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Book review: The RegTech Book

August 22, 2019

FinTech has been around for ages and it is starting to shift its focus from digitalisation of money to monetisation of data in the financial sector.

After 2008, compliance has been a major issue for financial companies. Massive increase in regulation and reporting requirements have resulted in governance, risk and compliance (GRC) related costs racking up to 20-30 % of total costs in banks.

Nobody loves compliance. It’s horrible for customers and tedious for the financial institutions. If done in a wrong way it scares away existing and new customers.

Old legacy banking systems and isolated vertical data structures translate into manual labour intensive tasks and parsing of reporting data from multiple sources. This is the opportunity RegTech startups are starting to realise and materialise.

The old ways of doing things do not work anymore. Costs need to come down and productivity gains are expected. Yet, it is still early days and relatively little VC capital has been poured into the sector.

RegTech is a relatively new term that potentially can be used in respect to regulative processes in any sector, not just in the FinTech arena. Its earlier forms have been focused on streamlining compliance and reporting processes, often by means of digitalisation.

The latest trend is to start to see RegTech not just as a cost-centre but also as a means to provide business benefits and gains for the customer and revenue side of the business. Automation can provide valuable business data and improve customer experience if properly realised and understood.

Bank bashing is an easy target for politicians and public authorities since like compliance banks do not have many friends. Yet, even regulators have started to realise in some countries that they cannot just kill the financial companies with GRC without consequences to the overall economic activity and GDP growth.

Innovative companies have choices and they can move to more friendly business environments. For this reason some countries have started to introduce financial sandboxes where the full weight of regulations and compliance do not hit new ventures immediately.

UK, Singapore and Switzerland are examples of FinTech and RegTech sandboxing nations. The current $100 billion market of compliance spending is a good incentive for entrepreneurs to consider whether it’s worthwhile to enter the market despite its less than favourable appeal.

Book review: Transforming legacy organizations

August 19, 2019

When startups reach their unicorn status in a rapid pace and volume it puts incumbents in an uneasy position. The fastest startup to reach one billion dollar status might be Uptake who reached it in 236 days from its initial funding.

For established companies to survive in future they need to overcome innovation barriers. The easiest way to innovate is to optimise the existing, and therefore improve the past.

The second tier is to prepare for the future by augmenting innovation. Here the challenge is to mix the future to the existing structures and chores of the organisation.

The most radical and genuine form of transformation is inventing the future by mutating innovation. Amazon is good at this. They create and enter new markets amebae-like as they go along.

You have reached your end of the improvement line when marketing becomes the most significant thing about your product. Like Pine & Gilmore stated 20 years ago: “Marketing is the price you pay for being unremarkable.”

Roadblocks for innovation can be divided into three categories of immune systems: individual, organisation and society. The lack of general willingness to change is one aspect to consider but no individual is a match for a systemic resistance.

It is only a very few people who are actual innovators or first movers. This has been estimated to be around 2,5 % of people. The scope of the hill to overcome becomes evident also when considered that in most of the Western countries over 90% of companies are SMEs.

Their lack of resources, innovation power and awareness to change are among the biggest challenges for a long-term transformation. Just keeping up keeps their plates full. For majority the status quo and stability are more comfortable than the forthcoming changes and possibilities.

When considering what makes customers tick one way to look at the issue is dividing it into four parts where everyone wants to be better: Do, Look, Feel and Be. Some of these may be stronger for a particular product or service but for all it’s at least good not to be on the negative side of any of the four aspects.

Be and Feel are intrinsic but differ where Feel is reactive to the external stimuli and Be is proactive in nature focusing on values and morality. Similarly Do is proactive and extrinsic focusing on results, competences and skills where as Look is about social status, and as such reactive and extrinsic.

Millennials prefer to work for companies with a deeper meaning yet many organisations do not have distinctive transformational driver beyond being “industry leader” or within top x of a defined category.

How do you innovate outside of your category or industry if your company is defined to be the leader in the stated category?

Book review: Thank you for disrupting

August 15, 2019

Some individuals have a large impact on society and Thank you for disrupting is about their big ideas and underlying thinking.

Disruption is a well defined term now but many decades ago when it was introduced by Jean-Marie Dru that was not the case. The business culture was still wowed by continuous improvement methodology, and disruption had a negative connotation.

Lee Clow was Steve Job’s dedicated advertising partner and a friend from the very beginning of Apple. He was behind the famous 1984 “Think different” ad as well as the 66 “Mac versus PC” commercials.

According to Clow ideas accelerate change: they rule the world. He is not a believer of good ads but big ideas. Brands should associate themselves with powerful ideas that state what the brand stands for.  A big idea works as a source of inspiration but also as a filter. They focus and provide consistency to the digitally disperse and fragmented marketing space.

Previously advertising was about producing creative messages to the audience. Now it’s about strong stories that create audiences from scattered media: users want to share the message to each other. Only the strong ideas and stories survive.

And they also have the best results. According to McKinsey the more creative the campaign the higher the likelihood that the featured product will sell. Creatively awarded campaigns seem to ensure also better returns with a less risk.

One of the leading trails between different persons from Steve Jobs, Lee Clow and Bernard Arnault (of LVMH) to Oprah Winfrey is their dedication to pay careful attention to detail. They are very involved with every aspect of the brand experience and how it is presented in the everyday mundane business aspects. Everything represents the brand and therefore it’s important.

Herb Kelleher is a legend in the airline industry. His Southwest Airlines broke the assumption that low cost equals low quality. Southwest puts its employees first and hires on attitude vs. skills. With a right company culture it has achieved revenues of over 35 billion and it has never laid off a single employee since its foundation in 1971. The staff is also the best compensated in the industry. Kelleher has stated his vision and strategy simply as low cost, superior service and people first.

Leading entrepreneurs consider their organisation to be in a continuous state of flux. A decentralised decision-making combined with a strong vision can drive a large number of people in a coordinated but yet agile fashion towards ambitious business goals. Organisations become vulnerable to disruption the moment they start to protect their turf and focus on incremental improvements.

Great companies create markets instead of focus on gaining market share. They keep their attention on business models and not just on products.

Big ideas and strong values move people.

Book review: Total rethink

August 13, 2019

Entrepreneurs disrupt the status quo! David McCourt embraces entrepreneurial revolution that results beneficial change for the majority and disrupts the status quo for the incumbent players.

Technology allows for everyone to become new revolutionaries yet few realises and acts upon this realisation. As in history, it’s very likely that the biggest innovators come from the have-nots that have very little to lose and a higher tolerance for risk taking.

Historically this was the case with European immigrants coming to America and escaping dire conditions back at home. This time it’s the 5 billion people who are not as well off as the 2.5 billion enjoying the best lifestyle the planet has to offer.

McCourt describes his story coming from a large family and finding his way into entrepreneurial adventures from early age up to this day. During those years he have managed to be part of the cable television as well as fiber optics industry disruption and providing cheaper services for consumers at the expense of the oligopolistic competitors.

The book is full of colourful stories and mission impossibles where McCourt jumps to the water first and figures out later how to swim. This results him to learn quickly and unearth large opportunities that have enabled him to publicly list and sell many companies.

Berkshire Hathaway’s board member Walter Scott is McCourt’s mentor and he shares some of his wisdom and philosophies. For example, “never mistake a fad for a trend” and “take care of your people and your equipment”. The latter means that you can ruin your capex investment by not having the right people taking care of your equipment.

McCourt is a big believer in fair and honest relationships where business is made for the long term and this is reflected in the partnership deals as well.

As a curiosity McCourt mentions that he managed to raise $6.1 billion for his RCN Corp making that the world record for a start-up funding into any single project. He also managed to raise $1.65 billion from a single individual (i.e. Paul Allen).

Tellingly New York magazine ranked Allen’s investment the “best deal of the millennium” and the “worst deal of the millennium” in the same issue. The dot com bubble crashed capital markets and resulted Allen to take a deep hair cut in his investment.

One of the persisting messages of the book is how to provide solutions and value for the less connected and powerful (and quoted in the book):

”Those capable of channeling the power of the crowd must turn their energies to something more fundamental: redesigning society’s systems and structures to meaningfully include and empower more people. The greatest test for the conductors of new power will be their willingness to engage with the challenges of the least powerful”

The future is all about cooperation, win-win solutions, peer-to-peer and crowdsourcing. Corporations, nations and incumbent structures have too much to lose and therefore they are most of the time unable to renew adequately leading them to be disrupted and replaced. Entrepreneurs the world is yours!