How do you build the DNA of a successful FinTech business?

ByHanover Team
Posting date: 19 November 2019

The global FinTech ecosystem matured rapidly in 2018, with 2019 promising to be another bumper year for the industry. At Hanover, we’re keeping a close eye on new developments within FinTech so that we can provide the best possible service and insights to both our clients and candidates. As part of this, we recently hosted an interactive seminar to focus on the challenges facing FinTechs as they scale. We asked the session to be chaired by Alessandro Hatami, the managing partner of Pacemakers a specialised advisory firm focused on digital innovation in large firms. 

Here’s a run down of what we discussed: 

Rapid movement across the board

Firstly, the pace of change is fierce, as is the competition. We are going through an irreversible change; the traditional banks are under attack and must adapt to this digital revolution. There are a plethora of competitors all chasing a premium part of these giants’ business.  The only way forward in financial services is innovation.

Global Fintech investment has grown five-fold in the past five years, with investment rising from $8.3m to just under $40m since 2014. 

It’s not just the FinTech businesses that are causing disruption, either. It’s the tech giants as well – whether it’s Facebook, Apple, Amazon, Microsoft Tencent or Tesla, they all have huge customer bases and are offering some really interesting payment, foreign exchange and ecrypto solutions.  They want to keep people on their platforms, and seemingly are less interested in the regulation that the Financial Services industry offers.

Threats posed to traditional financial institutions by FinTech

The rise of innovation posed by FinTechs has been embraced by many within the wider financial services industry, although there remain challenges and threats to these traditional institutions. Among these is increased competition, with FinTechs giving customers viable alternatives to financial solutions and services that may require less reliance on traditional institutions. Innovative new products and platforms will continue to challenge how traditional organisations do business, and there may also be compression of margins as competition intensifies. 

However, with challenges come opportunities, particularly for those institutions who choose to adapt to today’s digital drivers, rather than shy away from new technologies. FinTechs can offer solutions that lower operational costs from automation and transaction migration, leading to increased revenue from not only money saved, but also new products and business models. 

Adapting to the digital revolution

We know that change and innovation is the only way to survive in this new world, so how does one go about successful adaptation?

According to event speaker Alessandro Hatami, the three pillars of change are ‘adapt, evolve and rethink’. ‘Adapting’ might be building a layer of digital to complement existing products and services, or it may be about considering new channels. ‘Evolving’ is about creating new products, for example those that can be delivered purely online, i.e a loan facility and customer serving mechanism adaptive to a digital model. Finally, ‘rethink’ is about creating fundamental change in your organisation, with consideration to talent management, structure, and new business models. Today’s customers think about outcomes and what they want to achieve, not process and people.

In the ‘evolve’ and ‘rethink’ stage, the need for partnering is apparent; no longer are financial institutions thinking they need to build these new products in house, so this provides opportunities for the start-ups and true innovators.  People are being rewarded by these large institutions for taking risks, if the outcome is a success.

So depending on what type of innovation your businesses is strategically driving, will depend on the  ‘how’ – should you build internally or partner with an innovator? 

Finding the right FinTech talent

CEOs are becoming more and more concerned about finding talent with the right abilities, with 79% worried about the availability of key skills. Talent is the scarcest resource, which is creating instability among many sectors. According to PwC, the current workplace model is “moving from a state of relative stability that has been in place for decades to a condition typified by constant change, with no final destination”. When rethinking and changing your business, new skills are required that don’t currently exist internally, along with new insights, ways of working, and individuals who can be challengers to the establishment.

Often those working in the traditional large corporate environments such as banks are not accustomed to change or varied, fast-paced decision-making environments – so they need to challenge their thinking and harness new ways of working in order to be successful.

How does the FinTech landscape look currently? 

According to Alessandro, there are four main ‘actors’ within FinTech currently:

  • The Challengers: Small but proven. They are scaling up, however lack the maturity of the large institutions
  • Start Ups: Agile, with a strong vision that drives the workforce and ideas. They potentially need the business experience from external partners
  • The Incumbents: Large, complex and successful companies that need a “change” mentality. Their challenge is legacy, operational procedures are departmentalised, and they not geared to selling products or services in ‘solo’ environments
  • BigTechs: They have huge customer bases and huge knowledge of their purchasing/spending habits, plus the resources and appetite for innovation. However, they lack banking skills and the potential desire to be regulated

Each of these enterprises within the FinTech market has its own talent challenges. How does a senior VP/CEO feel in an established financial enterprise? If they do risk ‘change’ it could have a direct negative impact on their remuneration, plus they may not see the ‘success’ in their career lifetime. How many are prepared to make this sacrifice?

Filling this FinTech skills gap in your organisation

Each Fintech business needs a blend of digital skills and business leadership. FinTech companies all need talent that can bridge the gap between the old and the new. So what are your options to fill the talent gap and where can you find these skills?  

  • Develop talent internally
  • Hire externally  
  • Partner

Each solution has its risks and rewards, but these considerations may help:

Developing talent internally

  • It’s important to go through an appropriate selection process – people must have the desire and adaptive skillset to do it!
  • Train, develop and allow people to develop an external perspective
  • Your rewards and package should change – you don’t want to develop a future digital business leader only for them only to leave for a more attractive proposition. These people will be in high demand and you must adapt your retention strategy accordingly

Hiring externally

  • Know what skills you are looking for. Have a clear brief for your search partner or other methodology. Remember using your network might seem the likely solution, however you may only know people ‘like you’ – will they fit the brief?
  • Understand their motivations, including the package, environment and self-development
  • Ensure the package is attractive and mirrors the ‘vision’. You need to be flexible – this goes way beyond traditional nuances
  • Onboarding – ensure they understand the rest of the organisation, your vision and purpose
  • Engage with your hires. This includes regular audits, feedback, the right level of support and autonomy

Once you have hired your digital leader, what can be done to ensure you are retaining this talent? Many corporates and challengers in the market have difficulty retaining talent, which comes down to the following:

  • Onboarding: Setting clear expectations, having regular communication and understanding your team members as individuals
  • Support: Provide the right level of support and balance fast-paced decision making with a level of governance which is appropriate to your organisation
  • Monitor: Too frequently there is a lack of monitoring of the progress, feedback and evolvement of processes
  • Growth and development opportunities: People want to be treated as individuals and have new opportunities to grow professionally and personally. How can you provide this? Consider training and exposure to other organisations. Tomorrow’s leaders are individuals that value highly their personal brand and often will not stay committed to one organisation – how can you navigate this?

Partnering to gain FinTech skills

Partnering is reciprocal arrangement. The incumbent (often a large successful financial powerhouse) may know they need a partner for all the reasons above. Meanwhile the challenger has a business model that is already proven but could catapult in terms of growth if they had the capital, customers and other assets the incumbent can offer. This connecting collaboration can be extremely mutually beneficial.

So how does one go about finding the right fit? Just as with any tried and tested methodology – there is a clear process for success. Pacemakers has identified five steps to partnering to ensure this is a symbiotic relationship:

Define: The incumbent must really define their requirements, such as what tech they need, what the problem they want to be solved is and what the desired outcome is. For the challenger, this is about defining their proposition, who they are as an organisation and what’s important to them in terms of who they work with.

Discover and curate: It’s important for both the incumbent and the challenger to really explore the whole market, then filter down opportunities.

Qualify: Consider what testing can be done to validate the hypothesis at this time. How can the challenger prove the model? The outcome needs to be tangible and objective.

Implementation: Build, adopt, evaluate. This may take place in a sandbank environment or closed department to prove the model.

Start-ups may benefit from either partnering directly with the incumbent, or indeed finding a partner who is a current supplier to the corporate. As with hiring externally or partnering – the culture fit is so important, however both parties need to have an element of adaptability as change brings evolvement of culture and people. Despite this change requirement, the fundamentals of shared vision, purpose alignment, connectivity and adaptability must be right.

Looking to the future

The stage is set for financial services and FinTechs to become increasingly intertwined. With 82% of firms in the financial services industry expecting to increase FinTech partnerships in the next few years, we’re only going to see more partnerships and collaboration. 

If you’re in the financial services or FinTech space, there are exciting times ahead. Stay tuned to our latest industry insights to keep abreast of the latest developments. Alternatively, contact us to find out how we can work together.

About our seminar

Co-hosted by Hanover’s Alex Curtis and Richard Waddell, the June event featured a session with speaker Alessandro Hatami. Co-Founder of Pacemakers, former COO of Digital Banking at Lloyds Banking and superb mentor and active investor, Alessandro is one of the most knowledgeable experts within FinTech, making him an ideal presenter to our delegates.

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