The fail-fast approach to innovation in fintech

Finance is an arena where small startups are increasingly competing with established megabrands, and winning. How are small fintech companies able to make inroads into territories dominated by big banks? Here’s an insight into the innovative approach which is the strength of small fintech firms.

 

Technology vs. ideology

 

Banks command vast resources. For centuries banks have enjoyed near monopolistic privileges. Legacy banking institutions have become some of the best recognized brands in the regions where they operate. For decades these banks have offered the same legacy products. There have been few variations in the savings, investment, and finance offerings of traditional banks. Almost all large banks offer the same products. Any changes to the banks’ products are small and incremental. Innovations are rare. Moreover banks continue to operate in an age-old format. Customers still have to visit bank branches for everything from starting a new account to taking out a loan. The surprising homogeneity in the practices of legacy banks is owed to a common ideology.

 

There is nothing that stops banks from using technology to improve customer experience. However, many banks simply felt no need to develop new methods or services. These banks are now losing ground to a multitude of new fintech players.

 

Fail fast, learn faster

 

Fintech firms have a radically different approach from banks. Most banking products we have today were developed through extensive analysis, planning, and testing. They involved major investments of time and money. A new product is so costly for a bank to develop that failure is completely unacceptable.

 

Fintech firms have the opposite ideology. Every creative idea in fintech is a potential product. Tech companies keenly observe customer behavior trends using big data analytics. They simultaneously design several products/services that might match these trends. Without much investment or testing they roll the new products out into the real world. The pace of product development is fast and costs are low. This is why fintech companies can work by trial and error whereas banks simply cannot.

 

Most new products fail. Only a small percentage of them succeed. The essence of the fintech approach is to quickly discard the failed ideas. A mere 5% success rate is considered appreciable. In fintech failure is not only acceptable; it is the path to success.

 

Scaling up success

 

A few of the successful fintech products sometimes gain astronomical popularity. The runaway success of mobile banking in Africa is one case in point. Mobile banking brought essential financial services within reach of Africa’s unbanked millions. It helped elevate entire regions out of poverty. People who had never visited a bank now routinely send money online.

 

Another notable example is the rise of app-based transactions in vast swathes of Asia. During the lockdown phase following the COVID-19 pandemic the volume of app-based payments increased by 700%. Asia has recently become a test bed for all kinds of new fintech offerings. 

 

Interestingly some of the most innovative technology in fintech is invisible to end users. When a product becomes popular it must be made available to a vast customer base. This expansion must be supported by a robust backed that can handle massive transaction volumes. To stay ahead of the competition the scaling process must be lightning fast. This is where the power of the cloud comes in. Small fintech startups can quickly scale-up using cloud-based solutions. Because most of the infrastructure and applications are offered as services, users only pay for what they use. Without the cloud fintech, as we know it, may never have existed.

 

Success by collaboration

 

Banks and fintech firms have everything to gain by collaborating. Banks need the fintech products that customers love so much. Fintech companies need the vast customer bases that only big banks command. Collaborations allow banks to evolve and fintech firms to scale up. During recent years most legacy banks have partnered with fintech firms to offer mobile and app-based banking services. Others developed in-house fintech solutions. However innovation in fintech is perpetual. There is no telling when and where the next disruptive technology may emerge.

 

About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.

 

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