Financial technology, or fintech, is the latest and biggest bandwagon in the world of finance. Everywhere you look, practitioners, investors, software vendors and the media are talking up the trend for their own reasons: to look innovative in their market, to raise venture funding or access the hottest start-up ideas, to attract readers and advertisers or simply to sell systems. The idea that fintech companies are turning the slow, bureaucratic worlds of banking and asset management on their heads has become the new orthodoxy – just as the internet revolution was back in 1999. And now, as then, few are brave enough to question where the value is or to suggest that the majority of it may be little more than hot air.

Few are brave enough to question where the value is.

As a technologist working in the financial services industry, most of what I read about fintech sounds ill-informed, incomplete and occasionally irrational. Far too many ideas and services are being written up as though they were truly pioneering and innovative – not because they are but, because such stories help the companies to attract attention from potential customers and venture capital backers. Far too often, companies that have raised a few million dollars are hailed as being at the forefront of a fintech revolution – even though really transforming the financial services industry requires not just far more money but also a deep understanding of the industry’s complexities and being widely enough connected with existing players to build momentum – not a modest Series A or B funding round.

Sound and fury

My view of fintech is different. But even though I maintain a healthy scepticism, I firmly believe that technology can and will transform the finance industry. It’s just that almost all the fintech companies and ideas we see being described as pioneering or revolutionary won’t end up being the ones that really make the difference. For the most part, the real pioneers are working away under the radar, well away from the eyes of the media. This is where the big changes will come from.

The bedrock of any fintech platform is the ability to generate sustainable revenue.

The companies that are really at the forefront of fintech have something that most of those making the noise so obviously lack: a viable, proven business model that generates meaningful revenue and is scalable. Innovation creates value by using technology to solve a real problem – and you can tell it’s real because people are willing to pay worthwhile amounts of money for a solution. Too much of the fintech that makes the headlines will fail because it doesn’t solve real problems and therefore will never generate enough revenue to remain viable once the venture capital runs out.

So, the bedrock of any fintech platform is the one that much of the media has failed to question: the ability to generate sustainable revenue. Whatever you build on top of that should be supported by four pillars. We plan to go into each of these pillars in more detail in future articles but for now I just want to introduce the main ideas:

• Put people first:
  Put people, their problems, and how they think at the forefront of your design process. In finance, the quality of the user experience is all too often an afterthought. This is a big mistake: technology must be designed to be a pleasure to use and give easy access to an excellent service. Build for human beings.
• Create genuine value:
  A lot of what traditional financial services companies are offering is simply an existing product repackaged for “online”. You have to go further and produce something that is not simply a variation of a product that already exists. Fintech has the potential to truly democratise finance: it can cut out middle men, drag down costs, and deliver investing opportunities to the many that have previously been reserved for the few. But that can’t happen unless we are laser-focussed on creating genuine value for users
• Share infrastructure:
  In other industries, huge value has been created by building common infrastructure that everyone can access, such as Amazon Cloud or Uber. That makes perfect sense. The underlying pipes are rarely where a business distinguishes itself from its competitors. Sure, nice pipes are critical but they’re not going to make a customer choose you over the guy down the street. The challenge lies in distinguishing the collaborative from the competitive space. Activities that don’t make you stand out from your competitors are best done collaboratively through shared infrastructure. Activities that add value, create competitive advantage, are best left to individual firms. This has happened in the past in finance – take SWIFT, the interbank messaging service, for example – but it is not happening nearly enough today.
• Reimagine:
  There is a very natural instinct to think in terms of improving what exists today. But to bring real change, sometimes you have to leapfrog iteration and completely reimagine what’s possible. For example, there’s huge excitement at the moment about blockchain – and extremely good blockchain-based solutions already exist with the potential to make finance much more efficient. But most of them are being designed by retrofitting an existing process to fit the tech. Meanwhile organisations you don’t hear much about are quietly taking the tech and making it do completely new things.

Over the next four articles in this series, we will look more closely at each of these pillars to highlight some companies that are genuinely on the frontiers of fintech. Rest assured, there is plenty of impressive innovation going on in financial technology – it’s just not coming from most of the people you read about.