Fintech Frenzy : Is this the new bubble?

Innovations is inevitable. The business world cant live without it but in recent years its meaning sometimes gets lost in abyss of business jargon. Bank failures are traumatic event for the society creating a lot of social upheaval. Bank regulators response to such financial epidemics have had a complete makeover to how it was being done traditionally. The operating environment being so complex and the product mix being enigmatic it becomes a losing battle if financial institutions are not well equipped to be smarter than the competition. Without adequate examination by the SME’s, the probable holes at the bottom of the boat may not surface.

Propelled by the significant technological advancements, the expectancies of Fintech customers are exorbitant today. The new wave of Fintech is born with both the technological, and generational progressions. From the devices and wearables induced consumerism shift, to the millennial and Gen Z induced generational shifts – the veering of era has brought about an on-demand economy, which led to the sudden augmentation of Fintech companies and startups.

Fintech is about reimagining the conventional services in the orthodox financial realm, and then furnishing those services to deliver in the on-demand economy. Be it financial management and stock trading, or peer-to-peer lending, or mobile payments and collections, or crowd-funded lending & donation sites – outside of the big banks, Fintech has remodeled and supercharged the financial sector through technological innovations. Similarly, there have also been further innovative Fintech products and services geared for the banks, financial institutions, and the like.

Largely piloted by the flock of vigorous and animated startups, the financial industry is seeing rows of ingenious and imaginative new products and services – all accessible through simplified, smart, algorithm-driven mobile applications, and add-ons. This is all great stuff, and undoubtedly an immense progression. However, more is not necessarily the merrier in this industry, unfortunately – at least not without an expert human intervention.

Financial sector is a serious business, and inadequate due-diligence done on the technology front, can not only create havoc as a ripple effect, but also jeopardize the securities of many involved. What the ripple effects will be, are only limited by the boundaries of our imaginations. The world would be a chaotic, anarchic place without appropriate law enforcement and policing. Similarly, with the lack of pertinent regulatory guidelines, in an uber-sensitive industry that is Finance, it’s impossible to not see a repeat possibility of 2008 crisis in the horizon. Fintech certainly is revolutionizing the industry, and disrupting the traditional banking in a powerful way, but as excited as the new financial era looks from the outside, it’s also important to stop for a moment and think. Think about what it means to expand the customer base that may not otherwise be considered creditworthy. Think about what it means to provide large funding to millennial who would otherwise be considered unqualified for large sums of loans. Think about what a drastic disruption in the heavily regulated industry really could mean.

From introducing major benefits through cost saving opportunities, and data-driven solutions that work autonomously, to prospects of better risk-assessment processes, if done right – Fintech indeed is an exciting news. But disrupting such sensitive industry, by only focusing on tech innovation in siloed fashion, without any intervention from SME, is a troubling concept to grasp.

Whether it is product innovation, process innovation, marketing innovation, or overall organizational innovation that is introduced – every change to an existing ‘way of doing work’, needs vigorous due-diligence, scrutiny, and assessment by the Subject Matter Experts (SMEs) in the Financial sector. This is especially true when the change comes through the insertion of smart technological components, software, materials, or characteristics. Innovations are always good news, but without adequate examination and scrutiny by the SME’s, the probable holes at the bottom of the boat may not surface.

Financial Technology (Fintech) is going through a steep climb, and an investment in this field is growing rapidly – immediately behind Cloud, Mobile, and Analytics. On the same note, majority of the newer, fresher, innovative products and services on the shelf today, are offered by aspiring startups, keen to take chunks off the Fintech pie. As far as technology is concerned, these startups may be onto something potentially astronomical and ground-breaking – but chances are they lack years of business acumen, industry expertise, compliance knowledge, regulatory insights, and much more that an industry veteran/SME can offer.

Would you hire your CIO without background checks & security clearance done by HR?

If not, then why introduce a Fintech product without a vetting by your own trusted SME’s?

A key hire within any business is done with proper background checks, reference checks, security clearances, and all strategic and procedural exercises by Human Resource department. In the same sense, any launch of a newer technological implantation in the existing financial procedures should be preceded by the rigorous assessment and testing by the SME. On top, periodic and consistent monitoring by the experts is also equally necessary, in order to avoid disruptions in the market, and potential regulatory flaws.

The Fintech industry is booming – and almost at a point where it’s overcrowded by keen market disruptors. This opens a Pandora’s box with countless products & services, which aren’t necessarily fully vetted. In order to skim through the options available, banks need to gear up with right resources, and SME’s who are experts in this arena. Designing a new generation technology and navigating through ever changing regulations are two different sides of the coin. Many times the new generation technology being developed is unable to take into account the complexity involved in regulations and compliance. Regulatory Subject matter experts are better equipped to make informed decisions to design a roadmap and choose the right product that will compliment the bank’s model for a full compliance to the regulation and building robust business processes.