The Wounded Unicorns Of Fintech

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For EBusiness & Channel Strategy Professionals The Wounded Unicorns Of Fintech Falling Valuations Don’t Mean You Should Give Up On Financial Technology August 1, 2016 ›› Need propping up. As investors become more realistic, startups’ access to capital will wane — especially for UK-based startups as a result of Brexit uncertainty. If you’re serious about wanting to work with a particular startup, you may have to inject your own cash to help the firm scale and meet your requirements. But avoid putting all of your eggs in one basket — pilot with many startups and take due diligence seriously. Digital business strategy executives probably won’t have the right skills to do this and will need to partner with colleagues in corporate finance or corporate strategy. ›› Will look for alternative business models. Many unicorns stockpile consumer data. As their valuations fall, they’ll be tempted to sell that data. Regulation prevents this, but firms that mediate between banks and marketers have already become data orchestrators, effectively monetizing data they access through their banking clients. 32 In any partnership with startups, set out from the start who has control over customer data. ›› Are likely to be acquired. Many established financial technology vendors have watched the fintech hype intently. Some, like Temenos, have built their own fintech ecosystems, hoping to enrich their software with innovative offerings from startups. 33 As prices fall, financial services firms and technology vendors alike will be looking to boost their digital capabilities on the cheap, potentially snapping up one of your partners. Consider how the acquisition of a startup that works with you would affect your relationship. Recommendations Keep Calm And Carry On Capital markets are prone to hype and volatility. You shouldn’t be. Havoc in the fintech space makes razor-sharp focus and strategic matchmaking crucial to digital strategy. Use Forrester’s framework to determine how to respond to digital disruption: 34 ›› Consider the opportunity and the threat. The term “fintech” has become too widespread to be uprooted from the industry. But, like many buzzwords, the term obfuscates the huge differences between startups’ aims, obstacles, and opportunities. Carefully assess if a startup is genuinely onto something or is merely peddling smoke and mirrors. ›› Decide whether to build, buy, or partner. Your choice will depend on your needs and capabilities, the technology maturity of the category, and whether any suitable acquisition targets are available to you. Partnering should be your first choice, unless you’re getting a bargain for an already functioning solution or key patents and can protect a startup’s creativity to prevent brain drain. › › Don’t favor startups over your existing partners. When asked why he preferred to work with startups, one insurance innovation executive told us that large vendors weren’t as innovative, and couldn’t come up with innovative diagnostic tools like Theranos did. But now we know that many Theranos blood tests were inaccurate. 35 Working with large, established vendors that know you and follow your processes can have its advantages. And many IT service providers are plugged into global innovation networks. © 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law. Citations@forrester.com or +1 866-367-7378 7
For EBusiness & Channel Strategy Professionals The Wounded Unicorns Of Fintech Falling Valuations Don’t Mean You Should Give Up On Financial Technology August 1, 2016 ›› Embark on digital transformation to build sustainable innovation. One software solution doesn’t make a summer. Rather than getting distracted by point solutions, you need to focus on building sustainable digital capabilities. Digital transformation is a journey, not a destination, and it will require a change to your culture, organization, technology, and metrics. 36 What It Means The Havoc Stage Is A Dangerous Time For All Involved Much of financial service technology has entered the “havoc” stage, one of the three phases that all technology markets go through: a market pivot driven by disruptive innovation, the havoc of consolidation and acquisitions, and the apparent emergence of stability. 37 Be wary of the havoc of betting on emerging capabilities as: ›› Financial services firms become overconfident. Partnerships between startups and incumbents are already like a fight between David and Goliath. 38 And now incumbents will use their full weight to secure more favorable partnership terms or take out budding competition. 39 We’ve seen this before, after the dot-com bubble — with the acquisition of online banks like Egg and incumbents making little use of the innovative platforms they acquired. 40 Few banks have developed a better acquisition strategy and will preserve startups’ innovative culture, agile organization, and digital talent. ›› Acquisitions become more tempting — and more dangerous. Global insurer Aviva, National Australia Bank, Dutch bank ABN Amro, and plenty of others launched venture capital funds in 2015. The falling prices of fintech startups will make incumbents keen to jump in. But these funds’ lack of experience and conflicting aims of financial return and corporate innovation will see plenty of misguided investment. As some clusters of financial technology go through the havoc and stability stages, these funds will invest in the “walking dead” — companies in weak financial positions that are barely surviving and offer little for the money. 41 › › Digital giants use acquisitions to storm financial services. Alibaba, Apple, Facebook, and Google have all danced on the fringes of financial services. 42 Some, like Apple, have played nice with incumbents. 43 Others have acquired disruptors — as PayPal did with Venmo and Xoom — to become the operating system of commerce. 44 The support of a well-known brand with a large following and deep pockets can turn small disruptors into a major headache for incumbents. 45 Digital platforms with financial services capabilities will increasingly collide with incumbents. © 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law. Citations@forrester.com or +1 866-367-7378 8
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The Wounded Unicorns Of Fintech

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