Photo: Eduardo Paolozzi’s sculpture “The Head of Invention” in Holland Park, London

In the course of one day in the City of London last week, I was in three different conversations about Fintechs.

What struck me was that the financial services experts that I was talking to all had different examples of what a Fintech is. One mentioned a supplier of banking systems, another mentioned a disruptive network platform provider, and another mentioned a niche consumer lender who has been around in the market for at least a decade. Added together, these cover a very broad range of businesses indeed.

Check out the web and there is no standard definition that seems to have consensus. The UK government (UKTI) definition is as follows: “In its broadest sense, we define FinTechs as high-growth organisations combining innovative business models and technology to enable, enhance and disrupt FS. This definition is not restricted to start-ups or new entrants, but includes scale-ups, maturing companies and even non-FS companies, such as telecommunication providers and e-retailers.” (UK Fintech, On the Cutting Edge, HM Treasury and E+Y, August 2014). There is so much in there, it is hard to detect a couple of keywords.

Perhaps market forces are dictating the use of a very inclusive definition. If Fintechs are currently attracting investment capital, and being championed as the provider of choice for the digital generation, then what Board is going to tell its Chief Executive not to embrace the term wholeheartedly? Especially as the definition brings with it the allure of high growth for potential investors and, for the Chief Executive, the imposition of some ambitious growth targets. Of course market forces will create winners and losers, but you cannot win if you don’t take part.

I believe however that some structured definitions within this very fluid and fast moving market are important. As an interim executive, I get frequent approaches along the lines of “Are you interested in this CXO or NED role with XYZ Fintech”. How can anyone sensibly answer this without some discussion of the nature of the Fintech business and the operating model that it needs to have to be successful. It’s not enough to say that you can thrive in this market if you understand both banking and technology; that particular competency has been around since at least the 1950s.

For simplicity, let’s say a Fintech (in the retail banking market) could be a combination of one or more of the following businesses:

·         A software provider of banking systems

·         A platform provider who uses the software to provide a processing service to multiple banks

·         A bank (or quasi-bank) which is providing technology-enabled services to its end-customers; such a bank could be a pretty much anywhere on the challenger / maturity scale.

The combination point is important – for example a challenger bank might make much of its ability to create new software, or a platform provider might aim to win direct B2C business by putting in place some key “bank-like” services. But, just like the big conglomerate industrials found in the 1980s, the shareholder value of running all three types of business through the same management team may prove be to less than the value that can gained when the different businesses can be run by real specialists. The proviso of course is that, for overall value to be created in the Fintech market, there has to be a willingness for collaboration.

All three types of business need to deliver profits and return on investment. They all need to have a vision for where the sector is heading and the opportunities for disruptive growth. They also need to embrace the spirit of collaboration. But that aside, very different operating models are needed in each of these businesses.

The software provider and the platform provider are both B2B providers, whereas the bank (in this example) is a B2C provider. B2B and B2C entail very different go-to-market strategies.

The software provider is typically focused on innovation, and managing the costs of investment. Service is important, but it is rarely the core competence of the organisation. The platform provider is highly focused on managing service levels and operating costs. The bank is concerned with market share, and the risk/reward profile of its customers, and might be ready to outsource many of its delivery services.

The bank will have a regulator on its back, the platform provider will be trying to design a service which avoids the need for regulation, and the software provider’s only interest in regulation is in making sure its software can produce the numbers that regulators want to see.

In summary, this is definitely not a case of “one size fits all”. The Fintech concept embraces at least three very different types of business, which in turn have their own distinct skills requirements at executive level.