Supported by technology services concepts like Software as a Service (Saas), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) which are associated with cloud computing, the development and delivery of FinTech solutions evolves with high speed. Fintech startups are accelerating innovation speed and product development by offering new (mobile) online ways for example to maintain accounts, to arrange payment transfers and to provide payment or credit information services. On the other hand consumers and customers of banks are getting more used to working with these cloud computing concepts via desktop computers, laptop computers, tablet computers and smart phones. Cloud computing and FinTech reinforce each other and together they are a huge driver of high speed innovation in financial services. This can also be deduced from the explosive growth of “investments into FinTech startups recently quadrupled, growing from just over $3 billion in 2013 to over $12 billion in 2014”.
So at date, consumers’ and customer’s trust and high and broad availability of technological cloud based facilities will be no bottleneck for further high speed evolvement, diffusion and adoption of new FinTech solutions. While FinTech startups benefit from these favorable conditions opposite to this most (large) banks experience difficulties when developing innovative solutions. Besides facing technological legacy problems, their procedural and risk avoiding attitude in doing business, focusing on image protection, hinders to increase speed in the development of new financial services. To close this innovation gap (large) banks invest in or acquire FinTech startups to get access to new technologies and necessary knowledge and skills. Acquisition of or investment in innovative startups is a strategic innovation instrument which has proven its value also in other sectors.
However these acquisitions or investments in new technology, knowledge and skills do not bridge the gap of the different approaches of how to do business. The problems this gap can create is very often underrated. Most FinTech startups have an entrepreneurial and risk taking approach to gain business volume. This is a big contrast compared to the previously mentioned procedural and risk-averse way of doing business the (large) banks are used to. When startups after investment or acquisition are forced to adapt to the procedural and risk avoiding approach of the (large) banks then innovation investments will render hardly. If large banks want to profit from cloud based FinTech solutions they need to co-create or collaborate with FinTech startups. They have to rethink their attitude and governance when initiating shared innovation projects or initiatives.
Rethinking governance to increase innovation speed is easier said than done. Here we can learn from examples in the telecom sector when launching cloud based interactive TV solutions. To arrange access to new technologies and necessary knowledge large telecom providers acquired or invested in startups or small companies specialised in offering interactive TV solutions and services. Mostly the large telecom providers forced the small startups to adapt to their way of conducting projects following their project management procedural standards. But startups are not used to this prescriptive and rigid governance approach of doing projects. Both sides – large telecom providers and startups – get frustrated and irritated when contributing. One can imagine that this big difference in styles of doing business does not have a positive influence on innovation speed and time-to-market.
To stimulate (IT) modernisation and thus to overcome the barriers of legacy systems and way of doing business New Governance is needed. But what should large banks do or take into account when rethinking their governance to drive high speed innovation of financial services? An explorative survey[ii] to factors that seem to have a positive impact on project or innovation speed reveals an interesting view. Let us bring these general results of this survey to the context of the development and deployment of cloud based FinTech solutions:
1. Safe and reliable environment
This is interpreted as political acting or putting personal interest above the collective goal is not permitted. Banks and startups should strive for the same objective and discuss their approach of doing business together. Scope and requirements of innovation initiatives should be clear and the road to follow is known. A pilot project can help to create a roadmap and collect learning experience.
Not everyone is capable to run an Olympic 100 meters final or even to become Olympic champion. Talent and extensive training are required. Quality of resources is another factor of importance for innovation speed. This concerns as well the technical as governance capabilities which should be tuned to proper innovation circumstances: 1) Skilled and experienced engineers and/or subject matter experts are important to contribute directly to the required result. 2) (New) Governance skills are important to direct and align the effort of engineers and subject matter experts and to keep focus on the required product result. Good governance creates proper conditions for shared business development and protects the safe and reliable environment. The latter sounds simple and logic but requires often a lot of courage and tenacity from the involved management.
This can be arranged via working in small and dedicated teams. Bank and startups can assign their best employees serving the innovation purpose and bringing them together in one or more teams. For their contribution team members should have clear task descriptions. Physical proximity is not a necessity. Examples from practice and research show that a strong performance also can be accomplished with virtual teams.
(Executive) sponsors and stakeholders should protect the innovation initiative by setting priorities. To protect deadlines quick decision taking is important when needed. This does not mean that pushing and pressure is the main management instrument to apply. Empathy and understanding when technical engineers and subject matter experts need help is at least equally important. Bank and startup should maintain an open and transparent way of working. Sharing one and the same management report regarding the status of innovation initiatives can support here.
5. (Re)use of standard technologies
Technological facilities can also be an important accelerator. We have learned that compared to (re)use of standard components customisations can draw back high speed when software has to be developed, tested and integrated from scratch. This risk can be limited with state of the art software development tools. Due to its high grade of automation high speed development tools like SPADE – an instrument to drive IT-modernisation – provide an alternative to develop customised software solutions with high pace. Usage of proven distribution and configuration tooling to automate routine work is also an accelerator of speed.
Focus on high speed during innovation leads also to undesired side effects. Quality related defects are mentioned in the surveyii and rework or repair costs are referred to as a consequence. Difficulties with the acceptance of the product or service should also be taken into account. From a governance point of view high speed focus can involve narrow mindedness and wrong assumptions. Be aware that high speed innovation does not degenerates into sloppy rushing!
Leon Dohmen, principal management consultant, CGI