Everything you wanted to know about Fintech and never dared to ask
The word is the shortening of Financial Technology and it includes all companies, which are challenging the financial ecosystem through the use of technology. Of course this definition comes with a caveat: while the notion is simple, the concept is broad, complex and disputed. For example, very often under this umbrella many expert include not only financial services but also insurance companies, for which recently a new term has been similarly coined: InsurTech.
Moreover FinTech includes both companies that offer new approaches to traditional financial (and insurance) services and products (e.g. banking, online and mobile payments, AI customer service,…); but also more innovative services based on new approaches (e.g., robo-investments, bit coins, bit coins exchanges, P2P lending and investing, on/off- insurances). And finally in the Fintech sector are included also a number of companies which are focusing more on the technological side, like integrating block chain technology – the building block of bitcoin – intro traditional financial services, or by integrating deep learning and big data collected by smart devices at home, to tailor develop insurance premium to our usage rather the statistical clustering. The bottom line is that Fintech, beyond the technological advances, which are challenging the boundaries of the sector, is enabling the targeting of under-served consumers, and the exploitation of our digital lifestyle.
In the first case, it allows for consumers who did not adopt a certain service (e.g., being for economic, technological or distribution reasons) to be now at an arm’s reach: whether it is banking for Millennials in the developed world, or health insurance in a rural developing country, or services to micropreneurs in fast changing regions of the world. In the second case it enables the digital life, through on- and off-insurances for the sharing economy (whether you have a room to let on AirBnB, or you are an occasional Uber driver, or a freelancer on UpWork and Fiverr) or digital enabled services to simplify and hence reduce the cost of doing business.
Fintech is very broad and it has many adjacencies with HealthTech, IoT, Big Data, AI and Deep Learning. Let’s just look at some examples:
- Telematics is playing a role in fleet management, vehicle tracking but also in insurance by allowing insurance premiums to be calculated on the actual usage of the vehicle rather than standard clusters. It also allows pay as you drive insurances, such as Metromile
- Kespry, producer of drones, offers an insurance specific product, which allows streamlining claims management and insurance underwriting by collecting aerial inspection data for commercial and residential roofs.
- Lending Club, is a peer to peer lender, which packages their offers in securities that can be traded as over the counter financial products in a secondary market.
- Fintech is also changing the way small entrepreneurs bank, with Holvi, a Finnish FinTech bank which integrates and links banking with book-keeping and invoicing, allowing entrepreneurs to focus less on the administrative part and more on the business itself.
- AI is core to robo-investment platforms, such as Wealthfront and Betterment, which provide on-line investment advise on asset allocation and re-balancing.
The relationship with Open Innovation
The most interesting aspect for innovation and open innovation aficionados lays in the “how”: Fintech is also developing rapidly due to corporate accelerators, incubators and corporate venture capital. It is possibly one of the best examples of how companies are betting on outside innovators to disrupt their own industry. As a matter of facts many banks and, recently, more and more insurances, are developing either internal or external accelerators, with the aim of innovating like startups. Some of these entities are completely internal like in the case of BBVA, or internal but outsourced, like in the case of Barclays Accelerators, which is run by TechStars. Some others are external and independent, but seek bank and insurance sponsorship, like DB which is backing the Axel Springer Plug and Play Accelerator; or StartUpBootCamp which is working with ABN Amro, Aegon, Allianz, ING, SanPaolo Intesa, Lloyds, Rabobank and many others. Of course also non-fintech devoted accelerators work with insurances and financial entities in general for the fintech’s demo days: for example Y Combinator, which is one of the most notorious accelerators in the world because it has financed and help launching companies like DropBox, AirBnB and Reddit.
In conclusions, traditional firms which want to look for ways of disrupting their industry, through a mix of digitalization and business model engineering, should more and more to outbound open innovation activities, like incubators, accelerators and corporate venture capital.