“You need to first identify the problem before engaging with FinTechs.”
The above statement comes from the line of thought that all innovations should start with the problem. And only once the issue is fully understood one should move into the technology.
Although that may be correct in other industries, I would like to think that the same does not always apply to financial services. FinTech and TechFin are an excellent example of this.
The term FinTech refers to a company in which financial services experience is improved by leveraging digital technologies. FinTechs leverage approach 1. They start by understanding the problem and then identify the technology.
While TechFin refers to a technology company that aims to improve financial services experience. TechFins leverage approach 2. Technology is at the heart and starting point.
Now, let’s look at innovation teams within incumbent banks.
Let’s assume for a moment, that their preferred way of getting access to technology and solutions is via FinTech partnerships.
Should they only meet with FinTechs once they have fully understood the problem (Approach 1)? Or should they start with the technology by meeting with FinTechs and only then mapping back to the problem (Approach 2)?
Approach 1: Problem -> Technology
By starting with the problem statement, innovation teams are looking inwards first. Existing processes and pain points are defined with the help of the business SMEs. Teams then go on a journey to identify the technology and a solution for those pain points.
Many teams will start by looking to the available technology in-house and any FinTech already onboarded. And only then, they would research in the market for new FinTechs and startups.
The downside of this approach is that the discussion can become too narrow, and the solutions provided will be tactical. Solutions will solve issues at hand but may not look at the end-to-end process. Is the process at hand efficient? Are there better ways of doing the same process?
Approach 2: Technology -> Problem
If on the other hand, innovation teams start by meeting with FinTechs, they may not be able to help business SMEs as they don’t fully understand their pain points.
However, as they do not have one problem in mind, they will be open to meet a broader set of FinTechs and startups. And that’s when the magic happens.
By meeting a broad set of FinTechs and startups, innovation teams will ultimately get a deeper understanding of new trends and technologies. Now and then, they may even encounter innovative solutions that will solve problems they haven’t considered before. Myself and my team had one of those moments recently. My colleague described it best “Do you remember when the iPhone was first released, and it changed our experience as a customer? This technology has the potential to solve for untapped experiences.”
In my experience, neither approach should be adopted in isolation. Innovation teams should ensure both methods are leveraged in a balanced way.
Approach 1 will ensure that the innovation teams understand financial services processes and pain points so that they can help move the needle in small tactical ways. Approach 2 will create a space for innovation teams to learn about new technologies and discuss new ways of delivering customer experiences, without being restricted by current processes, regulations and other requirements.
This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organisations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated.
Rita Martins drives Innovation and FinTech Partnerships for Finance and Risk, at HSBC. See her personal blog here.
