We spoke to Nick Skinner, advisor to early-stage, private and venture-backed FinTech companies. We wanted to know what advice he had for FinTechs who were looking to grow over the next 12 months…
Hi Nick, thanks for taking the time out to speak to us. Can we start by asking a bit about your background in the FinTech sector?
Hi Jamie, well the Fintech industry we know today has its roots back in the 1980s when the first banking software packages were developed. Before then most banks developed all their own applications on early mainframe computers. The advent of mini-computers, microcomputers, software-as-a-service & cloud computing, server farms, secure telecommunications and the Internet all acted as the building blocks for today’s Fintech industry. I am lucky enough to have been involved in all the major IT cycles over the past 40 years working for both start-ups and big-tech firms. My early years in banking as a foreign exchange dealer helped me develop and launch groundbreaking FX and MM trading platforms in the 80s and 90s giving valuable experience in deploying and supporting mission-critical applications to Tier 1 institutions globally. In more recent times I have led the Innovation Research Group at a leading US Custodian and Asset Manager where the latest ‘edge’ technologies and many Fintech firms’ solutions were assessed for business value opportunities to disrupt the industry, create new business models and drive business growth. This role also embraced Fintech investments, partnerships and other collaborative ventures to seek new value-based business and commercial models as well as regulatory and policy-making advocacy in the UK and EU.
Given your depth of knowledge, what do you think will be the main challenges for FinTech organisations across 2020?
The Fintech sector is extremely dynamic and comprises a wide variety of firms at every stage from pre-seed funding through to unicorns and the big-techs. Each area has its own unique challenges but a few key, common themes across the landscape that emerged in the last few years will continue in 2020 to be top considerations for Fintechs.
Firstly is the continuing challenge of regulation. The good news is that regulators are becoming far more enlightened to the needs of the Fintech industry and are increasingly willing, across more and more markets, to engage in early talks and offer ‘sandbox’ facilities to guide Fintechs as they develop their value propositions, products and client experience pilots.
However, the practical challenge will continue to be the cost of acquiring initial approval and maintaining regulatory compliance. This is frequently under-estimated with the potential to inflict harm on a Fintech’s business plans and investor relations. Fintechs need to critically evaluate the time needed for regulatory approval and to factor this, and the costs, into their business plans and funding models.
A further theme that has emerged concerns the evolving approaches to collaboration and partnering models between Fintechs and incumbent financial services firms. Many of the traditional firms are facing the challenge of trying to rapidly build internal competencies and capabilities in emerging business models, edge technologies and new disciplines such as data science and machine learning to develop new business models and competitive market offerings.
In recent years and going through 2020, we can expect to see an increase in the number of close relationships between the afore-mentioned players as the incumbent firms realise they need to evolve and adapt to new challenger firms and industry disruption to their traditional markets and client sectors.
So what would be your advice to people to tackle those challenges?
Anyone operating in today’s Fintech and Financial Services industries will know that the speed of business evolution and technology development is increasing each year. Whether Fintechs or FS firms, each will need to tackle the challenges in a timely manner by having the best-experienced leadership teams in place to navigate a successful path.
Over the years I have observed that the most successful Fintechs have had leadership teams that comprised a diverse mixture of skills where each team member had deep, practical expertise in their own discipline combined with a good level of business acumen. Whilst there is always the immediate need to deliver the forecast business performance, such a leadership team will ensure the firm’s strategic vision is the basis for major business decisions and investments.
And would you have any other advice for FinTech companies looking to grow across 2020?
Here in the UK, we saw Fintech investments increase to $4.9 billion from $3.6 billion in 2018 and moving the UK to second in the global country rankings for VC investments. Continental Europe also had a record year with total investment hitting $8.5 billion, up from $5.7 billion in 2018. Observers are concluding that Open Banking and PSD2 are two significant drivers for the growth.
One evident trend from the overall level of investments in Fintech’s over the past two years is that large companies are ramping up their investments i.e. corporate venturing, to gain access to the latest technological developments as well as to harness the innovation and agile cultures of smaller Fintech firms.
These traditional financial services firms are being challenged on many fronts by Fintechs and are having to improve their efficiency ratios, service and product portfolios and overall client experience delivery. Technology and innovation will play a key role in realising these advancements, and the larger banks are waking up and realising that they need to find new ways to collaborate and develop new commercial models with Fintechs.
So I would advise Fintechs to be flexible and take an open approach towards business relationships with larger banks and recognise that the value an organisation can offer is far larger than just the product set today. Serious consideration should be given to the type of strategic relationships that offer the potential to drive a Fintech’s business model into new areas and growth opportunities.
Finally, tell us one thing you have done across your career, which others may not have done, in order to recruit the best talent for your teams?
When I started recruiting to build organisations and teams early in my career, I initially relied on the classical approach to interviewing to validate if a candidate’s expertise and experience were really as claimed and suitable for the new role.
But I found that this approach failed to help me really get to ‘know’ the candidate, critically assess their technical and softer skillsets and how they would approach new situations and business opportunities.
So for shortlisted candidates, I started to select a real-world situation that had recently been encountered at the firm; possibly a new business or product opportunity, a regulatory development or strategic challenge and ask the candidate to research and analyse the area, and return to present their findings and conclusions.
This approach helped me understand the thought processes, approach to problem-solving and how good each candidate was at communicating their conclusions and recommendations. And it created a very good dialogue with the candidates as I discussed their approach and rationale for the findings.
I cannot claim it is unique; only that it is one of my most valuable hiring tools in recruiting great employees during my career.