The latest tsf.tech sponsored Startup Stories breakfast event, in conjunction with Manchester Digital, took place last Friday morning at the MSP Tech Incubator. The headline was Fintech: beyond the hype, bringing together a panel of startup founders, tech and product practitioners, and investors, experienced in the sector, with an audience eager to hear more.
From major banks to angel investors, merchants and start-ups, in all corners of the financial services sector #fintech has been dominating the headlines, agenda and conversations for sometime. You can attend or live stream a #fintech conference, hackathon or meetup virtually every day, such is the debate.
We didn’t expect an overnight sensation, but 2018 marked a big step towards exposing the European Union’s banking systems to digital competition, a ready made market for Fintechs. The EU’s Payment Services Directive (PSD2) came into effect, so did the British equivalent, Open Banking, promoting the adoption of open APIs. A year on, there is little sign of a stampede, yet progress is quietly being made.
In essence, the new rules seek to ensure that digital technology sharpens competition, by loosening banks’ grip on customers’ financial data, but without compromising security. They allow third parties to gather information from several accounts, with customers’ permission, in one place, so that customers can manage their finances better.
So simply, fintech is new technology to improve financial activities and services for the benefit of customers in the era of Open Banking – and the key part of this definition is customers. But why the hype?
We are building a disruptive platform, the next generation financial application aimed at millennials, promoting financial inclusion, built on blockchain powered by AI, all available through state of the art APIs. No one else is even near us.
We’ve all heard a similar pitch from a #fintech startup, so how do we get beyond the hype to distinguish genuine innovation from empty promises?
The speakers provided insight and comment to help us see through the haze: Conny Dorrestijn, Fintech founder and entrepreneur who lead the session; James Darlington, Investment Manager, Maven Capital Partners; Mike Commons, founder & CEO Nivo Hub; Mark Hartley, founder & CEO, BankiFi Technology; Aleksa Vukotic, CTO, thestartupfactory.tech; James Higgins, Product Director, AccessPay.
The meeting kicked off, expertly choreographed by Conny – comparing her home city of Amsterdam with Manchester, the connectivity of the two cities made via canals, football and a grounded common sense and can-do attitude. It was this feet-on-the-ground whilst doing great thinking, which shaped much of the advice from the panel.
The panel were insightful and entertaining, sharing their views with candour, humour and passion – and more importantly, their practical experience of working in startups and fintechs across a number of financial services operations and applications – from mainstream UK and American banks, to launching new ventures overseas, to leading the product, funding and technology development.
There was a core of straightforward underlying messages to dampen down the hyperbole:
· Avoid the ‘Emperor’s New Clothes’ syndrome and create genuine value
· Secure product-market fit from bootstrapping before thinking about funding
· Get in front of customers, not investors: chase revenue not rounds
· It’s grit not glamour – roll your sleeves up, make it happen
Let’s unpack these four points a little further.
The obvious place to start was the value proposition. Are you aiming to solve an actual problem, or is it a tech solution looking for a problem? No matter how much cutting-edge ‘disruptive’ technology there is under the hood, it won’t matter unless you’re solving a real customer problem or providing value they can’t get anywhere else.
The technology used in your fintech product was also highlighted. The reason behind the success for several fintechs is smart application use of new technology, but here was the real hype. The ‘B word’ – blockchain – caused a flutter of nervous laughter, and equally AI carried some alarm bells – neither is a magic wand to remove all the inherent challenges.
Technology by itself is not the disruptor, not being customer-centric is the biggest threat to any startup. The focus was singularly about getting to the customer. Both James Higgins and Mark Hartley told of their experience of building the first scrappy version of their thing and testing it before seeking cash. Stop chasing investors and start chasing customers.
The panel was united in steering folks away from the fixation of fund raising – the gung-ho sentiment of ‘raise money, raise money’ kills off the simple do-it-for-yourself bootstrapping ambition and working the hard yards. Recognise your thirst for venture capital is vanity capital. Entrepreneurship is an emotion of ambition. Also, early funding will be the most expensive cash you ever raise.
Mike and James Darlington took a step back, reminding us that every startup has a limited runway and investment can help extend that, but it was all about timing. Did you know that Hewlett-Packard started with just $538 and a garage? That wasn’t a lot of money in 1936 when the company was founded, equating to $7,500 in today’s currency. It can be done.
But it’s the creation of a customer base that takes you away from hype and into reality. Avoid the trap, it’s signals versus noise. Staying grounded allows you to maintain a focus on shipping. Celebrating equals shipping. It’s not sexy, but shipping pays the bills.
The panel then discussed the importance of the team and their experience as a key building block. Does the team have the necessary experience that is required to build and run a fintech company? Skills in product, tech, sales, marketing and compliance?
Surround yourself with the best people you can – in your team, but also an Advisory Board with medals and scars from the sector. The quality of your people add to the value of your thinking, and is another way to keep grounded – having responsibility to pay people gives you a focus.
So, the conclusion was that the noise of Fintech was detracting and deflecting from the potential advantages to be delivered to customers from new products created by new thinking and new technology. Fintech is a foundational technology, it has the potential to create a new era for our economic and social systems.
But we need to get real. The panel agreed it needs more time for education and awareness, because firstly, users need to understand how the innovation works, and secondly, legal and regulatory systems need to get engaged to modify compliance.
Humans are notoriously cautious, and loathe to abandon their banks, yet there are signs of latent demand: Yolt, an aggregator owned by ING, a Dutch bank, already has 500,000 British users. Online banks are making their mark, albeit slowly. In 2019 banks and Fintech upstarts alike may get closer to an answer as they focus on customers ahead of the tech hype.
tsf.tech is proud to sponsor and chair Manchester Digital’s Startup Stories events. They are always thought provoking and informative, with generous speakers and engaged audience. I’d like to offer a special thanks to the panellists who shared their time and insight, and to Manchester Digital for their event organisation. The mood in the audience as they left was, as you’d expect: big thinkers don’t work on small canvases, but we don’t fall for the hype in this City. As you were, Manchester.