World Economic Forum: Partnering with fintechs and fostering innovation

Prior to his session on digitalisation of the banking industry, R. Jesse McWaters, Project Lead, Disruptive Innovation in Financial Services at the World Economic Forum spoke to bobsguide about what breakthroughs have been made since Davos 2016, the future of fintech for world leaders and how new technology has been received over the past year. …

by | September 23, 2016 | bobsguide

Prior to his session on digitalisation of the banking industry, R. Jesse McWaters, Project Lead, Disruptive Innovation in Financial Services at the World Economic Forum spoke to bobsguide about what breakthroughs have been made since Davos 2016, the future of fintech for world leaders and how new technology has been received over the past year.

How does the World Economic Forum fit into the fintech sector?

The World Economic Forum, as you may know, is a Swiss international organisation for public and private cooperation and our members are some of the largest companies in the world. We are focused on convening discussions between those members as well as focusing on the innovation space, the regulatory supervisory and the academics world. We’re best known for our annual meeting held in Davos every January but beyond that, we are at any given time, working on a number of different projects that are of interest to our clients. For the past two and a half years, I have been the project lead for our disruptive innovation in financial services project and the goal of that project has been to understand the way that technology and new entrants in this space are transforming the structure of the financial services ecosystem.

Could you give a brief explanation of what was discussed at Davos last year and what progress has been made in the months following in regard to fintech?

From a project perspective, we have gone through two major initiatives. The first resulted in a culmination of a report that was released in June 2015 and it was really about understanding what the taxonomy for fintech was. We started this at Davos 2014 and at that time, I think there was a lot of confusion in the financial services around which fintech idea has potential as well as, how they all fit together and interact with each other.

So, we convened a group of chief strategy officers from large financial institutions with founders of fintech companies and effectively, invited them to fight it out over their contrasting visions of the future. They came to some really interesting conclusions about the direction that fintech was moving in. Over the past year and as a result of the release of two reports earlier this month, we dove deep into the infrastructure that enables financial services and fintech, thinking specifically about the future of identity and about the implications for blockchain or distributed ledger technology.

The second way of looking at this narrative is through the discussions we’ve had with our very top line executives on an annual basis. When we picked up this project in 2014, I’ll be honest, they were interested in fintech, but they didn’t believe that it was going be consequential to their industry. They had a view that the scale and the trust invested in their institutions and with the enormous regulatory complexity, the financial institution space would ultimately be too high a barrier for any of these firms to leap over.

In 2015 when we convened, there was a realisation that fintech innovations were happening in a really targeted way, especially at the intersection between where customers were unhappy with incumbent service provision because they ceased providing targeted models. However, in 2016, we saw financial services incumbents genuinely excited about fintech for the first time and viewed collaboration with fintech as the key to unlocking some of the potential to better serve their customers and drive efficiencies internally.

What innovations are passing fads or is everything valuable for the progression of fintech?

I think the first wave of fintech that we’ve seen has been rooted in experience more than anything – examples include Apple Pay and Transferwise. Alongside this, if you look at robo-advisors, all have created superior user experience for retail consumers – that is an extraordinarily powerful thing and there is an enormous demand for this. We’ve seen the incumbent financial institutions seeking to figure out ways of improving their user experiences in response.

I think the challenge that we’ve seen for fintech players is that customer acquisition has proven to be quite difficult in this space, so I think that’s really the biggest issue because providing a good experience is important, but acquiring customers can be expensive. We’ve seen incumbent players like Charles Schwab who have had the opportunity to study the robo-advisors rolling out their own products and one of the most interesting cases is Blackrock acquiring FutureAdvisor who had faced difficulties with customer acquisition, but now they’re in the process of shifting to a B2B model.

What would you say companies are focusing on now? Are we still in the first wave of fintech?

I think the focus right now is on collaboration. There was a realisation by the incumbents that creating great experiences internally was going to be a real challenge so we’ve seen them form partnerships with fintechs and team up with accelerators to foster innovation. We seem to be living in an era of partnership between fintech incumbents and fintech innovators – that is obviously proving to be challenging where they have different cultures and it can be complex to integrate. There is always that question around who is ultimately going to own the customer that can potentially cause problems in each partnership, so what you’re seeing right now is a lot of work being done on figuring out how to take partnerships that are at the strategic level and make it work well operationally.

I think the third piece here is to think about the role that infrastructure plays in enabling all of this. We’ve seen the way in which some infrastructure fundamentally limits the capabilities of incumbents or new innovators to deliver better experiences for their customers. We saw that incumbents were spending enormous amounts of time and money on processes like client onboarding and in many cases, innovators were trying to improve that process because that is the most difficult part of managing customer identity, alongside ensuring that identity has been properly validated.

At the same time, we have seen new technology in the form of blockchain enable us to build better, more flexible, more efficient infrastructure that will enable a full host of capabilities and we think that this is a very exciting space. The challenge is that building infrastructure is hard, it takes time and it’s expensive and requires collaboration with stakeholders who may have disparate interests and so, it requires you to bring together innovators, incumbents and regulators.

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