Star Wars & The Empire Strikes back!
It’s a tale as old as time (or should I say a tale from ‘A long time ago..’)— the incumbent Financial Galactic Empire challenged by the upstart Fintech Rebels… Old has to give way to the New… or learn to adapt rapidly and protect its turf!
Darwin’s principles apply to Star Wars just as much as industries in a Capitalistic economy. It is indeed the survival of the fittest… or rather the survival of the one who is the most adaptable. And the ability to turn on a dime is becoming more and more important with significant leaps in technology in recent years.
The legacy Financial Empire — the Chase and Citis of the world — is facing the ongoing challenges of the Tech stalwarts (PayPal, Square, Apple Pay, Amazon payments, Google Pay to name a few) as well as the upcoming Rebels (such as SoFi, Chime, Klarna, Affirms of the world). As Jamie Dimon (CEO, JP Morgan Chase) has publicly said: Financial Services should be absolutely scared about the threat of the FinTechs.
The upcoming rebels may not have the muscle to attract Capital and Talent (albeit that is changing with a lot of liquidity in from the SPAC and VC space), however, they have the immense benefit of starting with a clean slate to develop customer-centric solutions and not get encumbered by legacy technology stacks, organizational structures and operational footprints. It doesn’t hurt that governments generally encourage Fintech experimentation with more relaxed regulations — since they perceive FinTechs to deliver customer-friendlier outcomes.
The challengers can focus on building end-to-end Asset-lite & OpEx-lite digital solutions that enable not only low cost but also customer friendly solutions for acquisitions, servicing and backend processes. A lot of this is now enabled by the explosion of digital tools, rapid delivery of open-sourced solutions, open APIs, higher processing speeds, cheaper data storages — further enabled by Cloud based solutions. Conversely, customers, namely millennials, continue to have high expectations of their Digital experiences looking for smoother user journeys, intuitive UIs on websites and Apps - that the nimble challengers can deliver quicker than the legacy Galactic industry players.
One key lever amongst others that is enabling this is Data Science enabled integrations, which help FinTech companies quickly optimize their solution and get more efficient as a result. Data Science has historically been used by Financial Services — however, it had been limited to a small team of smart Statisticians. They were however limited with challenges around availability of quality data and limited product integration that slowed delivery. With the rise of end to end solutions around Data Storage, improved Data management practices, Server or Cloud based solutions that enable quick training & deployment of new features and models, it has never been faster to gather high quality data, build and train high quality models, deploy models and manage models. The ubiquity of Open source solutions & exploding Data Science talent also has accelerated model development from academic papers to being available for industry consumption. There are some challenges around model interpretability and being able to explain to regulators — however, there has been recent focus on improving these aspects as well.
In future versions of this series, we will look into how Data Science is being used in various business-units of the Financial world— ranging from Marketing, Credit and Fraud Risk assessment, to Customer Service & Collections — and how it enables companies to identify opportunities to generate more revenue, get more efficient, cut back losses, drive lower operating costs and improve customer experience. There are other areas of Financial Services like Insurance, Equity Markets etc. — which are also going through its own sea of changes — however, the near term focus will primarily be in the Payments & Lending space.
We are already seeing the entrenched empire players stepping up significantly — Goldman with its Marcus suite, Capital One (which has always been the industry leader in Analytics & Product) retooling its Digital and Tech platforms, and Chase investing heavily into AI.
The Galactic Empire vs the Rebels is going to be an interesting sequel to watch and we — the customers will be the biggest beneficiary!
Sources:
