FinTech and Integrated Payments are terms which many people use but with widely varying definitions. FinTech is a Portmanteau or a blended word formed by combining Financial and Technology. And like its brethren, the ‘spork’ ‘PayFac’ ‘brunch’ and ‘blog’, the resulting combination is better than either of the two stand-alone words.
Successful FinTech defined
A successful FinTech aspires to arm a technology company with the requisite financial trust to disrupt Federally insured banks and investment houses OR to provide traditional financial institutions with the requisite technology and agility to out maneuver a Silicon Valley start-up.
In either case, because of the cache that accompanies FinTechs, everyone wants to be (associated with) one. Consultants, investors and start-ups all attach themselves to the word. LinkedIn is rife with individuals with FinTech experience and companies are reinventing themselves as FinTechs because it has a higher multiple and because it is the intersection of consumer’s want and need.
The concept is not complex. Utilizing a start-up’s AI to risk review merchant transactional activity in order to provide an acquirer real time funding decisions or allowing ISV partners to integrate via a traditional bank’s API to query the bank’s customer data for relevance with a specific solution are examples of the concept. The trick is to marry the two seamlessly such that the controls of the staid does not break the new and the confidence of youth are not overlooking the obvious. Easier said than done when controls intersect with agility and open source with security.
We see this all the time when a larger money center bank or established company acquires a technology firm; the goal is to maintain the ingenuity while ensuring appropriate controls are in place to protect the newly established joint company. The playbook for this is still being written. We do not yet have repeatable and sufficient successful examples. The most successful FinTechs continue to be stand-alone or organically built companies such as Stripe, Robinhood, Plaid, Ripple, Square, Adyen Shopify and PayPal. Each of these have retained their ingenuity while building trust such that customers do not realize if there is a distinction in risk between these companies and a financial conglomerate. These are all also disruptors. There are few examples of an established company buying a disrupter and then successfully integrating and exponentially growing it. FDC’s acquisition of Clover and Intuit’s acquisition of Credit Karma would be two that defied the odds but it is a daunting task.
This is not to say that an established company cannot successfully integrate a start-up and there need not be but one winner. The space is vast and there will be room for many more and the bounty remains high for those who are able to integrate the two. Reaching the FinTech destination is so lucrative that the trail is littered with carcasses from those who have strayed too far from their core.
My wife says, ‘Everyone is an artist’. I disagree. Just because I can use a microwave, doesn’t mean I’m a chef and just because I can paint a fence doesn’t make me an artist. Nevertheless, everyone calls themselves an ‘artist’ or ‘chef’ or a ‘FinTech’. FinTechs are ripe with imposters and just because you have some technology and are in the financial space, doesn’t mean you have married the two. And like any good marriage, the union should serve to enhance the qualities which made each entity unique in order to form a more harmonious blend…..and avoid the likes of ill formed portmanteaus such as ‘dumbfounded’ or, worse yet, the ‘romcom’.