Just 50 years ago the musical Hair hit the stage and shocked theatregoers and critics with its costumes (or lack of them) and music, such as the Age of Aquarius. The financial world is now being rocked by FinTech and many think we are entering the Age of Disruption.
Globalisation is connecting the world as never before and our lives are being continually transformed by disruptive technologies. These are the ruling clichés of the age and the future will not be like the recent past. Anyone who wants to thrive in the present will have to dispense with the old playbook. And that includes corporate treasurers.
What some see as the fourth industrial revolution has resulted in the convergence of the physical and cybernetic worlds. Innovation is following in the wake of digital technology, disrupting the traditional business model within the financial services industry and posing the question: will treasury departments in their present form survive the rise of the FinTech era?
Treasurers will be keeping an eye on the twin track approach of the FinTech industry. This involves inner-FinTech where firms primarily derive revenue from partnering with banks, and outer-FinTech where firms look to disrupt traditional financial relationships, infrastructure and revenue streams.
As these relationships increasingly rely on technology, internal development, partnership choices and the pace of development will become ever more critical. New entrants into the FinTech industry will create more interest, with their potential impact on profits. Potentially, however, they face competition from big bank or big FinTech development.
For treasurers, the potential for increased margins and profits is hard to resist and big choices and decisions lie ahead as the technological impact and its effect continue to grow.
Critical alliances are forming across the board as the industry adapts and adopts potentially game-changing strategies. The key question for treasurers is whether they buy in technology and run it themselves or whether they opt to create crucial alliances as the opportunities arise and the landscape changes. Players of all sizes will be faced with this decision. These efforts must be mutually beneficial and partnerships should be relevant and produce customer value at their heart.
Traditional banking services are increasingly seen as a utility and leveraging experience in this sector within niche segments is now an option. Some commentators believe that the next decade will be as disruptive as the last economic downturn, but others take a different view. While FinTechs are looking to take the market share away from traditional financial institutions, is this really disruption or simply competition which spurs innovation within the industry, new or old?
If the latter is the case it would be remiss to only look at the new kids on the block and ignore the steps which better known financial institutions are taking. Currently, many of these older companies have opted to create innovative subsidiaries within their own walls by attracting talent, purchasing a FinTech start-up, by licensing software or funding investment in an external FinTech company.
The last couple of years has seen a move towards these partnerships between start-ups and traditional institutions. The latter have realised that their systems are antiquated and need to be refreshed, and so are looking to redevelop themselves from the outside in.
This begs our original question of whether this is disruptive or simply an update of the industry’s legacy systems to remain competitive. If this is the case, should treasurers be grateful that institutions are reacting to FinTech changes, or look to mimic those changes within their own companies?
Traditionally, banks bring experience and scale to any financial considerations but do not always share the apparent goals of FinTechs which are to make real change for the benefit of the customer.
Many treasurers will still not see this as disruption from FinTechs as this implies the collapse of the system as they fail to keep up with new business models. Disruption is what Amazon and its competitors did to high street shopping, we have not seen anything like that impact in financial services.
The age of Aquarius is an astrological term relating to the Earth’s slow rotation with a duration of 2,160 years. Treasurers are not renowned star gazers and they will realise that the progress of FinTech can be measured in months rather than millennia. An ability to adapt quickly will be key for companies to avoid any potential disruption to their own systems and profits in the immediate future.
Simon Lynch is the owner of Treasury Talent.
Treasury Talent is a specialist treasury talent provider solely focussed on the treasury market with offices in Sydney covering Australia, Singapore covering Asia, and San Francisco covering California and the USA. To make contact firstname.lastname@example.org