Posted by & filed under Banking, Customer development, Customers, Fintech, innovating, Startups.

The digital revolution has happened. And now it’s banking’s turn. Fintech are here and banks can lose up to 60% of their retail profits in the next decade. But will they? And why would they? What is going to happen in banking and fintech?

About a week ago I attended MoneyFintech-seminar and got to listen to the brightest minds of fintech and banking. Here are the four big things that are hot now and in the future of fintech and banking.

New regulations

When talking about banking and fintech, regulations are a topic you just cannot ignore. The hot potatoes of the industry: PSD2, open banking, and many others are wreaking havoc in banking.

PSD2, open banking – new regulations level they playing field for fintechs

One key goal of the new regulations is to level the playing field between fintechs and banks. It means more opportunities for more new fintechs. And that means new opportunities, new companies, new jobs and so on. The industry has been booming and the new regulations don’t seem to make it any slower, the opposite.

 

Bad news for banks: half of consumers are open to 3rd party providers

Source: Kevin Poe, CGI

Consumers don’t feel connected to their banks and half of consumers are already ready to try 3rd party service providers. While consumers still prefer their current bank to provide new services it is greatly declining. All this is great news for fintechs but not so good for banks. Banks can no longer just sit on their asses and wait to see what happens.

 

It’s up to banks to decide the role of fintechs in the ecosystem

An interesting point in the speeches was that in the end, it is up to the old masters of the industry, banks, to decide what kind of role fintechs will take. Will banks refuse to change with the industry and let fintechs take over? Will they re-invent themselves and fight back? Or maybe the most beneficial for all: will they learn to collaborate with the other players in the ecosystem?

Not everyone can nor should do everything. Instead of wasting time on trying to win everyone on every battleground, banks should collaborate with the ones that would give complementary value to your offering.

“Fintech will bring lots of opportunities for everyone. But it is true only IF collaboration happens.” -Annukka Paloheimo

Like Lars Markull said: “PSD2 is not THE solution for banks, but something that pushes them to the right directions.” It forces them to act instead of just watching passively in their ivory towers till they have become completely obsolete.

 

Customer focus

The regulations are changing and fintechs have the opportunity of a lifetime. But the biggest winners will be the customers. They are the ones who will have all new kinds of financial products, their old services will be much simpler, and for every product and service they have been forced to get from one provider, now they will have an excess of options. And as we know, options is never bad for the customers. But for banks and fintechs it means fiery competition.

“Thanks to fintechs and technology houses customers are aware of their options, that there even are options. That has shifted the power from the banks to the customers. Now customers are in the driver’s seat.” – Kirsi Larkiala

The winners will be the ones who serve the customers the best. The ones who don’t just focus on the customer but what the customer is focusing on. If you can bring something great to the things matter most to the customers, that’s the recipe for success. Or like Jarle Holm put it: “If it’s going to increase your customer’s equity, it’s going to grow your equity.” And the key to that is to stop thinking about customers as customers and start thinking about them as humans.

 

Illogical, obsessed with social relationships, i.e. your customers 

The biggest winners will be the companies that understand what customers essentially are – humans. Beings who think they are rational, but in reality are far from it. Beings to whom social relationships are more important than almost anything else. That’s why customers’ losing the feeling of personal connection to their banks is such a big deal. And that’s why the companies who also serve the social relationship needs of their customers will succeed. Companies need to understand how their customers make their decisions (not as rationally as you’d think), and how to build strong relationships with their customers. And to think about their future customers already today. For example by 2025 millennials will make 75% of the workforce. The ones who will start building relationships with them then are way too late.

Collaboration

The future is not ‘ready’. It needs to be innovated together with the whole ecosystem.” – Kirsi Larkiala

In fintech, one as often mentioned topic as the new regulations is collaboration. In fact, 82% of financial institutions expect to work with startups in 3-5 years.

 

82% of financial institutions expect to to work with startups in the next three to five years.

Source: PwC

1 in 2 banks expects to partner with fintechs later than in two years, which is pretty slow (even too slow?). They see the benefits, but at the same time they have a huge responsibility. Banks spend on regulation and compliance 321Bn (inc fines). Having customers’ trust is more important than pretty much any other industry. And if something happens because of the 3rd party, the bank’s partner, that trust is lost. The customers see that the bank is responsible of their partners. But regardless banks know they can’t not collaborate with startups. Why? They need the innovations & to learn.

“Innovative companies seeking aggressive growth are the future of Finland and Europe.” – Eeva Grannenfelt

Working with startups to get innovations

There are many reasons corporations aren’t the kind of innovation powerhouses startups are. One of those is the fear of failure or losing their reputation by putting out something that is not ’perfect’. That is why the startup-like use of MVPs might sound absolutely horrifying. And they do have a point. Like Pekka Puustinen from insurer Ilmarinen said, corporations have a whole different kind of reputation to keep than startups. Putting out ‘almost ready’ products is not as easy for big corporations like it is for startups. ”Porsche can’t put out a car that almost works”, he said.

As banks have their constraints they go for startups for innovations. And it makes sense. Startups are innovation powerhouses without the constraints they have. They don’t have such a big reputation to upkeep, and they are the masters of using failing as an innovation tool. Eeva Grannenfelt even said large companies have outsourced the R&D partly to growth companies. Startups definitely can be a tool for banks to meet the new expectations of their customers and do so without risking their reputation.

 

Working with startups to learn

But none of the above means the banks can just sit around. While startups can be an amazing way to find the much-needed innovations, they themselves need to change for the future. While Porche can’t necessarily put out ‘almost ready’ cars, there are multiple ways more ‘startup like’ approach would work wonders for corporations. That’s why they should learn from startups. Learn to be faster, agiler, more innovative. And even fail. Like Topi Järvinen said: “Failing isn’t necessarily bad. You can learn a lot from it and thus do better the next time.” Failing (the right way) is an essential part of innovating and by no means automatically means PR disasters.

Based on the talks banks gave that’s exactly what they are looking for. Most of them talked about how they need to reinvent themselves and learn from the startups. That’s why banks should use accelerators and startups just for innovations, but as something to change their entire organization. The ideal situation would be getting innovations from outside the house (startups) but also being able to innovate in-house. And at the same time be more agile, fast, more startup-like and less stiff like corporations usually are.

 

Accelerators shouldn’t be just tools to get innovations, but tools to change the whole organization

Source: Topi Järvinen, Nestholma

 

China: the promised land of fintech

An old Chinese professor of mine joked that in China copyright actually means the right to copy. China definitely has been an excellent copier of all innovations big and small. But now China has gotten far from that: they have changed from copycats to copy tigers. In China, fintech is booming.

China is a great breeding ground for fintech. The country is going through rapid urbanization, they have regulations that support the growth of inland fintech innovations, a massive and underserved SME market, rapidly growing of e-commerce and also explosive growth in online and mobile penetration (read more here). Technology is changing so rapidly that they are skipping many of the unnecessary steps like landlines, dial-up internet and so on, and going straight to mobile payments innovations like that. And the people are more than willing to do so. For example, 40% of Chinese consumers have adopted mobile payments, which is massive. China truly is the perfect breeding ground for fintech innovations.

“Fintech in China is delivering the promise of fintech – making changes of unimaginable size” – Ronit Ghose

China is coming and the West better listen

China’s policy has been to forbid Western services like Google, Facebook, Youtube, and many more to have their own versions instead. There are multiple reasons why, one of them being giving the business opportunities to Chinese companies. The Chinese not only copied the service but also evolved them further (e.g. mobile wallet in their social media services like WeChat). Before you could just think ”oh well, the Chinese have their own versions, so?” and move on with your day (unless, of course, the Chinese market was important to your business). But now that is not possible anymore.

The Chinese consumers are the fastest growing segment in the world. Now there are 300 million Chinese consumers and by 2022 there will be 600 million. And it’s not just the massive amount of them, but also their great purchasing power. McKinsey estimates that by 2022 the upper middle class will account for even 54% of urban households.

 

The upper middle class will account for even 54% of urban Chinese households

Source: McKinsey & company

In short, there is an ever growing amount of wealthy Chinese who want to spend. And they don’t just want to spend it all at home. They want to travel and spend it on foreign (premium) goods.

 

Chinese outbound tourism growing strongly

Source: Johan Andrén, Handelsbanken

It may sound like the Chinese are taking over the world (and maybe they are), but in our current interconnected world, all that spending is going to mean more jobs all over the world. And that’s great (if you are not an avid tinfoil wearer ;))! But that also means the so-called Chinese versions of everything are now also relevant here. Or they should be. Like Ronit Ghose said: “When the mass of wealthy Chinese tourists come, Western companies have to accept Chinese payment methods or they get nothing.” On the streets of my home city Helsinki, there are more and more signs in Chinese. Talking about the Chinese payment methods the shops now accept, wishing happy Chinese new year and so on. The Chinese are coming and you should be ready.

…or should I say Asia is coming instead? China definitely is ahead, but other countries like India are catching up fast. You should keep your eyes peeled.

 

Antti Kosunen ended his portion with the following quote, and it seems like the perfect quote to end this post: “If the rate of change outside your organization exceeds the rate of change inside, the end is near.” – Jack Welch

 

Posted by & filed under Corporations, innovating, Startups.

Go f.... disrupt yourself!

Many startups say they are disrupting something. And they might, we live in one of the most uncertain times in history. But how can corporations know what to expect? How can they know what the big changes in the industry will be?

The bad news: you’re not as good as you think figuring it out on your own.

People love talking about “disruption”. Fintech startups with the banking industry. Autonomous and electric with the automotive industry. Peer-to-peer with real estate. TechCrunch has even named its conferences “Disrupt”. Welcome buzzword, let’s all go disrupt something! And is disruption even a good thing for startups? According to Peter Thiel, not at all. It doesn’t say much about your business if the biggest thing about it is what it displaces. Tweet this

Disruption is what the big players call an innovation that they didn’t see coming. Tweet this

A hammer is not a disruption to a video casette. A streaming service is.

And why would you not see it coming? It turns out it’s more difficult than most people expect. I’ll give you one example. A technology that is getting a lot of buzz lately is Artificial Intelligence. We have a few startups in that field in our portfolio. I’m sure you’ve also heard claims about how it’s going to displace a lot of jobs.

What was your answer to that?

Let me guess… was it close to “poor guys, I’m so lucky it won’t displace my job though”?

I’ve been talking with a lot of people about this topic, and let me break out a sad truth to you: everybody thinks that. Tweet this. Doctors, consultants, teachers, drivers! “Oh, it’s going to get a lot of people out of their jobs. But for sure not in my area. We do different stuff. There’s still a lot of things they don’t understand about what we do.”

And there’re two reasons (at least) for that.

The first and most obvious is that the closer we are to something, the more assumptions we have about it. Tweet this. You have assumptions about how your job “should be”, based on how it is. You have the assumption that everything that you currently do is necessary.

The second one is that what disrupts a market is not an improved version of what you currently have. Tweet this. What will displace your industry is no necessarily a substitute of your current offering. It will be something that makes your current offering irrelevant. But by definition, it will be very different.

 

Sometimes new innovations don't seem like they could replace the old thing because they seem so different.

 

Take the case of the ice factories in the 1920’s. It was one of the biggest industries at the time. On 1927 came the refrigerator. Many people in that industry though “oh, sure, but that’s not the same thing”. Still, most ice factories closed down. The disruption didn’t come from better ice. It came from something else, that made selling ice almost irrelevant. And they didn’t know how to renew themselves.

Let’s bring the example to the present time:

  • Think about the automotive industry. Will the biggest disruption be better or more efficient cars? Probably not. We will move towards something that will make cars less relevant. It might be advances in shared economy, better-shared transportation or communications. It might be all the above.
  • Think about fintech and banks. Will the biggest disruption be a startup that is a better version of your bank? Probably not. It might be a swarm of little startups. An open architecture. A different way to deal with information. It might be all the above.

The good news: working with startups will help you.

A couple of weeks ago the Nestholma coaches took part in Tony Robbin’s seminar Unleash the Power Within. We heard much about human nature and about beliefs. In particular, we heard about how self-limiting some of them can be. To get rid of those beliefs, you need to break existing patterns and create new ones.

If you want to understand what’s coming, you need to do more than knowing the context. You need to be ready for change and renewal. Need to be agile. You need to know how to work with the change. You need to know how to work with startups.

You even need to be part of the change. You need to disrupt your own business. If you don’t, somebody else will. You need to be working on the things that will make you obsolete before somebody else does. Tweet this.

This can be scary. But instead of fearing those changes, you need to embrace them and turn them into actions. The world is going to change anyways. If you renew yourself, you’ll stay on top, and the change will be good for your business. Tweet this. If you use startups only as an innovation band aid, you might see it coming… or not.

 

Working with startups will help the people in your organization in many ways:

  • It will make them think bigger, and raise their standards towards innovation. If working with startups becomes part of their DNA, they will be more likely to think innovatively, expect shifts in the market… and dare be part of those shifts!
  • It will make them think in a sharper way. Tony Robbins says that complexity is the enemy of execution, and any lean startup will agree. In corporations, things can become complex very fast. Even when things are not complex, they are sometimes made complex. Startups are good at cutting through the clutter. They can’t afford to make things too complicated. They have to be sharp and lean.
  • It will make them think like intrapreneur change agents. Change requires champions. Entrepreneurial thinking is a great tool to plan for uncertainty. It’s a great tool to even understand that uncertainty. It’s a tool for making things happen.

In short: be ready to renew your organization by working with startups… or somebody else will! Tweet this

Dr. Daniel Collado-Ruiz, @ErCollao

Do you like the content? Do you disagree? Are you interested in hearing more about other related stuff? Drop us a line in the comments or on Twitter, and let’s chat!

 

Start renewing your business today

Let’s talk how Nestholma can help to renew your entire company and find new businesses with startups and beyond.

I want to hear more

 

You might also be interested in: Why are big corporations so bad at innovating?

 

Posted by & filed under Accelerator, Corporations, innovating, Startups.

Renewal of the companies is on the mind of every CEO. Not to learn more but to break the patterns. It´s easy to learn new stuff, but difficult to unlearn. We go back to our habits unless something becomes a habit.

Break the patterns

All Nestholma coaches took part of Tony Robbins 4-day seminar in London. We are here to learn how to become better coaches. Tony Robbins made us experience. He made us repeat. Breaking our patterns and repeating new ones, so it becomes us. And that´s what corporations also need.

Active waiting

I also had a pleasure to listen to professor Liisa Välikangas earlier this week. She talked about “active waiting”. It means that people have to be learning to be ready for the unknown future. When I listened to her I realized that a startup accelerator is an active waiting tool. You don´t learn how to play soccer by analyzing it from the distance. You have to play it. And you have to play it when the game starts. Most of the times organizations don´t understand that the new game has already started. Some key players understand the importance and the urgency to change, but most of the people don´t.

Fast

Nordea`s CDO Ewan Mcleod answered with one word why startups are good for learning purposes: “FAST” and he continues: “we have to be fast”. And that happens only if the patterns of the old behavior has changed. And when people have been “actively waiting” they can act when needed.

 

Happy labor day! Let´s change the patterns of the labor, wait actively and act fast.