Good at tech, bad at fin. Unfortunately, this turns out to be true more often than you’d expect.
One of the long-standing misconceptions about tech companies is that it’s all about the tech. I actually think it’s the “x” within the brackets in [x]tech companies that is hard.
If you’re an edtech, it’s all about education. If you’re a healthtech, it’s all about the health. Tech is a multiplier, a catalyzer, a disruptor, an automator, a time-saver — but it’s usually more of a means, rather than an end. Same thing with fintech. It turns out the fin in fintech is not easy. Fintechs are in the financial services business, meaning part of their core competencies are AML, KYC, risk management, compliance, and legal. I’d argue that the tech is hard, the fin is hard, and getting both right is the hardest.
I saw this in the regtech I ran for several years. The reg we were in had highly technical regulations (hundreds of pages -- and different for every country), a boatload of its own acronyms and language, and a very risk-adverse culture (sound familiar?). It was of utmost importance to get to the root of the problems that every day practitioners faced — some would argue this is the essence of finding product-market fit. Albert Einstein once said, “If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.”
The most common mistakes fintechs make:
Solving the wrong problem. Automating a bad process. Trying to solve a symptom of a problem rather than the root of the problem. Jumping to the solution before understanding the problem.
Minimizing the nuances of the fin. Downplaying regulators always trying to “get in our way” — no! They are doing their jobs. Not paying attention to the bread and butter of finance — risk management, compliance, AML. If you’re a digital lender, you need to be as good — or better — than banks at credit risk management. If you’re a payments provider, your KYC / AML processes… You get the picture.
“Break things fast” in a culture where 100% compliance is needed. Every moment of downtime in some regulated industries needs to be reported to the regulator.
The best companies (tech or not!):
— Know their customers' pain points so well — maybe even better than the customers know themselves sometimes.
— Build for those customers — even better, they build with those customers.
— Create internal cultures that allow for the speed / innovation / disruptive force of tech to meld seamlessly into the cautious / systematic / process-oriented culture of the [X]. It usually starts with the leaders of both teams having respect for each other and fully appreciating the other team's value.
What have you seen in this area?