April 2017 has been a busy month in the world of FinTech.
Innovate Finance’s Global Summit brought together a wide range of interests in FinTech. Mark Carney, Governor of the Bank of England, made a major speech on building infrastructure to realise FinTech’s promise and the FCA announced the second cohort that has been accepted into their regulatory sandbox.
But April was another month in which business and technology leaders are not talking about the culture of FinTechs themselves. Why? And why does it matter?
Go with us for two seconds. Stick ‘Fintech culture’ into your search engine, and you will see most material is about the clash of the ‘old’, for which read banking, culture, with the new culture of innovation. The banking sector (and the rest of us) have learnt the hard way the implications of creating toxic cultures in Financial Institutions. Most people would agree that FinTech is important to the future growth, development and wealth of the UK surely it is worth thinking about what cultures are developing in our FinTech operators. More specifically its worth thinking about whether these emerging FinTech cultures are going to generate strong, dynamic, robust and compliant businesses.
Every business has something it can learn from the lessons of the past, so what lessons are there from the cultures of the existing financial institutions that can apply to FinTechs?
Let’s look at a few characteristics. Control by a relative minority, opaque strategy, often overly influenced by charismatic individuals, disproportionate focus on growth, commercials and profitability, preparedness to cut corners, lack of accountability to customers and a failure to challenge its accepted norms. All these are characteristics of which you could have accused the banks pre crash. But they are all characteristics which also apply to many FinTechs, irrespective of the goodwill with which they were originally founded. Some of this is, especially the focus on growth and profitability (or at least achievement of it), is the result of the combination of investor influence and pure business realities. Much of it though flows from the flipside of the many strengths in new business, such as dynamic, passionate individuals, tightly knit teams and a single minded focus to achieve.
This is precisely why at The Compliance Foundation, we believe that every FinTech business needs to take a hard look at the culture it is developing, learn the lessons of what has gone before and engage with this. Culture is something you develop whether you intend to or not. So TCF believes it is better to do this consciously and aim at the kind of culture which actively works and which supports the kind of business you plan to be.
This is especially vital when considering how a business will scale. It is axiomatic that as a business scales, the people of the business will find they no longer know everyone in the business. This means they will struggle to continue working with the level of informality which originally made the business so nimble and successful. Creating a culture that works for the business is vital to ensuring that planned growth occurs without creating ticking time bombs that were formed as corners were cut to meet deadlines and please the leaders or investors. But one also has to anticipate the potential for unplanned growth or growth which occurs in a way not entirely foreseen at the outset. This means thinking about contingencies and having back up plans. These can be challenging to do in young firms where the prospect of preparing for something which may never happen may be at best alien and at worst viewed as a waste of money. This is where internal and external debates about culture and the lessons of what it takes to build a good business come in.
The much vaunted agile approach to developing and delivering tech can itself become a sacred cow, creating a culture of short termism and temporary fixes – often hindering scaling in the longer term – the very thing the agile philopsophy and culture is supposed to help firms avoid.
Given the current escalating “arms race” between nation states and financial centres to set up hubs and incubators to develop FinTech businesses, surely it makes sense to consider the types of culture we want our FinTechs to develop. Currently this is a much under discussed issue with the assumption being that anything but a “traditional” banking culture is good.
However, many of our new FinTech firms will face challenges in engaging with the large encumbents who they want to buy their services. At that point, their culture and their track record of planning, monitoring, testing and evidencing will be critical in being able to prove their ability to scale and satisfy the demands of the encumbents who will need to demonstrate to their own regulators the robustness of any tech they buy and firm they interact with.
By default the regulator is at the forefront of setting a cultural tone – not through clear prescription but through the assessment of applications for authorisation, considered on a case by case basis, which includes reviewing culture related indicators such as governance, risk management and customer treatment.
At TCF though, we would argue that the regulators are not joining the dots and engaging others in a debate on what culture they want to see developed in FinTechs, especially as the tendency of tech leaders is to see their compliance with authorisation requirements as an adminstrative hurdle rather than an opportunity for constructure introspection.
So at TCF we want to see engagement by business leaders, regulators and national authorities with FinTech leaders on what kind of culture we want to see them developing. We believe that every FinTech should give this hard thought as they plan and develop but their efforts need complementing at a macro level. We have all looked at and criticised the ‘banking culture’. As our FinTech industries accelerate, it is high time we consider the ‘FinTech culture’ we expect.