How are Fintech Firms Embracing Leadership to Evolve and Grow?

Published in Payments and Cards Network PCN Magazine in 2020

Business leaders have long regarded Fintech as a digital force that could bring about unprecedented change to any industry. With an estimated worldwide worth of $4.7 trillion, according to Goldman Sachs, the wave of fintech startups are changing the future of finance – for the better. The newfound interest in Fintech is well-founded, especially after considering the crash of 2007-08, which is where policymakers first thought of concentrating on making finance safer for businesses. 

According to research by Capgemini, Fintech startups and SMEs, driven by a younger and more tech-savvy customer base, are gaining momentum. This comes as no surprise, as Fintech firms specializing in online payments have facilitated the expansion of capital access for startups and SMEs, including women entrepreneurs, who, up until then, found fundraising close to impossible. 

Fintech startups have helped level the playing field, which has resulted in neither the customer nor the service provider being underserved. This has helped fintech companies establish a positive rapport with the current startup scene, along with many established businesses. 

Billing and payment tech companies span from facilitating payment processing to offering solutions such as payment card developers and subscription billing software. The one thing that both startups and established firms have in common is the need for faster, more secure payment methods. The good news is that fintech firms specialize in a combination of Robotic Process Automation (RPA) and AI (Artificial Intelligence), which is being called “Intelligent Automation.” This is the next step in the evolution of the way that businesses can get more work done effortlessly. This is also a reason why the need for Intelligent Automation has quickly garnered the interest of the financial sector, which sees its potential. 

According to a study by Capgemini’s Digital Transformation Institute, by the end of 2020, the financial services industry will generate an estimated $512 billion in new revenue globally by using the process of Intelligent Automation.

Other technologies that are helping bolster the growth of fintech firms are Blockchain technology and Machine Learning (ML), both of which have moved from the outer fringes to the centre of the new technology boom in the fintech ecosystem. 

Offering Value in Payments

Back in the day, transactions between merchants took place using gold, silver, and other physical commodities. That practice ended in 1971 when the US dollar and the other world fiat systems separated from the gold standard, embracing the concept of floating exchange rates. Over the coming years, financial institutions have built payment systems that seem to be obsolescing in front of fintech disruptions. These include decentralized protocols, disrupted ledgers, and, of course, virtual currencies. This is partly because fintech firms, especially those that operate within the payments niche, are more in tune with the growing needs of a demanding customer base, including the high-expectations of tech-savvy entrepreneurs who buy and sell goods all across the globe in a matter of minutes via their phones. 

Customer Centricity: The Need of the Hour

There’s an increasingly growing trend of creating an ecosystem of interconnected services, which is beneficial not just for the customers but for the service providers as well.

By providing an integrated customer experience, organizations can create an ecosystem where they not only offer their services but also facilitate other services as well, creating an interconnected marketplace where customers have quicker access to the service providers they need and vice versa. For instance, Customers can use a platform to find the service they need. This, in turn, generates data. That data is then used by partner companies to sell services via said platforms. 

A growing number of Fintech firms in the payments niche continue to answer the demands of SMEs and Enterprises (and their customers) for the need to implement frictionless systems (blockchain / distributed ledgers) to help do away with the traditional barriers that they have to confront every time they make a transaction online, whether that transaction is between the startup and the supplier/distributor or the consumer and the startup or even enabling improved cross border payments.

This has led to entrepreneurs getting access to efficient transaction methods, which has resulted in using innovative solutions to transfer value with efficacy, all the while effectively bypassing the traditional red tape that startups and SMEs have traditionally come across. Some great examples of how fintech is improving payments across the board are crowdfunding platforms, Blockchain, mobile payments, insurance, stock-trading apps, and budgeting apps. All of these are now powered by fintech’s newest technologies.

Standardization, Disruption, and Regulations

There are three distinct categories of fintech-related policy measures taken by governments: 

(i)              Those involved in the direct regulation of fintech activities.

(ii)            Those focused on using new technologies to offer financial services.

(iii)           Those promoting digital financial services (aka payments solutions). 

The first type of policy measures takes into account specific activities. For instance, peer-to-peer lending or digital banking, and payment services, while the other regulations have to do with market participants who are using fintech technologies, for example, cloud computing or AI. The third type of regulation considers enabling regulatory initiatives relating to digital identities and data sharing, along with establishing sandboxes, accelerators, or innovation hubs that encourage growth. 

The different policy initiatives that have been rolled out through the years to govern businesses operating in the fintech sector remain mainly focused on adjusting the regulatory perimeters to coincide with technological developments, along with developing regulatory policies that take into account the risks that also arise due to specific innovations. For example, the Payment Systems Directive (PSD2) in the EU, or the possible misuse of AI and machine learning algorithms used in the fintech payments space. 

Gig Economy is on the Rise

Gone are the days where “gig” or short-term jobs were only reserved for musicians and other artists. Nowadays, freelancers occupy all industries and are providing valuable services to their clients. 

According to research conducted by Morgan Stanley, the freelance workforce has grown by up to three times in the US as compared to the regular workforce. Fintech is meeting the challenge faced by the changing nature of how professionals find and carry out remote employment opportunities.

Furthermore, with the recent COVID-19 pandemic, working patterns have shifted as companies have no choice but to embrace remote-virtual working, which in turn drives the need for increased and robust digital models. 

Fintech payment technologies are facilitating the financial inclusion of the under-banked and unbanked population across the globe. By complying with national and international rules and regulations, fintech payment technologies can improve the long-term social and financial conditions of freelancer workers and consumers operating within a gig economy. 

Building / Integrating the Role of Leadership

Fintech technologies offer consumers personalized and interactive services, and a critical success factor is having progressive-minded leaders. Businesses that wish to capitalize on this digital disruption of financial services need leaders who have a progressive mindset and vision to deliver effective solutions to new business challenges. This means that businesses need a whole range of skill sets at the C-suite and Board level to face these disruptive challenges. 

Leaders who have transitioned from a traditional larger firm to a disruptor, or vice versa, could help in progressing the firm. The three dimensions to look out for leaders are their pivotal expertise and diverse experiences, leadership capabilities, and agility. The role of leadership is crucial to the success of a business now more than ever before. The right transformational leadership can help ferment new cultures, delegate authority, and develop other leaders.

Globalization and Emerging Markets 

When it comes to the penetration of fintech technologies in both developed markets and emerging markets, for example, in Africa and Latin America, visionary leadership and the readiness to embrace new technologies is the need of the hour. This is good news for Fintech companies since they already hold a stronger appeal among those customers who have invested in a financial product.  According to a Bain Survey, close to 80% of survey business participants in China, Brazil, and Columbia responded positively to the question of whether they would prefer investing with a technology company. 

As mentioned earlier, innovations in the fintech ecosystem, especially when it comes to payment technologies, are quite intense. As such, they have the potential to redefine the way that financial services currently work. While regulations are necessary, they might also become a threat to an industry such as fintech, which is still in its infancy.

For the correct regulation of fintech, governments need to apply the elusive mix of determination and prudence, as required in policymaking. The former will be required to take the necessary action to combat emerging risks in the fintech sector while not stifling progress. Regulators who embrace innovation and provide latitude help with the growth-innovation of the economy.

There is no doubt that the technologies offered by fintech firms are the way forward, mainly because they help facilitate the expansion of capital access to startups and SMEs. They also level the playing field in the process, which means that no segment is under-served. 

In closing, some questions to ask are: 

●      What types of partnerships are (or will be) most valuable? 

●      How to influence the ecosystem as a new or next-level business? 

●      What will be the risks involved for those just breaking into the Fintech space?

●      What new models/services will drive the future in Financial Services?

●      What mix of leadership is needed to lead startups/scale-ups, and where to find leaders?

About the Author:

Steven PAUL is the MD of Kirra Advisory. He is a Chartered Director, Business Advisor and serves on Boards as a NED. He has held several cross-functional executive leadership and board level positions internationally, with experience rooted in high growth scale-ups and matured in global firms. He brings strategic and active implementation expertise in building businesses, leadership, transformation and strategic operations. His passion is to help companies achieve growth and develop authentic leaders at all levels.