Written by: Zach Pettet
There are two distinct camps in the world of financial technology: the technologists (techfin) and the financiers (fintech). Both groups rely on deep technical knowledge and domain expertise to be disruptive, and both have been pretty successful. They’re the same in many ways, but they approach this space from different angles.
Bear with me as we add more buzzwords to an already buzzword-heavy area of business.
Techfin companies use their understanding of technology to offer products and services that traditional financial institutions simply can’t. They’re made up of top-flight developers, designers, and systems architects, and they typically believe that technology can solve any problem. Most of them haven’t spent much time working inside of incumbent financial firms. That makes those incumbents prime targets for disruption.
Fintech companies lead with their understanding of finance in order to push the industry forward. They’re successful bankers, advisors, and hedge fund managers. They’ve taken time to understand the financial industry and how it delivers value to customers, but they refuse to accept the status quo.
A Brave New World
Techfin companies often stem from Millennial frustration with the existing financial system. The Great Recession in 2008 was the catalyst for this generational angst, and today, techfin companies are popping up left and right wielding new technology and digital-first marketing strategies in a quest to disrupt the incumbents. Their frustration, though justified, is rarely paired with an understanding of the compliance and regulatory landscape.
Many techfin startups have adopted Facebook’s adage of “move fast and break things,” but that just doesn’t work in highly regulated industries.
Robinhood is a perfect and painful example. Based in the Valley, Robinhood’s investor list includes all of the usual suspects. The Robinhood app is the industry standard for design.
If you want to seamlessly trade stocks commission-free from your phone on a sleek, intuitive app, Robinhood has you covered. If you’re looking for a regulatory nightmare, it also has you covered. Robinhood proved this when it announced a saving and spending account supposedly backed by the SIPC. Plot twist: It wasn’t. That was a big compliance boo-boo.
According to a recent Business Insider report, the team around Robinhood co-CEO Baiju Bhatt was doing its best to advise him that more steps needed to be taken with regulators and compliance before rolling out its checking offering.
As Business Insider tells it:
When warned by his team, a former executive tells Business Insider, Bhatt’s response was: “F___ it, we’re doing it anyways.”
The blood pressure of anyone who has any background in a regulated industry just shot through the roof, I’m sure.
Swinging the pendulum all the way the other direction, Varo is a classic example of fintech. The CEO is a former American Express executive (not that there’s anything wrong with that), and he quickly raised a little funding to go do his own thing. To be more precise, Varo raised just more than $28 million from Warburg Pincus. Yep. That’s $28 million from a leading private equity firm to start a startup. It’s not the usual Silicon Valley story by any means.
This might sound insane, but before you judge (you know you’re judging), put yourself in the shoes of an executive at a financial services incumbent. You’re surrounded by layers of such obviously silly bureaucracy that it’s easy to convince yourself that you could change the world with just $30 million. You’d simply tear it all down and build it all back up from scratch. This thinking isn’t wrong; it’s incomplete.
The world would benefit from a healthy influx of companies that are bilingual in technology and finance. These groups are working hard to change the financial services landscape, but they don’t seem to communicate, get along, or work together in any way. Let’s change that.
If you think of the company like the human body, then techfin would be your push muscles (the shoulders and the chest) and fintech would be your pull muscles (the back). There has to be a balance.
The two sides have to collaborate so the financiers don’t waste all the money ever made and the technologists don’t go to jail for more compliance boo-boos. Here are three ways to make it happen:
1. Work to understand.
It doesn’t take magic to understand someone who lives in a different world than you do. It’s a lot like trying to understand a new country before you visit. Some people buy travel books, read to understand the culture and its nuances, and maybe learn what to lean into. The prepared traveler might mispronounce a word, but natives appreciate the effort. Others just show up and expect the world to adapt to them. Intention goes a long way. Make your intention to learn, and then apply what you learn with empathy. Wait to develop your opinion.
2. Talk to humans.
There are some things you can only learn via in-person interaction and experience, especially within the finance industry. The power of the internet and erudition shouldn’t be underestimated, but often in finance, there are unspoken rules that matter just as much as the ones you can read.
3. Leave your bubble.
I live in Kansas City, Missouri, a financial services and agricultural technology hub. I was recently in Des Moines, Iowa, an insurance mecca. Each geography has a certain specialty, and there are people to meet and things to learn everywhere you go. A generically broader view of the world can lead to a broader business perspective.
Talking with people who have proven themselves knowledgeable about something you’re less familiar with is great. The next step is to work with them. When we collaborate, everyone wins.
The future of fintech could be beautiful once these sides decide to come together. If you take the core product competencies of technology and combine it with the regulatory understanding of the financial industry, we would see more useful, compliant, and appealing products with broader distribution.
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