Fintech is a buzzword that became trendy when the financial technology industry received $20 billion in investments in 2015. This was a 60% increase from the previous year that spurred talks about startups that could potentially disrupt the banking industry. Technology in consumer and commercial finance has allowed for a variety of new competitive advantages. Innovations in machine learning and predictive analytics are being used to undercut traditional lenders and advisors through pricing and services. As this industry takes form and fintech startups grow in capacity, my question is, will they be able to name their strategy?
This industry is driven by technology in a currently niche market. As competitors increase and the market expands, having the best technology is vital to a company’s success. Strategy is not driven by a business model or a vision, it is driven by the science behind your product. This works for a startup fighting for investment but not for a legitimate player in an established market.
Can You Say What Your Strategy Is? By David J. Collis and Michael G. Rukstad explains the need to have a defined strategy and business objective. Strategy can be defined by what the company is trying to achieve, or where they want to go. How they get there is determined by their objective. This should be driven by a competitive advantage. For fintech companies, it is important to identify scope because the technology is seemingly unbounded.
Companies in this space need to make tradeoffs to strategically distinguish themselves from other firms. Fintech startups are vulnerable to focusing too much on the technology that gives them an advantage. As the market matures and fintech startups become the more formal, financial technology firms, they will need to find a way to satisfy customer needs in a way that rivals cannot. In the fintech lending industry, revenue is driven by competitive pricing. When multiple fintech firms with the same advantage are in the same niche, the winner is the one that can offer something the others cannot.
From my experience with a local mortgage lending firm who specializes in financial technology, resources are not properly allocated to strategy and infrastructure. The data driven analytics can provide a valuable advantage in pricing strategy but there is a problem when multiple firms with similar intellectual properties compete in the same region. Leadership neglects to articulate a company strategy and when success dries up, decision makers through out the company, lack direction or motivation. Strategy for this type of firm needs to be decisive to ensure that the company can follow a vision. Technology must be the driver and not the strategy.