The Future of Fintechs in Disrupted Times

Jim Marous (00:00):

Hello and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, Founder and CEO of the Digital Banking Report and co-publisher of The Financial Brand.

Jim Marous (00:22):

Fintech firms are currently facing a series of challenges stemming from a variety of factors, including dropping venture capital funding, the failure of Silicon Valley Bank and the uncertain economic times with interest rates rising.

Jim Marous (00:36):

Collaboration and partnerships within the Fintech ecosystem and with traditional financial institutions have become more crucial as fintech firms reassess business models and try to build greater resilience.

Jim Marous (00:48):

My guest in the Banking Transformed Podcast is Jeff Tijssen, expert, partner, and global Head of Fintech at Bain & Company. Together, we try to unravel the complexities in this rapidly evolving sector and uncover how fintech is reshaping the way we think about money, payments, and financial services.

Jim Marous (01:05):

As traditional financial institutions face unprecedented changes across all components of what banking means in the future, fintech firms have been rewriting the rules, driving innovation and revolutionizing the way we interact with money.

Jim Marous (01:21):

But the road has been rocky for fintech firms as of late. More than ever, it's important to uncover the opportunities, challenges, and groundbreaking transformations that lie ahead for the fintech sector.

Jim Marous (01:31):

So, Jeff, before we begin, can you introduce yourself to our audience and share a little bit about your background?

Jeff Tijssen (01:38):

Very happy to, Jim. I mean, first and foremost, thank you so much for having me, it's always a pleasure to speak to you, and big fan of the podcast, of what you guys do. So, it's an absolute pleasure to be joining you today.

Jeff Tijssen (01:50):

I mean, just by way introduction, so Jeff Tijssen, partner at Bain & Company where I have the pleasure and privilege of leading our fintech practice globally. Which effectively means that I get to do all the cool and exciting stuff that we do as an organization with incumbents, fintechs, and our investor clients. And we can talk a bit more about that later on.

Jeff Tijssen (02:11):

I've spent my whole career in financial services, so over 20 years in the industry now, have pretty much touched most parts of financial services by now. Started my career as a private banker back in the days, grew up in the Netherlands. So, worked with some of the major Dutch banks, moved to the UK 13 years ago now, had the pleasure of working with most of the big UK banks in the past decade or so.

Jeff Tijssen (02:35):

Ran the digital platform business for Lloyds Bank for a number of years, ran payments innovation for RBS for a number of years. I had the pleasure of being on the founding team of a number of digital banks in different parts of the world, which was an incredibly exciting journey to start with a blank sheet of paper, and now be able to point to some of these things that are live in the market and are doing really well, which makes me incredibly proud.

Jeff Tijssen (02:57):

Spent three years building and running the consulting business for a company called 11:FS that I'm sure many of your listeners will be very, very familiar with. That was a fantastic time to have the ability to work with some of the smartest brains in the industry.

Jeff Tijssen (03:12):

And then joined Bain about two and a half years ago now. And that's been a fantastic journey as well to have the ability to work with some of the most amazing companies in the industry.

Jim Marous (03:24):

We've crossed paths a couple times in the last few months at different major events where just hundreds, literally hundreds and thousands of fintech firms are in presence. And what we've seen is a lot of transformation, a lot of things have happened not just in the last few years, but really even the last few months.

Jim Marous (03:43):

What are some of the most important trends and innovations that you've seen in the industry over the past, let's say two years?

Jeff Tijssen (03:51):

Yes, it's a great question, Jim. I think it always makes me laugh when I speak to people who say, "I'll spend the last 20 years in fintech." Because I think the reality is that if you look at the industry as a whole, we're still in the early innings, and you've been in this space for a long time. I've been in this space for quite some time, but definitely not 20 years.

Jeff Tijssen (04:11):

So, I think it's fair to say that even if you look at the top 20 fintech players globally, the most established players in this space, they've really only been around for less than a decade. And if you compare it to some of the largest financial institutions out there who've been around for hundreds of years, I think we need to put all of this into perspective.

Jeff Tijssen (04:32):

And whenever you and I attend these conferences, it's always a matter of what's the latest buzzwords. I think the reality is that if you look at fintech today versus even a couple of years ago, the industry really continues to transform. And it's not just within this fintech bubble, but I think one of the effects of this fintech disruption that we have witnessed in recent years is the fact that it has really forced incumbents to up their game.

Jeff Tijssen (05:01):

We've seen it in the U.S. for example, we've seen it in various other parts of the world where incumbents you can now no longer charge your overdraft fees or have made a decision to change their strategy on that front.

Jeff Tijssen (05:16):

But if you look at, I mean, in our private equity business, for example, where we're by far the dominant player, we've been involved in about 80% of all the fintech deals globally in recent years. So, we basically see everything that's going on.

Jeff Tijssen (05:28):

And if you take payments as an example, well, if you look at the top 10 fintech plays globally, you would probably classify many of them as payments. Now, I think despite all the innovations that we've seen and all the disruption that we've seen, we still have a long way to go.

Jeff Tijssen (05:42):

And I think, the shift towards account to account payments and real-time payments I think is a really, really exciting one. But I think it'll probably take a couple of years before all of that really starts to come to fruition.

Jeff Tijssen (05:55):

And even if you look at the neo banking space, I think last time I checked Jim there were about 400 neobanks globally. Now, the question is to what extent do we really need 400 neobanks? And to what extent, have these organizations really managed to disrupt the status quo. Because obviously, in so many countries around the world, the landscape is still dominated by the big four or big five.

Jeff Tijssen (06:16):

Now, that's slowly starting to change, but again, we need to give these organizations some time as well to really focus on products and revenue diversification and really, really challenge the dominant position that these big four or big five organizations have had for so many years.

Jeff Tijssen (06:30):

But I think the reality is that as I said, I think it is still relatively early days despite all the investments that the fintech sector has received in the past couple of years.

Jeff Tijssen (06:42):

But to what extent, if you look at the sector today, are we providing a customer experience that is 10 times better versus what incumbent offers? Again, I think, we still have a bit of work to do in that space, but that's also the exciting thing.

Jeff Tijssen (06:57):

And again, if you look at the talent that exists in the fintech space, that is unbelievable. And I'm 100% convinced that if you look at a sector in 5, 10 years from now, it will again look very, very different compared to what we're seeing today.

Jim Marous (07:09):

It's interesting too, when I was in Amsterdam, you were in Amsterdam for Money20/20, one thing that really caught me was how many names of firms on the floor who had spent a lot of money putting up displays. I didn't know who they were or even what they did.

Jim Marous (07:25):

Is fintech still somewhat a regional process where organizations that are in, let's say the Netherlands or the UK, are not necessarily impacting the fintech sector in the U.S. or in Asia? Is it regional or are there really some national players or international players?

Jeff Tijssen (07:46):

I think it's a great question, Jim. I think the reality is, if you take the neobank space as an example, we've obviously seen a fair few neobanks try to expand internationally with mixed results.

Jeff Tijssen (07:59):

And I remember this myself when I landed in Hong Kong and building a new digital bank in Hong Kong from scratch is so fundamentally different from doing something like that in the U.S. Or in the UK. And we've been working with a fair few of fintech players on their international expansion plans, for example, and we've seen so many organizations fail when they try to expand internationally.

Jeff Tijssen (08:22):

And typically, I mean, there's a whole bunch of different reasons for now, which we won't necessarily go into in today. But it also shows you that it is really, really hard.

Jeff Tijssen (08:31):

And again, I think given the funding environment that we live in today, the ability for you to say, "Hey, we haven't, even reached full potential in our home markets, but we're going to plant five, six, seven flags in a whole bunch of other countries," I think that environment has changed quite a bit.

Jeff Tijssen (08:50):

And the reality is that even if you look at their whole markets, there's still so much room for growth. And we've obviously seen a fair few founders who had to go back to the drawing board in the past 12 to 18 months because of the change in the broader macroeconomic environment and in the funding landscape.

Jeff Tijssen (09:04):

And therefore, focus on the whole markets and then start to expand to what … I mean, also because of the fact that the fintech landscape has evolved so much in recent years, you're going to have to come up with something pretty special.

Jeff Tijssen (09:19):

Because even if the first neobanks are launched in the UK when they now try to expand to other parts of Europe, it's not as if you only have to go up against the big established incumbents, you're pretty much in every market out there. You'll have a bunch of neobanks, that are probably a couple of years ahead of you.

Jeff Tijssen (09:36):

So, therefore, they need to think very carefully about what am I going to do that allows me to differentiate in this particular markets? Well, that's a key challenge for many of the fintechs that we've been working with.

Jim Marous (09:48):

It's interesting, the concept of fintech five years ago was a competing organization that was going to do digital better than traditional financial institutions, meet the needs of segments, do banking better, for lack of a better term.

Jim Marous (10:03):

But as consumers behaviors and expectations continue to shift, a lot of traditional financial institutions had partnered and have partnered with third party providers to replicate some of fintech's best service offerings or best differentiations. How do fintech firms now differentiate their offerings going forward?

Jeff Tijssen (10:26):

Yes, so I mean, building on my earlier points, I think the reality is that the incumbent players, of course, haven't been sitting still. And I actually think that some of them have done a very decent job playing catch up.

Jeff Tijssen (10:38):

And I had a really interesting conversation with one of the big European banks the other day, and they basically said, "Listen, we don't necessarily need to be the first to market, let the neobanks be the first ones to launch new features, new functionality, as long as we are in a position to effectively copy that, I'm perfectly comfortable with that strategy."

Jeff Tijssen (10:58):

Now that's one strategy, not necessarily one that I would recommend. But we have seen a fair few incumbent banks go down that route.

Jeff Tijssen (11:07):

And as I mentioned earlier, what all of this effectively means is that because the landscape continues to evolve, if you are a consumer facing neobank, for example, you need to work even harder to differentiate yourself in the current market. Just having a sexy looking app just isn't good enough anymore to differentiate yourself.

Jeff Tijssen (11:29):

So, therefore, the question is what is going to allow you to differentiate yourself in a relatively crowded and very, very competitive market in a funding environment that has changed significantly in the past, 12 to 18 months?

Jeff Tijssen (11:42):

And I do think that when I look at the fintech sector more broadly and when you look for ways that allow you as a company to differentiate in a market, I'm not necessarily seeing an awful other companies that are very, very mission driven.

Jeff Tijssen (11:56):

So, what do you stand for as a business? So, to what extent are you just building the modern version and slightly better version of an incumbent player that has been around for a couple of decades.

Jeff Tijssen (12:08):

And you basically compete on price or quality of customer service versus to what extent do you try to differentiate by just being a really, really mission driven business and provide that clarity to your customers, whether that's on the consumer side or on the business side, around what do you effectively stand for?

Jeff Tijssen (12:28):

And I also think there are some fundamental differences in terms of where do you play as an organization. Now, from an investment perspective, we've obviously seen a significant shift in the past couple of months from B2C to B2B where B2B is suddenly a lot hotter than B2C.

Jeff Tijssen (12:42):

So, I think a lot of it also depends on where do you effectively play as an organization, and therefore how do you differentiate yourself in a rather crowded market?

Jim Marous (12:51):

We talk about how quickly change is happening, and probably nothing changed more quickly than the funding background of fintechs, where VC firms all of a sudden the money all but dried up except for the biggest and most successful fintech firms.

Jim Marous (13:06):

How do you see that playing out? I mean, if you work for Bain and you're investing in fintechs, how are you evaluating firms to see what their viability is going forward? And how do you see the — we talked about traditional marketplace often saying, how many banks will it be in the future?

Jim Marous (13:23):

Well, how many fintech's are there going to be? What what's going to happen overall with the ability for even some of the bigger ones to scale to the point of making money and not relying on investment capital to stay alive?

Jeff Tijssen (13:37):

Listen, I think the fundamentals haven't necessarily changed. If you look at investors today versus investors 12 months ago, did they suddenly look at a whole bunch of different metrics when they decide to invest in a particular company? And I think, yeah, some people might think that's the case. The reality is that is definitely not the case.

Jeff Tijssen (13:59):

Now, to what extent do we see a bit more of a focus on? To what extent does this company have the ability to work towards sustainable profitability in the short term? Of course. Now the reality, Jim, is that, you could have argued that that should have always been the case. And I think the reality-

Jim Marous (14:16):

But it was easy money. I mean, almost everything progressed forward at a point.

Jeff Tijssen (14:21):

Yeah, let's not forget that. We effectively went through a period of basically 10 years of nonstop economic growth. Well, where there was plenty of capital available, we had low interest rates. And I think if you look at the changes that we've witnessed in the broader macroeconomic environment in the past 12 to 18 months, also driven by factors that were effectively outside of our control, that of course, has also played a major role.

Jeff Tijssen (14:49):

And that's one of several reasons why we've obviously seen a significant drop in the levels of funding in fintech. But I think the reality is that everyone got a little bit too excited. At some point, basically anyone could raise a fund and invest in fintech businesses.

Jeff Tijssen (15:06):

There were a fair few investors as well who had never invested in financial services before, who suddenly also wanted to get in and want to invest in fintechs. And I think that created a bit of distortion in the markets.

Jeff Tijssen (15:21):

And also, if you look at some of the valuations that we were seeing, there's a fundamental difference between investing in the future growth of a company, versus investing at levels that are just not necessarily realistic.

Jeff Tijssen (15:33):

So, the fact that some of those valuations have come down to more realistic levels, in a way it's obviously painful to see a fair few people losing their jobs. But the reality is that I think for the sector as a whole, and if you look at the longer term perspective, ultimately you think this is a good thing.

Jim Marous (15:53):

Are we seeing the same thing happen with generative AI right now as happened in fintech where it's the next shiny object. There's a lot of money being put towards a fairly good sized solution, but it's still narrow in the world of things. I mean, are we seeing the same thing duplicate itself that we saw back when money was cheap in the AI space right now?

Jeff Tijssen (16:19):

I don't think so. I do think, I mean, having worked in financial services for quite some time, I mean, it doesn't happen that often that a new piece of technology, and again, you could argue that AI has been around for 60 years, but I think the development that we've witnessed in the past couple of months is so fundamentally different versus what we've witnessed in the past couple of decades.

Jeff Tijssen (16:42):

And I do think that this is such a transformational piece of technology that I do believe has the potential to fundamentally transform the industry as a whole. And therefore, I am not surprised that from an investor perspective, we are seeing an awful lot of interest.

Jeff Tijssen (16:59):

Now, of course, there's a few companies that have been dominating the headlines in recent months. But we've witnessed the emergence of I mean, pretty much on a weekly basis we see new exciting companies popping up.

Jeff Tijssen (17:12):

Now, I think similar to the conversation we had earlier about about the fintech space, I do think, you'll see a fair bit of consolidation happening in the market whereby, just focusing on one individual use case, to what extent is that addressable market large enough in order for you to build a sustainable business, question mark. So, I do think that we will continue to see some really, really exciting companies popping up.

Jeff Tijssen (17:35):

Again, we do see quite a bit of a shift in terms of talent as well that's joining some of these organizations and that's something that I, and we as a company, and also from an investment perspective, we are very, very excited about.

Jeff Tijssen (17:50):

But I do think there's a fundamental difference. I do think if you look at the investment that's flowing into generative AI today, and how that money is being deployed, it's very, very different compared to the investment that was going into fintech more broadly in recent years.

Jim Marous (18:08):

So, data, security and privacy are growing concerns especially in the digital age, and with governments getting more and more involved. How do you see fintech companies addressing these issues and building a greater trust with their customers?

Jeff Tijssen (18:23):

I mean, we've obviously seen a fair few of fintechs in recent years struggle with issues around compliance and therefore suffering from quite a bit of reputational damage. And I think, to be perfectly honest, Jim, there are organizations out there that under invested in this area, and therefore had to bolster their compliance function.

Jeff Tijssen (18:51):

And it doesn't necessarily matter if you are an early-stage business or a business that is a bit more established. Ultimately, in this industry, it is all about trust, and again, this is such an obvious thing to say, but ultimately trust really makes or breaks your business.

Jeff Tijssen (19:10):

And this applies to consumer facing your fintechs and neobank, but also if you're focusing on the B2B segment, for example. And if you're B2B fintech and you are serving a large incumbent bank that is already pretty risk averse, the last thing that these organizations want to do is partner with an organization that might cause them some reputational damage and be on the front page of The Financial Times the following day.

Jeff Tijssen (19:35):

So, therefore, I think making this a vital part of your organization, no matter which part of the fintech sector you operate in, again, it sounds so bloody obvious, but I do think that some organizations haven't necessarily done a very good job at tackling this, but I do think that is changing.

Jeff Tijssen (19:56):

So, making this front and center from day one, making sure that you are investing in compliance and data security more broadly, is obviously absolutely vital if you want to be a successful business that is going to be around for the next couple of decades.

Jim Marous (20:12):

When you look at governmental regulations across the globe, do you see governments getting too involved or not getting involved enough in the whole fintech sector? We always are feeling, at least in the States, we feel like the regulators fell behind, and now they're playing catch up and sometimes overstepped their bounds, and sometimes because trade groups forced them to play that hand.

Jim Marous (20:38):

Are government regulations a threat or a strategic advantage to the fintech industry as you see it?

Jeff Tijssen (20:46):

It's a great question. I think it's probably a bit of both, and let me explain why I think that's the case. I think, here in the UK, for example, I think we've been very fortunate to have a set of fairly progressive regulators. And I think it's fair to say that one of the reasons why the UK has been one of the world … London, and yeah, obviously this applies to the rest of the UK as well, but London in particular has been one of the world's leading fintech hubs is because of that.

Jeff Tijssen (21:16):

And I think it's therefore fair to say that we probably wouldn't have such a thriving fintech sector if it wasn't for regulators working proactively with the industry to shape what regulation is going to look like. And therefore, I'm also not surprised that various other regulators across the globe have tried to copy what the UK have done.

Jeff Tijssen (21:39):

Whether that's the issues of virtual banking licenses for example, which of course we've now seen in Hong Kong and in Singapore and in various other parts of the world. Ultimately, with the aim to drive more competition, but also make it easier for fintech's to set up their business.

Jeff Tijssen (21:57):

I think that the challenge for regulators, in recent years has been … and again, coming from someone who spent his whole career in financial services, I think the pace of change that we're seeing today is unlike anything that we've ever seen before.

Jeff Tijssen (22:11):

And therefore, as a regulator trying to be on top of everything that's going on in this industry and all the technological advances that we've witnessed, whether that's Web3 or generative AI or Cloud, or whatever that may be, I think we all need to admit that's very, very challenging, and therefore finding a balance between allowing innovation to flourish whilst protecting consumer rights, that tends to be quite hard.

Jeff Tijssen (22:43):

And I do believe that if you take the U.S. as an example, and again, if you take the crypto industry, I do think if the rules would've been clearer then some of these companies would be operational in the U.S. and not necessarily somewhere else.

Jeff Tijssen (22:59):

But I do think that the stance that many regulators have taken in recent years where they are as I mentioned, proactively engaging with the industry, and it's not just the regulator locks themselves in a room, and three years later they come up with this piece of regulation that's completely misaligned.

Jeff Tijssen (23:17):

I think taking more of again, a progressive stance and also doing this in phases where the first piece might not necessarily be perfect, but at least it provides some clarity to what you can and cannot do.

Jeff Tijssen (23:32):

And again, back to my earlier point about the fact that incumbents, of course, are very, very risk averse, in many of my conversations with incumbent banks at the moment, when we talk about the topic of generative AI, one of the concerns that consistently comes up is, what can we, and what can we not do from a regulatory perspective?

Jeff Tijssen (23:48):

And because that regulatory framework isn't necessarily there yet, I mean, it's obviously being worked on, but I think as long as the regulator provides clarity around what this is going to look like, I think that will also lead to more adoption and providing both banks and fintech's more clarity around what is the art of the possible.

Jim Marous (24:10):

Let's take a short break here and recognize the sponsors of this podcast.

[Music Playing]

Jim Marous (24:18):

Welcome back to Banking Transformed. So, today I'm joined by Jeff Tijssen, expert partner and global Head of Fintech at Bain & Company. We've been discussing the opportunities and challenges facing fintech's today. I'm going to read this again.

Jim Marous (24:31):

Welcome back to Banking Transformed. So, today I'm joined by Jeff Tijssen, expert partner and global Head of Fintech at Bain & Company. We've been discussing the opportunities and challenges facing fintech firms during these very uncertain times.

Jim Marous (24:44):

So, Jeff fintech has the potential to enhance financial inclusion and bridge the gap for underserved populations. How can we ensure that the benefits of fintech really do reach everyone, including those in developing economies or developing segments?

Jeff Tijssen (25:02):

I mean, ultimately, if you look at one of the reasons why fintech exists today, is to address this particular issue and addressing those customer needs that are unmet, underserved, or overcharged. And I do think that one of the benefits that we have witnessed in recent years is the ability to bring the unbanked and underbanked even in developed countries like the U.S. or the UK into that financial ecosystem. And that in itself, of course, has plenty of benefits.

Jeff Tijssen (25:38):

Now, I think the reality is that historically, a lot of incumbents would say, "Well, it is just not economically viable in order for us to serve the bottom end of the markets." But one of the reasons for that is the cost to serve and cost of acquisition was so fundamentally high.

Jeff Tijssen (25:57):

And therefore, the question to me becomes, well, how do you reduce that to make sure that you really leverage all the modern technologies that exist today to reduce cost to income ratios and reduce the cost of running your technology stack.

Jeff Tijssen (26:09):

So, I don't necessarily think that that should be an excuse not to serve that particular segment of the market. And this applies to the consumer side, but it also applies to the small business side, for example, which remains a part of the industry that is still fundamentally underserved.

Jeff Tijssen (26:28):

And therefore, I'm not surprised that we've obviously witnessed the emergence of so many exciting businesses in the SME lending space, or the SME neobanking space, the likes of OakNorth and Tide, and Brex and loads of other companies that I think are doing fundamentally well and are also effectively stealing market share from the large incumbents.

Jeff Tijssen (26:48):

But to me, I think if you are an incumbent, one of the questions is, "Okay, yes, you are seeing some of these neobanks effectively eating your lunch, how do you change that?"

Jeff Tijssen (27:00):

And I think the excuse, as I mentioned earlier, that it's just not profitable for us to go after that segment. And again, maybe a regulator has a role to play here as well, because to me, that should not be an excuse not to serve the bottom end of the market.

Jim Marous (27:15):

Well, and sometimes is based on legacy thoughts around things such as credit scores and credit availability. WeBank does an amazing job of meeting all the market needs in China, but part of that is because they do judgements so that everybody can get a small loan maybe just to buy a phone, and that allows them into the financial marketplace.

Jim Marous (27:41):

But they're looking at credit in a completely different way, and they're also realizing that if they hit the masses, then they look at the masses that's driving the risk criteria. They don't look at each individual customer and say, "This person is not credit worthy," they simply are trying to find those customers that may go bad.

Jim Marous (28:01):

It's a little different than credit worthiness and this point of they're going to go bad because they're fraudulent. If you hit everybody, then that risk gets distributed and you can make money, it's not going to be a ton of money on any one customer, but you make money as an organization. It's interesting to see the way they look at the risk profiles and the ability to hit all markets, and we've got to look at that differently.

Jeff Tijssen (28:28):

Yeah, I couldn't agree more, Jim. And of course, the response from any banks historically has been, well, "Yeah, this is how we've been doing this for the past 20, 30 years." But again, that's not an excuse.

Jeff Tijssen (28:40):

So, looking at a fundamental rethink of your entire business model and operating model, and this is also the other difference between you take an existing analog, your servers and you digitize that, versus you're creating a fully digital service that's end to end. And again, just building a shiny veneer on top of what you already have.

Jeff Tijssen (29:00):

And also, I think, this is where there's a phenomenal opportunity for fintechs to do exactly that. It's to come up with alternative approaches to how things have been done for the past couple of decades to allow if you're a B2B business and you're serving an incumbent bank, for example, not just to reduce cost, but also to provide that customer experience that is indeed 10X better.

Jeff Tijssen (29:23):

And to bring these customers into the financial ecosystem, which of course has so many benefits for the broader economy as well.

Jim Marous (29:31):

Fintech collaborations and partnerships have really become increasingly common, in fact, it's probably the most exciting component of the fintech traditional banking space.

Jim Marous (29:41):

What are some successful examples of collaboration between fintech startups and traditional finance institutions that you've seen? And how are these types of partnerships going to continue to drive innovation?

Jeff Tijssen (29:53):

Yeah, I love that question, Jim, because I think again, if you rewind the clock, about 10 years or so, when we first saw the emergence of the first couple of neobanks, for example, initially, the response from banks, of course was as well either we're scared or we don't necessarily take these guys seriously.

Jeff Tijssen (30:12):

And I think the shift that we've witnessed towards collaboration and partnerships on both sides, both on the fintech side as well as on the incumbent side, I think has been really, really interesting to witness.

Jeff Tijssen (30:25):

Now, I could easily write a book on this topic, I mean, again, having worked on both sides, but having worked with so many incoming banks to lead their innovation programs or establish partnership functions or establish CVC arms for example.

Jeff Tijssen (30:41):

And yeah, I don't think there's a single financial institution out there that doesn't have a dedicated partnership team or doesn't necessarily have a CVC arm to really help drive their broader innovation agenda as well.

Jeff Tijssen (30:53):

I think the challenge tends to be a lack of clear ownership, or a lack of alignment with the business where the partnership team or the CVC arm or the innovation team comes up with a couple of things that look really, really interesting, but it's just not a key priority for the business.

Jeff Tijssen (31:12):

And therefore, the question is how do you go beyond these endless proof of concepts where you're just pretty much wasting a fintech's time. And you just end up with this stupid innovation theater, you're nonsense, as opposed to really focusing on your real value creation.

Jeff Tijssen (31:33):

Now, I mean, couple of examples again, here in the UK, I think organizations like NatWest have been really, really active on this front. I really like the partnership that NatWest established with Vodeno, for example, this European banking as a service player, and really doubling down on building out their bass and a bit of finance business, which I think is incredibly exciting.

Jeff Tijssen (31:54):

We've obviously seen the likes of Fifth Third being pretty active on this front, making the Rize acquisition, a couple of weeks ago, which I think is incredibly exciting and also unlocks — I think one thing that really excites me about that particular example is that, I mean, for so many of our incoming clients across the globe, Jim, the core business isn't necessarily growing.

Jeff Tijssen (32:18):

So, one of the reasons why many incoming clients are coming to us at the moment is to explore new avenues for growth or what's that engine two business that is going to stimulate new growth outside of your existing core business.

Jeff Tijssen (32:34):

And I think if you look at what the likes of Fifth Third you have done and really thinking carefully about how do we make an acquisition to really accelerate our ambitions in this space. Because we've also seen so many acquisitions that just failed because there wasn't a clear view on what do I want this business to be when it grows up, and how do I successfully integrate this organization? And again we can have a whole separate conversation about the challenges of doing fintech M&A.

Jeff Tijssen (33:05):

Because we've seen a significant number of incumbent banks coming to us in the past 12 to 18 months, to say, "Listen, we really want to accelerate our fintech M&A agenda, obviously the valuations have come crashing down, and therefore a lot of these companies have suddenly become really, really interesting acquisition targets."

Jeff Tijssen (33:24):

But then successfully integrating that and dealing with the two different cultures, again, we've seen so many failed examples in this space.

Jeff Tijssen (33:34):

But the fact that every organization is now actively looking at how can we leverage the fintech ecosystem out there to really, really accelerate our broader innovation agenda, to me is something that typically is being done top down.

Jeff Tijssen (33:50):

So, a lot of the conversations we're having about these types of topics, the CEO board level discussions, as opposed to head of innovation discussions. And to me, that also shows you that something is really changing and CEOs understand the value that these organizations can bring to that particular incumbent organization.

Jim Marous (34:12):

It is so interesting you bring up Fifth Third, because I worked for Fifth Third in my previous life, and I don't think they're not only in a very conservative city in Cincinnati, Ohio, but they were the conservative of conservative banks.

Jim Marous (34:24):

They had a really unique credit card funding organization, a very innovative group, but they used old technology. But that organization for years was led by people that I don't think really thought in an innovative way or in a transformative way. And they have changed as quickly as any organization I've seen.

Jim Marous (34:47):

Another one in Ohio is Huntington Bank, which I think has done well as well. But it is interesting when you bring up Fifth Third Bank, because you mentioned it throughout your last discussion, that it really takes leadership to completely rethink what that bank's going to be and how it'll grow.

Jim Marous (35:04):

And so, that type of partnership, that type of collaboration can be done, and as the organization overall transforms internally, the culture transforms, it does make for the platform for success. But as you said, it really does start at the top and it did at Fifth Third, so it's very interesting.

Jim Marous (35:22):

So, when you look at the advancements and disruptions in the fintech business model, what do you see coming out of generative AI and ChatGPT and all the elements that we're looking at now? How do you see the fintech business model maybe changing a bit?

Jeff Tijssen (35:39):

Yeah, I think good old Matt Harris from Bain Capital, wrote this really interesting article back in 2019 if I'm not mistaken. So, he published an article in Forbes, which basically talked about why fintech is effectively the fourth business model.

Jeff Tijssen (35:55):

So, you had the internet, then you had Cloud, and then you had mobile, and this is effectively the fourth major platform technology, and fintech is effectively becoming a business model in its own right. Which I think is a great way to describe what's happening in the industry at the moment, particularly around embedded finance.

Jeff Tijssen (36:18):

Now, what I find quite interesting is it wasn't that long ago when everyone was talking about the great unbundling, well, we all remember these CB insights.

Jim Marous (36:30):

Oh, the charts, the visuals.

Jeff Tijssen (36:32):

Exactly, and fintech was causing the great unbundling in financial services. I think we've all come to the conclusion now that some of these businesses are just too small to effectively be a standalone business that, you will be sustainable for the next couple of decades. And therefore, I think we're seeing a bit of rebundling, that is effectively happening now.

Jeff Tijssen (36:56):

I mean, on your point about generative AI as I mentioned earlier, it's something that I'm incredibly excited about. I do think that this is something that is very, very different versus all the other technologies that we've seen. I mean, I was chatting to a journalist the other day and she asked me, "Isn't this just like the new crypto, the new Web3, and is this just another bubble?"

Jeff Tijssen (37:23):

And I think one of the fundamental differences is the application of generative AI to effectively every part of the financial services industry. Whether that's your back office, front office, compliance, fraud analytics, customer service, relationship management, the list goes on and on and on.

Jeff Tijssen (37:42):

And yeah, I could easily give you 257 potential use cases across different parts of financial services. I think that the challenge, as we were discussing earlier, ultimately is adoption. And trying to overcome this risk averse, your view that tends to exist in many large incumbent organizations.

Jeff Tijssen (38:07):

But I do believe that it is very, very different, it is incredibly exciting. It definitely has the potential to fundamentally change the industry.

Jeff Tijssen (38:17):

And we talked about this on stage in Money20/20 as well, together with Citi and ABN AMRO and how those two of the largest financial institutions in the world have tried to tackle this. And I think, some people think that this is something quite fundamentally new and some of these organizations have only started to play around with AI in the past couple of months.

Jeff Tijssen (38:39):

That of course is not the case, I mean, many of these organizations have had dedicated data science teams and some really, really clever AI experts and have been building up centers of excellence for years.

Jeff Tijssen (38:57):

But the ability for every single individual to play around with this, that in itself is a massive game changer. And that, again, of course, is one of the fundamental differences between Web3 for example, and generative AI. I think what's quite interesting, Jim, is that we announced an alliance with Open AI back in February. We've been working with the guys for quite some time.

Jeff Tijssen (39:20):

And since the announcement, it just went gangbusters, basically, where every single organization wants to understand what does this mean for my organization, what are the opportunities that generative AI provides, how do I prioritize which use cases to work on first?

Jeff Tijssen (39:43):

How does this affect our existing risk in governance and compliance models for example, what capabilities are required in order for me to benefit from all these amazing things that generative AI has to offer and the potential that this provides to the organization. So, that's been incredibly interesting for us.

Jeff Tijssen (40:06):

Even for the most established organizations, it's still effectively baby steps. And again, you don't want to be on the front page of The Financial Times because something went horribly wrong. And in recent years, we've of course have witnessed some examples of organizations that got their fingers burned.

Jeff Tijssen (40:21):

But again, back to the point about regulation, providing a clear regulatory environments will also help the industry as a whole to really drive adoption on a larger scale.

Jim Marous (40:34):

It's interesting when you look at that, as you said, everybody's reached out to you go, "What should I do?" As opposed to, "Here's my why, here's what we're moving towards. Where do we apply generative AI or AI in that area?"

Jim Marous (40:48):

And you also mentioned the biggest difference is the democratization of the value of this is going to go across the organization as opposed to being siloed for report purposes or analytic purposes. It's really the outward facing component of this that's going to be the most exciting.

Jim Marous (41:06):

So, we've gone through a lot of them, but fintech startups obviously are facing more challenges than ever before, such as funding, scalability, regulatory compliance, risk. What advice would you give to an aspiring fintech entrepreneur wanting to navigate these hurdles and maybe get the ear of Bain going forward?

Jeff Tijssen (41:28):

I mean, listen, to me, this is a really, really interesting test case for many organizations. And again, as we discussed before, going from 10 years of nonstop economic growth where raising capital wasn't easy, but it was definitely easier versus the world that we live in today.

Jeff Tijssen (41:49):

And again, because of the fact that we work with pretty much all of the world's leading investors, it's not as if suddenly the appetite to invest in fintech has fundamentally changed. Well, I think, as a founder, and I've spent an awful lot of time with many fintech firms across the globe in the past 12 to 18 months and obviously before that as well.

Jeff Tijssen (42:13):

But to effectively go back to the drawing board, and the reality Jim, is that I do think we'll see some consolidation happening in the markets. I do think that in the next couple of years, you will start to separate the real winners from the losers in this space.

Jeff Tijssen (42:32):

And again, that provides attractive M&A opportunities both for incumbents as well as other fintechs to really accelerate their growth.

Jeff Tijssen (42:41):

But to me, I think it's important to take a step back as a founder and say, "Okay, to what extent do we need to change tactics? To what extent do we need to effectively go back to the drawing board?"

Jeff Tijssen (42:55):

And it could just be a matter of, listen, instead of pursuing a hypergrowth at all costs, just because we can. And going for world domination, there's still so much room for growth in the existing market or markets in which we operate.

Jeff Tijssen (43:08):

And I think an important question to ask if you're a founder as well, is to what extent, if I look at the team that you have today versus your ambition to take the business wherever you want to take it to in the next three, four, five years, to what extent do I feel that I have the team that is going to successfully get to that five-year vision?

Jeff Tijssen (43:31):

And we talked about your compliance function, for example, but I think it's important to look at what other capabilities are required in order for me to continue to grow the business.

Jeff Tijssen (43:42):

And also make sure you focus on the fundamentals. Make sure that you focus on, again, given the fact that there's such an increased focus on working towards sustainable profitability, to what extent are you going after those segments in the markets where there is real, real potential for you to be a leading player in that space.

Jeff Tijssen (44:02):

Well, and I think, as an entrepreneur, you don't necessarily settle to be number five or number six in the market, but I also think having a clear ambition, being able to communicate that clearly to the rest of your team. And back to my point about being a real mission-driven business, not just to the outside world, but also to your team.

Jeff Tijssen (44:23):

And obviously, we've gone through significant levels of turmoil, and therefore I think as a CEO or as a founder, it's even more important today to have that dialogue with your team and make sure that your team still believes in the mission of the company.

Jim Marous (44:40):

So, Jeff, we could go on for hours, honestly, because there's so much going on in the marketplace, but you're also at the epicenter of where a lot of this is happening and why you're such a great person to follow. But given that, how do people follow you? How do people learn more about your insights and what Bain is doing in the fintech space?

Jeff Tijssen (45:00):

I mean, best thing to do is follow me on LinkedIn, you can follow me on Twitter at Jeff Tijssen as well. We publish a lot of great content on bain.com. Listen to Decipher, our own fintech podcast. We've had some phenomenal guests on the show, we've got some really exciting topics coming up in the next couple of months as well. So, that's another way to stay on top of all the exciting work that we're doing in this space.

[Music Playing]

Jim Marous (45:28):

It's interesting, you and I benefit from the fact that the marketplace isn't getting any less interesting. There's no lack of content to be written about, to be understood, to take another take at, because not only are the topics changing, but even the topics that have been here for a while, they're evolving so quickly, and every time we take our eye off the ball, something new happens that we weren't quite expecting.

Jim Marous (45:52):

So, Jeff, thank you so much for being on the show today, I really appreciate your time.

Jeff Tijssen (45:57):

Thank you so much for having me, Jim, it's been an absolute pleasure.

Jim Marous (46:00):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's interview, please take some time to give our show a five-star rating. Also, be sure to catch the articles I'm writing for The Financial Brand and check out our research we're doing for the Digital Banking Report.

Jim Marous (46:17):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage, audio engineer, Gray Sienna Longfellow, and video producer Will Pritts.

Jim Marous (46:26):

I'm your host, Jim Marous. Until next time, remember, fintech firms must go beyond providing a great digital solution, they must answer an evolving marketplace need.