So what is fintech anyway?
The press abounds with stories of the latest Fintech solutions, the ideas, the capital raisings, the successes and unfortunately the failures. The history of Fintech goes back a long way. In 1883, James Ritty patented the Cash Register (otherwise known as the Incorruptible Cashier, to stop his employees pilfering cash in his bar). The concept of Automated Cash Dispenser had been around since the 1930’s when banks decided they wanted to close branches on Saturdays. Patents covering the next major fintech, the Automated Teller Machine were issued in the mid 60’s with the concept of the PIN adopted closely thereafter.
The rise of an industry
There has been a proliferation of activity in fintech over the last 10 years and although 2020 capital raisings were below 2019 numbers, they still accounted for US$25.6b across 1,221 deals in the first half of 2020 alone. In essence, fintech is the intersection of technology and finance and is also expressed according to specific market sectors such as payments, insurtech, regtech, wealthtech, cryptocurrency and aspects of cybersecurity. Fintech is further incorporated into the capability of other platforms (e.g. ride sharing) and as so touches more and more of our day to day activities.
So, what is the job of Fintech? In essence, the job that fintech is trying to solve is to give consumers options in the collection and distribution of money and associated documentation. The disintermediation of traditional banking is driving the proliferation of fintech options and Covid-19 has significantly accelerated the adoption of digital solutions. Operating in a regulated market, banks and existing players are bound by rules and controls that often the fintech company seeks to exploit by giving the consumer an easier way of ‘getting the job done’. After-Pay, Zip-pay, PayPal, Coinjar, Coinbase, Kickstarter, GoFundMe, …the list of successes and failures is endless.
Researchers at Queens University in Kingston, Canada suggests that the average person has 6,200 thoughts per day. It is no surprise therefore that many of these thoughts reflect on better ways of doing things and generating ideas. With the growth in investment in fintech it is no surprise that many organisations and individuals are seeking to exploit these ideas to gain their share of the investment pool.
Traditionally the start-up works on the basis of ‘Build it, and they will come’ – the traditional Field of Dreams model – or when driven by tech companies, ‘Fake it, ’til you make it’. The challenge with this approach however is that there is no definition of market, the competitors and more importantly the basis on which your idea will compete with existing products and services. Angel and seed investors are seeking greater clarity on your potential clients, your market, your solution and an understanding of what the ‘job to be done’ is, before releasing investment dollars.
Fintech will continue to proliferate as technology capability and capacity continues to extend with cryptocurrencies, ultra-fast brokering, mortgage origination and the replacement of cash on the current hype-cycle.
So how can you cement your idea as one of the successful products in the fintech market?
In reality there is no such thing as a bad idea, but more of that in future posts. Having a defined strategy and clarity on what problem your idea will solve is key. Validating your idea using the latest data analytics to measure the market and the basis of competition is key to improving your chance of success. Without a plan your idea will most likely fail and just pitching your product against incumbents because your idea is better or cheaper does not guarantee success. Creating clarity on what job your fintech solves sounds easy but really, understanding your consumers requires cycles of conversations and reviews before you even get to a Minimum Viable Product stage.
The global Fintech market abounds with opportunity but unless you prove your capability in running an innovation program built on commercially sound processes and supported with data science-led validation of the market you will struggle to make an impact.