The Future of Fintech

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‘Fintech’ is making more and more appearances in the startup vernacular as of late, especially in Columbus. It was announced yesterday that new global accelerator Fintech 71 will grow the next crop of financial services technology companies from Downtown Columbus, and a recent Startup Week panel took a full-spectrum look at where the industry has been and where it’s headed.

An emerging industry, the fintech abbreviation caught on about five to seven years ago to describe startups tackling everything from payments, to cryptocurrency, to robo-advising and peer-to-peer lending, and looking to the future, technology like blockchain and artificial intelligence.

Jason Strle, CIO – consumer, business banking & auto technology at Chase, outlined the three phases of the fintech evolution over the last several years.

Three plus years ago, many fintech startups were out to disrupt the industry; they were going to compete directly with or replace the banks. These startups would reach a critical mass, then, “The ability to acquire customers becomes really, really hard to do,” Strle says.

It’s expensive to acquire customers. Users are unfamiliar with the new brand. They know a Chase or a Huntington, but don’t know what this new thing is.

“What happens is a lot of these fintechs actually turn into marketing companies, and when they turn into marketing companies, they are starting to deviate from their core principals and their core values,” Strle says, which takes the focus off the technology over time.

Enter phase two. Realizing, “The banks aren’t the enemy,” Strle says. Sentiments shift from ‘How do we go against banks?’ to ‘How do we work with banks?’

Businesses at phase three are, “Built from ground up to sell the technology to a financial services company,” Strle says.

These companies are asking questions like ‘What are the needs in the industry?’ ‘What are customers expecting over time?’ A lot of companies have moved to phase two, and now, more or starting at phase three.

Kevin Pohmer lived that evolution as the CEO and chairman of Financial Guard. Pohmer says everyone talks disruption, but it’s really hard to disrupt something like a Chase.

“Being able to transform an industry is just as cool as disrupting an industry,” Pohmer says.

And financial services has ample room for transformation. As a whole, it may not be the ‘sexiest’ of industries, but “It is sexy to make life easier for the consumer,” Pohmer says.

Making a product that’s slicker, cleaner, faster for a consumer to use – Pohmer says that’s fintech. Strle adds that customers want that convenience factor.

“Mobile everything. Mobile first,” he says.

However, that ease of use does present a litany of fraud challenges – one of the biggest factors a fintech startup needs to consider.

With startups, there’s a lot of attraction to how quickly a business can grow, but, “You need to think about how the data is being protected,” Strle says.

In a highly regulated industry where individuals’ personal information, retirement accounts, money, etc. are on the line, protecting customer information is a top priority.

“Large financial services companies have enough problems protecting a brand if they have a breach,” Pohmer says. “The last thing you need as a startup is for you to have a breach.” A breach as a startup and it’s game over.

He adds that a lot of startups haven’t been able to form partnerships because of that security piece. Scalability also keeps fintechs out of the big game. Pohmer says that before approaching a large corporation, an entrepreneur needs to ensure that their technology can scale at a massive rate.

Even so, Strle says a behemoth like Chase is not the place for a small company to try something for the first time. He encourages emerging fintech companies to cut their teeth on a smaller scale with institutions like credit unions or smaller, regional banks. Those institutions need innovation, too, and fintechs can provide a technology they likely don’t have the capacity to build in-house. (Unlike a Chase that employs some 42,000 technologists around the globe.)