familiar sentiments arose: the slow speed of banking institutions’ innovations are, in part, enabling the rapid development of fintechs. As the industry is discovering, this does not necessarily mean that fintechs stand to overtake these institutions as the primary engines of financial transacting – one speaker was Oliver Mahr, from the Deutsche Börse, who discussed the late-stage development of fintechs and how mergers and acquisitions driven by large legacy banks both provide stability and strength for fintechs and an innovative speed boost for the banks.
This is one of the research tracks that the FINDER team is investigating, and continuous working papers will provide operable knowledge for fintechs, banks, entrepreneurs, policymakers, and more on this topic as well as many others. The FINDER team will convene early September to begin its four year research duration, so stay tuned!
A summary report of the FINDER Introduction training at Atos Amstelveen on March 28th, 2019 by Tze Yeen Liew – PhD student
On the 28th of March, the FINDER cohort convened at the ATOS premises at Amstelveen to discuss – amongst others – the intersections between the company’s interests and the FINDER research themes. The meeting was also held with the intention of introducing ATOS fintech stakeholders with core members of the research group.
After introductions, Remco and Jerry commence with an insightful presentation on ATOS and its recent undertakings in the midst proliferating FinTech industry. Remco proudly elucidates on ATOS’s positioning as a fintech itself, while stressing on its core mission as a fintech service integrator on behalf of its clients. Jerry also draws attention to Atos’ mission critical credentials: through a variety of strategic acquisitions ATOS has accumulated under its belt an arsenal of fintech IPs including pickings in cybersecurity and computing. As a service, it helps its clients which are often older, more established financial institutions, incorporate disruptive financial technology into their operations. The company achieves by scouting, engaging, scaling and de risking promising fintech fledglings to bolster the chances of a successful partnership. From this tangent, Remco links it to the company’s hopes for FINDER project and the resultant knowledge: to help it refine its fintech services and to increase its current conversion rates for successful fintech partnerships.
Moving on to the other side of the table, Rick briefly elaborates on the five core streams of the FINDER project before encouraging attendees to field interesting ideas that synergises both its research themes and ATOS’ fintech operations. He passes on the floor to Tze Yeen, who gives a brief yet dense presentation on recent trends in the FinTech industry. She explains that fintechs have begun to take on banks by becoming more like them through a variety of means:
Payment and non-payment FinTechs are launching their own debit cards in a big to access customer deposit and thus, increasing their liquidity Maturing
FinTechs are diversifying their revenue stream beyond their core product in efforts to rake in more profits from a maturing customer base who now trust in their services
China nabs first spot for the sheer size and quantity of fintech hubs it contains within its borders — its insufficient local financial infrastructure serves as a boon for aspiring FinTechs seeking demand to its supply
Unlike many other industries, an increase in regulation lowers the barrier of entry for FInTechs due to the premium put on trust and legitimacy in financial services
Mr Ivo Luyendijk graces the floor next by shedding light on the operational roots and branches of ATOS’ FinTech services: ATOS FinHub, FinNet and FinLab. Through its systematic, tripartite approach, Ivo explains that ATOS allows its clients and selected fintechs to explore how the offerings of the latter can be best combined with the operations of the former. ATOS FinNet serves as a knowledge repository for all things FinTech, while FinLab and FinHub serve as a joint-value creation sandbox and FinTech startup congregator respectively. All in all, ATOS strives to help its clients innovate in spite of legacy systems that both prop and hold them down.
Saeed proceeds by proposing that attendees examine the FinTech industry from a meta-perspective. He stresses that there is much to be gained by drawing similarities between FinTech and existing industries. By observing how time impacts strategy processes and decisions, we may be able to find valuable insights on the FinTech industry where speed – service speed, operational speed, innovative speed – is a constant fixture.
As the meeting draws to an end, James and Tze Yeen bring to the fore some of puzzling conundrums that they intend to academically dissect as PhD candidates of the project. James speaks passionately of exploring possible weaknesses and opportunities in relying on digital twinning for innovation in risk-based system. Tze Yeen, on the other hand, touches on deepening our current understanding on the factors behind successful fintech acquisitions. Phillip echoes Saeed’s opinion on the virtue of seeking inspiration from existing high tech industries, before synthesizing them with insights that we can derive from operations at ATOS and its partner FinTech hub in Frankfurt, TechQuartier.
Rick wraps up the meeting by summarising some of the main takeaways of the meeting, before following up with a proposed line of action. He expresses his appreciation to the floor for their valuable ideas and comments and to palpable excitement, announces the start of a company tour. Remco ushers attendees to its various parts of the company’s tech offices, where they were offered a chance to try the company’s ground-breaking VR headgear. As the day concludes, the attendees lean in for a group photo to commemorate the meeting before taking off to their respective destinations.
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
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.
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.