The Innovator’s Dilemma: Is It Always About Technology? The FinTech Perspective

The thing that intrigues me the most is the business model and how it evolves influenced by innovation. Every business I interact with I try to understand how do they make money, what is their unique angle. I had one such conversation with a friend of mine, Antoine Baschiera, cofounder of Early Metrics. They have analysed and scored over 1000 innovative companies in the last two years. We had a debate on what innovation is. Too often associated with just the technology but innovation is so much more. We have agreed on 4 main pillars – process & customer service, route to market, product & service and technology. So how do they all come together?


Technology innovation – embedding new technology into your stack such AI or visualisation to empower the other 3 pillars  

Process & Service – using process and technology improvements to improve customer experience or critical internal processes to gain competitive advantage, such as pricing engine in insurance

Product – creating new products that didn’t exist before, such as Apple Watch

Route to market – addressing new markets, finding ways to reach your customers differently, for example servicing banking clients via facebook chatbot


Let’s look at each of these in more detail:

Technology Innovation

Technology innovation in banking is often trivialised to a simple question – can we use this new technology to remove enough friction from the process that savings/profits would justify the costs, i.e. can we get a positive RoI. Often you can’t, at least initially, quantify innovation as RoI. There are much bigger benefits to technology than just cost saving – it acts as an enabler in the evolution of the company.

Technology in itself normally brings marginal improvements rather than disruption. The disruption comes from a change in the other 3 pillars as a result of this new technology. Let’s take Uber as an example, the company is so disruptive not because of their technology, if anything, it’s pretty basic, slick and well functioning, but basic. What is special about Uber is their business model innovation – creating a marketplace for transportation. This is very disruptive. They couldn’t achieve this without their technology but technology is not the value add here, just an enabler that leads to disruption of the taxi industry supply chain.  


fintech innovation


Process & Customer Service Innovation

Process innovation is less sexy than product innovation. It is not focused on creating new products or reaching new markets but sometimes it can be the best competitive advantage of all. If you can open a bank account in 5 steps while your competitor is taking 3 days you will win that game every time despite how many cool and sexy products your competitor has. Process Innovation is all about improving internal and external processes to provide better customer experience. It’s about improving existing products and business critical processes transforming the business model of the company.

Customer service often defines business models. High touch high-end product with great customer service is associated with low volume high margin business and low touch high volume approach with good price. You rarely get both.


FinTech Customer Service

A true process innovation would be to provide high touch customer service with good price. Some industries are approaching this possibility. Let’s take a look at wealth management industry. Previously we had private bankers who would manage money on behalf of the very wealthy. Then the robo-advisors came around, addressing the gap in the market at the bottom end. But two services are very much different, the end result may be similar – you get a diversified portfolio but the route to that result is very different. Adjusting a dial on risk-meter vs dedicated private banker talking you through all the options available at all hours of the day.

There is a middle ground here, providing good service but cheaper – do you need a private banker with a fancy office? Can his service be provided via skype? Can a good amount of queries be answered by a bot? Could we mash these two together? This would be a great example of using technology to improve your critical processes – customer service to gain competitive advantage. A robo-advisor with a human touch and a similar price would beat robo-advisor without human touch.


Roboadvisor Fintech


Same as with Uber, technology is not the game changer here. The game changer is the application of that technology. The code for a bot is available as open source and is hardly revolutionary but the application of this code is.


Route to Market Innovation

Finding new routes to market can drastically increase your market share. Let’s take travel insurance for example – you can sell it via brokers and price comparison sites but cross-selling it on airline websites is a new route to market. Acquiring customer in FinTech is notoriously expensive. For that reason FinTechs are often exploring different ways to market rather than taking the incumbents head on and the answer is a B2B2C model. A company plugging into existing players back-end and using their channels to acquire customers or add value saves millions of pounds in marketing expenses. The maths are simple here – acquiring customers in FinTech can be very expensive – some of the banks I’ve worked with were looking at anything between £300 and £400. That is a lot of money if you want to scale. Let’s take an example – a company has raised Series A of £10mil, ignoring all costs, this company could only acquire 25,000 customers. This is hardly enough to make a dent in the fintech space. This is why we see banks like Atom raising hundreds of millions of pounds. To achieve any sensible scale you need a very large amount of capital. Few startups will ever be able to raise this kind of money and therefore a much better way is to partner with an existing player, usually a bank, and use their channels to acquire customers. It is lower risk lower reward option but certainly still a lucrative one since you can nearly bootstrap a business that is using a B2B2C model, while it would be very hard to do that with a B2C business, at least in FinTech.


FinTech Route to Market


Insurance is another interesting example of finding a new route to market. Insurance as a product is becoming a commodity – people are less willing to buy insurance as a standalone product anymore. They want to buy an insured car rather than a separate car insurance. It is becoming a part of a larger bundle, there are a number of companies looking to enable this. This will have an effect on insurance business model.

Product & Service Innovation

Product innovation doesn’t necessarily involve creating new products like autonomous cars, smart watches or new social media app. A lot of product innovation surround repositioning products for specific verticals and tailoring your product to watch that markets needs – data visualisation for retailer, marketplace loans for SMEs, document management for lawyers.

Because the verticals keep on constantly evolving we can find gaps created in the market by current providers and innovate to fill them; much like Atlassian created a perfect ground for Trello to grow. Dimitri Tarasowski wrote a great post on this, here’s a short extract:

Trello brings a different value proposition to the market. Its value proposition is collaboration and simplicity. Jira’s value proposition is different. It seems that Atlassian is a well-managed company. Its managers did everything according to the books. They listened to their customers, and created a better and more complicated product. By adding new features, they sought to capture new customers. They went upmarket.

While the company’s revenue grew, its product became overly complicated and difficult to maintain. By moving upmarket, Atlassian created a vacuum at lower price points into which competitors with disruptive technologies could enter. This is what Trello did.
Atlassian vs Trello


Creating new services and products will most certainly have affect on the business model as the company will evolve and fine-tune its product offering to suit their desired customer segment, much like Atlassian did.

So what is innovation?

Business model innovation, particularly in FinTech, is not just technology based. The technology is frequently an enabler of other elements rather than the cause of the disruption. When looking to innovate and disrupt, we can’t simply focus on technology. Start with an end goal in mind of what you will show your customers, how will you access your market or what your processes will look like. Fit technology afterward.

Also published on Medium.

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I'm a #26 Global FinTech influencer. An Economist by profession, I have worked on both sides of the table - tech startups and global financial organisations. I love football, technology, travelling and photography.