What does this FinTech buzzword actually mean? Busting the jargon with some practical insights for innovation in financial services (and beyond).
People love an "ecosystem" - these days. It's one of those useful pieces of corporate jargon that provides an easy abstraction to explain an otherwise complex set of circumstances. Great for spouting in meetings (and mocking in Dilbert) but does it actually mean anything in practice?
In the world of financial technology, banks and other large players talking about "building an ecosystem" aren't just explaining the march of Apple, Alibaba and other Big Tech players into the payments and financial services landscape - they may also be describing their own approach to innovation. The "ecosystem" is often used as shorthand for the use of 'open innovation' in financial services - collaborating with the ever-expanding pool of FinTech talent that exists outside the four walls of your organisation to create new products or enhance existing ones.
So with that in mind, let's go beyond the buzzword - here are a few practical insights for innovation in financial services, working with FinTech companies and embracing the ecosystem.
- Be genuinely open. Lots of companies talk about partnership and collaboration, but in my experience it's harder to back up the talk with concrete action and ways of working. The ecosystem needs some nurturing - and the rest of this list provides a few examples of how to do that.
- Be careful (but realistic). Simplify (but don't bypass) governance and procurement processes for smaller-scale companies and projects. They are often looking to serve a niche rather than provide critical infrastructure, so processes and contracts designed for massive outsourcing deals generally won't work. Look at ways to simplify your contract templates, and engage small groups of subject matter experts to support projects, rather than relying on tick-box compliance exercises designed for standardised procurement. You still need to protect your interests (particularly around intellectual property and security) but do so with a realistic and informed view of the risk/reward
- Zero in on the best talent. Big ecosystems are great, but you have to kiss a lot of frogs. Innovation programmes should have a laser focus on best-in-class talent (both entrepreneurs and intrapreneurs) through rigorous due diligence and a genuine understanding of what the organisation needs (rather than what sounds like it might be cool). Then once you've found the talent...
- Create deep partnerships. Accelerator programmes can bring results, but they should be the beginning not the end of the story. The best and most successful FinTech deals I've seen have involved a strong sense of partnership - from both a financial and a relationship perspective. This can often be enhanced through a strategic, minority investment in a FinTech partner - allowing the company to scale and to build an enterprise grade solution that big clients can use, while giving the bank a stake in the outcome (without the regulatory burden of an acquisition) and a better chance of a successful commercial deal down the line. The work done upfront on an investment relationship can be invaluable in breaking down the 'fear of the unknown' which sometimes infects commercial negotiations on cutting edge tech deals.
- Don't be afraid to follow (fast). In Europe at the moment banks are being forced to engage with the FinTech ecosystem by regulation - particularly "open data" requirements - which are proving complex and resource-intensive to implement in very tight timeframes. In New Zealand, with a less prescriptive regulatory environment and a smaller market, there's a real opportunity to build these FinTech partnerships - and the technology and legal frameworks that facilitate them - from the ground up. We can learn from others who are doing the early grunt work in a more difficult environment, cherry-picking what works and discarding what doesn't. But...remembering that customers will demand an open banking experience if they see it working overseas - hence the "fast" bit.
- Don't underestimate cultural fit. "Number 8 wire" stuff can sound trite, but I've seen it work in practice. Having recently returned from the UK, one of the most interesting FinTech deals I worked on involved a New Zealand tech company providing a complex, customer-facing solution to a big bank. The project had many challenges - but it succeeded in part due to the time-honoured kiwi characteristics of hard graft, reasonableness and good humour creating genuine collaboration on a product and a relationship that's now performing well. Culture absolutely can help Kiwi companies succeed at home and abroad.
I spoke about some of this at the recent Future of Financial Services conference in Auckland - where my brief was to give a lawyer's perspective on innovation in banking.Having just returned from six years in London (the last four spent advising digital and innovation teams at a big bank) my sense from listening to conference delegates and my new clients is that it's an exciting time to be back, as many of these themes are starting to take hold in New Zealand - not just in FinTech but the wider technology sector.
Embracing the ecosystem - David Attenborough would be proud.