8 Commandments of Fintech

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FinTech is a hot topic within financial industry since couple of years. The term “FinTech” itself is then often categorised further under buzzwords such as blockchain, open banking, APIs, artificial intelligence, roboadvisory, internet-of-things, and so forth. Furthermore, it is used for business models based on new technology but also the firms using it; both incumbents as well as start-ups.

This is what we all know.

However, what we don’t know is what happens next.

What is the future of FinTech?

In order to get a thorough understanding of what is coming up, we will start an extensive FinTech research together with several instances related to FinTech development in Finland. Following we present the main our research premises as the baseline of our upcoming research saga. With this we will also launch the Finnish Institute of Financial Technology in Helsinki better known as the “5th”.

1. Long history of digital disruption


The development of financial technology is not a new thing. In Finland, the first steps of digitization took place in 1950’s. Salary payments were digitized in 1965 (“wages to the bank”-program supported by Finnish trade unions); ATMs were launched in 1970’s, as well as first telephone banks; PC-banks were widely used in 1980’s for employees especially in modern firms and universities. At the start of Internet banking in 1990’s, both the consumer behaviour and digitized financial services were in use to a high extent in Finland. We believe, that the history of the use of digital services is the main reason the deployment of internet banking was so fast in Finland and in Scandinavian countries as well. Thus, internet banking that has been the biggest disruptor of financial services during the last 20 years, needs to be understood and analysed in the history context; not as a phenomenon that started from scratch, which mistake was made even on the doctoral thesis level. Therefore, we argue as our first premise that FinTech research may not be done without its history context.

2. Multiple technology drivers

As we listed in the previous chapter, there has been several drivers before current FinTech phenomenon to disrupt financial business. However, those drivers have existed one by one. For example, internet banking continued the digitization of banking services and disrupted physical banking business model, but that was the only driver in 1990’s. In FinTech, all above mentioned streams are affecting the development at the same time, and many if all of those drivers alone may be as influential as internet banking has been. Our second premise is that when analysing the impact of FinTech streams on financial business development, their mutual effect on each other and relationships need to be considered.

3.    Blockchain is not a hype anymore

According to IBM Institute, 15 percent of incumbent banks will have a commercial product up and running during 2017. There are still many features in blockchain as well as in some other streams of FinTech that make the whole area hype-like, and further we go in the development, the more there will be new things either just hype-classified or just because of their radical features they are considered to be hype.

4.  Blockchain affects all financial services

There are certain service processes in which blockchain due to its basic nature offers quick benefits. Payments and cash management are examples of these fast growth investments. However, there are no financial process or service area, where blockchain and some other FinTech streams are not deployed yet.

5. FinTech changes processes, services, business models, and industries

The beginning of FinTech implementation was made in existing financial processes. For example, blockchain was first used in payments area to enhance the transaction cost between payment parties. However, financial service disruption does not happen in traditional services, but in new business models by incumbents and new service providers and also as the replacement of total traditional industries by FinTech parties and ecosystems. Blockchain exploitation is one example where existing incumbents form closed groups to develop and use blockchain and distributed ledger technology inside the group. R3 CEV is an example of permission based blockchain that forms a sandbox to learn and experiment the use of blockchain, but does not represent blockchain exploitation in the form that we are going to see in near future by open blockchain players which use the technology also for the substitution of trust. If the trust needs to be established, the cost of the least trusted member inside the group overcomes the cost saving of duplication and reconciliation based on the size of the group. Another interesting change is from vertical integration to horizontal aggregation in the business models of financial firms.

6. Significant part of the change is made by start-up firms

As mentioned, the bulk of FinTech based process and service development is made by incumbents so far. Based on our a priori model, the main effect on financial business models and industry structure will be made by new players like start-up firms and firms outside of incumbent players. We argue that the main reason for this is on the limit of self-disruption. The risk of disruption of full FinTech exploitation is too big for incumbents to take “voluntarily”. Therefore, the results of FinTech exploration are modest in incumbent players, while the main development steps are made by start-up firms.

7. Managers’ mental model

There are many challenges and obstacles for FinTech developers during the forthcoming time. Based on our research, the main obstacles are not the lack of development resources or the interest of consumers for new financial services, but the bias on managers’ mental models; especially of the board level in incumbent firms. The speed of disruption is difficult to observe and understand the effect. For the mental model research we have formed an a priori DOT-model, which analyses the spheres of observation, thinking, and doing of a manager or management team in the FinTech context.

8. The change in value creation spheres

There are many reasons why consumers like to adopt FinTech solutions like easy access to services, fast account set up, better online experience, new innovative products, lower rates and fees, etc. However, the biggest change is not happening in the evolutional way how consumers can reach and use financial services better. The main revolutional change happens in the role between financial services and consumers. Financial services are always subsidiary for customer’s other needs and processes. The old and still existing way to use financial services is that it is the customer that needs to go into the service provider’s platform and processes. FinTech is changing this relation totally: it is the service provider that goes into the customer’s own platform and process, that represents also the value creation sphere of the customer. Financial services need to be integrated inside that value creation process with other resources that the customer is using. The old thinking of “we create and deliver value as a service provider” does not hold true anymore.

So if you are interested in FinTech, please get in touch with us today.


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