Defining Fintech, the Ultimate Rorschach TestTags: finserv, fintech, vc
I am often asked by peer investors, entrepreneurs, executives, lawyers and consultants what companies and industries I invest in. My answer is always the same: “I only invest in the financial services industry.” So far so good. Invariably, the response I receive is: “Ahh, you are a fintech investor”. Such a response is both clarifying and confusing, which arguably should excite my French-educated mind. Alas it does not and my interlocutors and I then digress in a series of conversations trying to crack what exactly is Fintech.
After three years of such conversations I am convinced there are more definitions of Fintech out in the ether than there are Fintech investors or Fintech companies. Indeed, Fintech could very well be the ultimate inkblot used in a Rorschach test.
Trying to make sense out of chaos I have come up with my own heuristics.
First, let’s define the classical universe of Fintech which has been “the Banking industry”. I believe Fintech to have a much broader application across 5 main financial services activities:
- Capital Markets
- Asset/Wealth Management
Second, let’s tackle the definition of Fintech. The classical definition is “technology that enables financial services institutions to conduct their activities”. How this definition is refreshed lies entirely on one’s view on the role of technology, or more specifically software.
To borrow from Marc Andreessen, “Software is eating the Financial Services industry” and I can see three lines of thought flowing from this statement.
The Restrictive View: “Financial Services institutions will use software to refresh their interactions with customers by re-engineering their front end, middle office and back office.” This Restrictive view is espoused by those who believe fintech disruptors and upstarts are doomed to fail, that banks, insurance companies, large payment platforms, legacy systems and services will prevail at the end of the day and that all is needed is an upgrade in technology. As such Fintech will be much of the same, a group of technology providers that sell toincumbents and help them get better incrementally.
The Current View: “Financial Services institutions will use software to refresh their interactions with customers and to compete with upstart Fintech disruptors.” This is the paradigm we are living currently. Fintech companies are no more those that sell their wares to incumbents, they also compete against said incumbents. Think alt lending platforms like Lending Club, payments plays like Transferwise or Stripe, wealth management platforms like Wealthfront.
The Radical View: “Every company active in the financial services industry will be modeled after the Silicon Valley startup paradigm that fully leverages technology in general and software in particular across all aspects of their operations.” Be they startups or incumbents, service providers or competitors, all financial services companies will look more like Apple, Google or Facebook and less like the Citibank, Fidelity or Aetna of yesteryear.
I sometimes come across Restrictive View followers and I am always paranoid they are right. I certainly do not view our Fintech mandate only confined to investing in service providers that sell to incumbents.
I mostly meet Current View believers and mostly agree with them. Nothing wrong with this view which allows flexibility of mind and investment approach.
I get excited when I encounter, in person or digitally, those that share in part or in whole my views and who have helped and continue to help shape my Radical View evangelist. A special hat tip to Chris Skinner (@chris_skinner), Brett King (@brettking), Sean Park (@parkparadigm), Bradley Leimer (@leimer), Arjan Schutte (@arjanschutte), Matt Harris (@mattcharris), Hans Morris (@hansmorrissf), Matteo Rizzi (@matteorizzi), Rob Findlay (@robfindlay), Jim Robinson (@jdrive), Amit Anand (@amitvedand). (apologies to those I omit)
I do espouse the Radical View. This is how I define the Fintech investing universe. This is why I define myself as a Financial Services Industry investor. My view is the entire industry is turning Fintech. A liberating thought. This leads me to view the financial services investing universe according to the following artfully rendered graphic.
Don’t hesitate to reach out via twitter (@pascalbouvier) to start a conversation on Fintech and enrich my views as well as yours.