I am honoured to see that my definition of Fintech is also increasingly being used in Italian.
To access the entire article click here.
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion Fribourg, Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch, www.heg-fr.ch
Avec son numéro d’avril 2017, le journal suisse «Bilan» a récemment publié un supplément sur Fintech en Suisse. J’étais ravi de constater que l’éditeur a cité ma définition de Fintech, précédemment publiée dans le Journal of Innovation Management. Comme la publication originale était en anglais, la traduction française publiée par Bilan est la suivante:
«Fintech est une nouvelle industrie financière qui déploie la technologie pour améliorer les activités financières.»
(Patrick Schueffel tel que cité par Comment la suisse se profile comme un centre Fintech compétitif, Bilan 4/2017, supplément Fintech – Construire la finance de demain, p.6)
Pour votre référence, prenez également note de la version originale en anglais de la définition qui a été publiée dans l’article scientifique suivant: Schueffel, P. (2016). Taming the Beast: A Scientific Definition of Fintech. Journal of Innovation Management, 4(4), 32-54.
“Fintech is a new financial industry that applies technology to improve financial activities”(Schueffel, 2016; p. 45)
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion, Fribourg Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch,www.heg-fr.ch
I am proud to now also be cited in Chinese media outlets in the context of Fintech – alongside with Bill Gates! 😉
The full article can be accessed here.
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion Fribourg, Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch, www.heg-fr.ch
Kürzlich erschien in der englischsprachigen Fachzeitschrift Journal of Innovation Management mein Artikel zur Definition des Begriffs Fintech: Schueffel, P. (2016). Taming the Beast: A Scientific Definition of Fintech. Journal of Innovation Management, 4(4), 32-54.
Nach der Durchsicht von über 200 wissenschaftlichen Artikeln, die im Verlaufe der vergangenen 40 Jahre erschienen und in welchen das Wort Fintech benutzt wurde, hatte ich in diesem Artikel die folgende Definition des Begriffs Fintech abgeleitet:
“Fintech is a new financial industry that applies technology to improve financial activities” (Schueffel, 2016; p. 45)
Da der Artikel ausschließlich auf Englisch veröffentlicht wurde, erreichten mich zwischenzeitlich zahlreiche Anfragen, wie diese Definition ins Deutsche zu übersetzen sei. Gerne möchte ich diese Frage mit der folgenden deutschen Definition beantworten:
„Fintech ist eine neue Finanzindustrie, welche Technologie verwendet, um finanzielle Aktivitäten zu verbessern.“
Mit besten Grüssen
Patrick Schüffel
Dr. Patrick Schüffel, Professsor, Institute of Finance,
Haute école de gestion Fribourg
Chemin du Musée 4
CH-1700 Fribourg
patrick.schueffel@hefr.ch
www.heg-fr.ch
“Fintech is a new financial industry that applies technology to improve financial activities.” (Schueffel, 2016; p. 45)
This is the definition I derived after examining more than 200 scholarly articles that were published over a period of 40 years and which are referencing the word Fintech in one way or the other. Building on the commonalities of the definitions that found entry into those peer-reviewed journals I distilled the definition provided above.
I am proud that my work withstood the rigorous double-blind peer review process of the Journal of Innovation Management and was published these days.
As the Journal of Innovation Management is an open access journal you can retrieve the full text by using the following link:
http://www.open-jim.org/article/view/322
A big thank you goes out to the two anonymous
reviewers for their highly constructive comments and to the editors of the Journal of Innovation Management, Anne-Laure Mention, João José Pinto Ferreira and Marko Torkkeli!
Schueffel, P. (2016). Taming the Beast: A Scientific Definition of Fintech. Journal of Innovation Management, 4(4), 32-54.
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion, Fribourg Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch,www.heg-fr.ch
Seasoned private bankers often do not grasp the idea of the Blockchain. It was not until I understood that I was using the wrong vocabulary that I could convey what the Blockchain was all about.
Have you even tried to explain the Blockchain concept to a seasoned private banker? Have you tried to describe the notion of a distributed ledger to this type of auditorium? And have you experienced the same result as I have over and over again: have you, too, just banged your head against a brick wall? I pondered the question why it was so much harder to explicate the concept to alleged banking experts than to first-year business students.
Use the right vocabulary
After numerous futile explanation attempts, it dawned on me. I was using the wrong vocabulary. Using the word ledger is counterproductive to the cause. When talking about a ledger, the traditional banker immediately translates that term into “bankbook” and that is the book in which the bank keeps all records of all customers adding and taking money from their bank accounts. It is thus the holy grail of private banking. Distributing the holy grail is inconceivable to many a private banker.
At that point it then hardly matters if you continue to explain that the users of the Blockchain are typically anonymized. It is almost futile to further explicate that, for instance, Bitcoin accounts are not tied to the identity of users and that anyone can create new and completely random Bitcoin accounts at any time, without the need to submit any personal information to any party. You have lost them already. Hence, what I found helpful in this situation is to refrain from using the term “ledger” altogether. Instead I call it distributed data base or distributed accounting system.
Give them a hands-on example
A friend of mine and design thinking pioneer, Michael Lewrick recently recommended me to do a hands-on exercise in particularly tough cases. Individually assign a random yet different number to every one of the ten bankers that are sitting in a room with you and have each of them note down their number and favourite colour on a separate sheet of paper. Have them pass on the paper to another participant and everyone repeats the exercise. Do so altogether ten times. In the end, everyone holds a list of 10 numbers and favourite colours in their hands. At this stage you can ask a) “What is Bob’s favourite colour?” – the others shouldn’t be able to tell as Bob’s identity has been anonymized. Yet you can also ask Bob, whether the correct colour is listed on his sheet – which should clearly be the case. And b) you can ask someone to now commit a “fraud”, i.e. to change the favourite colour of one participant – which should be nearly impossible unless the tasked fraudster does so on ten sheets of paper with the nine remaining group members agreeing. This exercise nicely explains some of the key features of the Blockchain and monies based thereon.
It’s worth trying
These two measures combined, using audience specific language and a hands-on exercise should therefore do the job. It certainly deserves a try. The Blockchain concept is too important as we could afford leaving private bankers behind. Happy explaining!
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion, Fribourg Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch, www.heg-fr.ch
The number and diversity of Fintech offerings is soaring. As banking clients increasingly often enjoy not only a better user experience, but also cheaper rates at Fintech firms, their willingness to be locked-in with one or two universal banks diminishes. Henceforth clients will gradually assemble their own individual “banks”, comprising a range of offerings from different Fintech companies. Those firms which will be able to provide an overarching structure to seamlessly wrap the multitude of Fintech offerings will experience their heydays.
Modern production technology allows what would have been inconceivable only a few decades ago. If we want, we can have products of mass production tailored to our needs nowadays. Dell made only the beginning when first assembling PCs to our requests on a large scale. Today we order our tailored sneakers at Nike ID, wear a unique t-shirt from Spreadshirt and eat M&M’s sporting our very own initials. Yet, the trend of mass customization did not stop in the manufacturing sector. We can already observe its ramifications in the financial services industry where Robo-Advisors offer retail customers to tailor their client portfolios. But this is not the end point of the evolution. It is the mere beginning which will eventually lead to tailored banks.
Like it or not, every single one of us carries his or her own very personal balance sheet: On the asset side, we have liquid asset positions such as the cash that we have in our wallets, the money on our current accounts, our savings accounts or money market instruments. Our personal investments may comprise medium term notes, bonds, stocks, mutual funds, pension savings and/or alternative Investments. Finally, we may possess highly illiquid real estate investments such as our primary residences, vacation homes or even property that we rent out.
On the liability side we may also have a variety of items. Current liabilities may include unpaid bills, credit card balances, taxes due, installment loans due in the short run, consumer loans, car loans, student loans, mortgages due within one year etc. Non-current liabilities may include any consumer, car or student loan that is due after one year. Last but not least, we may have mortgage debt for our primary residence and/or vacation homes and/or rental property.
Hence, as individual as we are as human beings, as individual are our personal balance sheets. Yet, what we do have in common is that we willingly or unwillingly manage these balance sheets. We carry out treasury functions on our personal balance sheets by paying bills and installments, transferring money from one account to another, by investing in shares or by redeeming mutual funds etc.
So far many consumers in the western world have ties to one or two banks, oftentimes universal banks, that cater to all of the needs resulting from these treasury transactions. Yet, the service offerings of universal banks are increasingly rivaled by Fintech firms that offer a narrow, yet highly specialized service or product.
If you have a little cash to spare, Fintech firms such as Creditgate24, LendingClub or Crowdcube, have offerings for optimizing liquid assets. To manage longer term investments one can turn to providers such Wealthfront, Moneyfarm, Nutmeg, Addepar etc. On the liability side, too, there is a vast array of Fintech companies jockeying for position. Current and medium term liabilities may be optimized by using Affirm, Borro, Lendable, Prosper etc.
In order to transfer money from one provider or account to another the consumer can chose among dozens of payment providers such as TransferWise, LiquidPay, Paypal and the likes. For trading purposes the client may want to turn to eToro or Robinhood. Even donating money becomes easier and less burdensome with Fintech providers such as Elefunds.
These new type of financial services providers that found their niches on specific links of the value chains of universal banks typically not only promise their clients a better user experience, but also lower costs. What is thus foreseeable for the near future is that clients will no longer accept to be locked-in with one or two banks, but that they will make use of a range of financial service providers. Eventually every user will assemble his or her very own bank, the IBank* as I call it.
The IBank will comprise a selection of services provided by specific Fintech companies handpicked by the individual client. This can happen dynamically and on an ad-hoc basis or on a more permanent base. The client – or an overlaying algorithm for that matter – may decide on a case-by-case basis which payment service would be optimal for a specific transfer. On a more longer term basis one mortgage provider may be chosen until the renewal of the mortgage is due.
What is important to note, however, is that clients will make use of tailored “banks” which may be as personal as their individual balance sheet. The challenge and opportunity in this future banking world will be to provide the glue that seamlessly keeps together these services provided by different providers. Those providers who manage to assemble and maintain an overarching structure that smoothly integrates the multitude of service offering of Fintech providers will have a bright future in finance services world which is being ever more atomized.
*IBank like “I bank” – not to be mistaken with the iBank offerings by Barclays, The Bank of Georgia, Fransabank, BCU and so on.
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion, Fribourg Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch, www.heg-fr.ch
Ein Auszug aus dem Text:
There is a popular misconception about Lemmings. It is said that they commit mass suicide by jumping off cliffs when their population becomes too dense. However, this is quite far from the truth. Instead of committing suicide Lemmings will seek pastures new when their environment no longer serves their biological urges. As Lemmings can swim, they then may choose to cross a body of water in search of a new habitat. However, when doing so, many may drown as the fjords or rivers are too wide, thus stretching the Lemmings’ physical capabilities beyond their limits.
What is true, however, is that large populations of Lemmings move in one group, and it is this group migration that influences the moves of the individual Lemming. Once a significant share of the group has entered the water, the other Lemmings are likely to follow suit, inconsiderate of the potential fatality of their choice. Financial markets are not so different. Benchmarks are extensively being used and research in the field of behavioral Finance has yielded strong indications that herding behavior is rather pronounced. The broadly hailed Robo-Advisors of the Fintech age are likely to amplify this problem.
Robo-Advisors are sprawling across the globe. A Robo-Advisor can be defined as a self-guided online wealth management service that provides automated investment advice at low costs and low account minimums employing portfolio management algorithms. Clearly, while there are exceptions, Robo-Advisors typically build client portfolios from ETFs, more specifically from equity ETFs. This model has worked fairly well as long as the stock markets were going up.
However, what will happen when the markets turn south? Most Robo-Advisors are not older than five years. Over the past five years the Euro Stoxx 50 went up 32%, the Dow Jones soared by 68%, and the S&P 500 grew by 78%. Against the backdrop of these well performing indices it requires no magic to put together a well performing client portfolio. Yet, in declining markets, the index-pegged Robos will just perform as poorly as their benchmarks.
Evidently, the heyday of hedge funds are over. Clients are no longer willing to accept a 2/20 fee structure no matter the performance of their investment. Yet, as soon as markets move down for a prolonged period, many investors will start to liquidate ETF positions. These divestments will fuel another round of decline in indices. In this situation Robo-Advisors will be rather useless as they typically have no built-in hedge functionality. The herd of Lemming-Robos will just follow the rest of the market into deep waters.
Not all is lost yet. Robo-Advisors need to make the next evolutionary step and get prepared for wider market downturns. Consequently, they should consider incorporating hedging functionalities into their offerings. Gambling on ever increasing stock markets is just too risky of a gamble. However, if the supply side, does not act, then the demand side should swing into action and diversify their ETF portfolios. Clients may therefore want to invest part of their assets into hedged investment structures of different provenance.
No matter the cause of the next financial market downturn, it is safe to say that it will happen. Lemming Robos which will not have enhanced their offerings by then, will not serve their clients well. A broad decline of equity indices may then lead to a true renaissance of the hedge fund industry. Human driven alpha generating strategies will then take back the lead from beta generating Robo-Advisors.
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion, Fribourg Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch,www.heg-fr.ch
In 1984, one year before the sci-fi classic “Back to the Future” was released, the professors Danny Miller and Peter Friesen from McGill University in Montreal published a seminal paper on corporate life cycles. Both works contained clairvoyant features for the future.
Building on an empirical sample of firms the paper titled “A longitudinal study of the corporate life cycle” describes how companies can be classified into five life cycles from birth to decline. The authors applied five dimensions to accomplish this task: strategy, structure, environment and decision making style.
Fast forward 30 years. The year 2015 which was vividly described in “Back to the Future Part II” has just passed and an entire economic sector, namely the banking industry, appears to be in the doldrums. Many banks seem to be in decline.
Do you work for a bank in decline? Let’s have a quick lock how Miller and Friesen verbatim characterized a declining firm along the four dimensions thirty years ago (emphasis added):
“Firms in the decline stage react to adversity in their markets by becoming stagnant […]. Firms seem to be caught in something of a vicious circle. Their sales are poor because their product lines are unappealing. This reduces profits and makes for scarcer financial resources, which in turn cause any significant product line changes to seem too expensive. So product lines become still more outdated […]; the firms just muddle through.”
“[…] There is a tendency to attend to what the owners want, that is, to preserve resources, rather than cater to the needs of customers. The market scope of declining firms is quite narrow […]. Failure in one major product line simply cannot be counterbalanced by success in others as might happen in more diversified companies […]. Shrinking markets can be extremely competitive and firms that rely totally upon them may find themselves in deep trouble. Performance thus tends to be very poor. This may be caused partly by the simple structure.”
“The locus of decision-making power is at the top of the firm. In fact, even routine operating decisions (these predominate in declining firms which shy away from strategic decisions) are executed by higher level managers […]. While managers who are close to customers and markets may be well aware of the problems that exist, their information does not seem to filter up to those with enough authority to do anything about it.”
“Decision making is characterized by extreme conservatism. There is little innovation, an abhorrence of risk taking, and a reluctance even to imitate competitors’ innovations, let alone lead the way […]. Sometimes it is due to the temperament of the top managers. Occasionally, it results from funds shortages stemming from previous declines in performance. But almost inevitably, key contributing factors are ignorance of markets […]. Managers fail to delegate and there is little in the way of participative management. Thus the top executives must spend most of their time handling crises. They just haven’t the time for much analysis. So they take very few dimensions into account in decision making […] and employ very short time horizons.”
This rich description of a declining firm crafted in the year 1985 may resonate with many people across the globe working for banks in the year 2016. If it rings a bell with you, your bank may well be in decline. However, not all hope is lost: in their empirical study Miller and Friesen also showed that 42% of the firms in the decline phase progressed to the revival phase. But don’t get your hopes up too soon: Miller and Friesen describe the survivor bias as one of the major shortcomings of their study. Their empirical study only contained surviving firms. Those which did not make it through the decline phase were not included in their research.
Unfortunately, it appears as if Miller and Friesen’s 1984 description of declining firms had quite some clairvoyant features for many a bank of the year 2016.
Source:
Miller, D., & Friesen, P. H. (1984). A longitudinal study of the corporate life cycle. Management Science, 30(10), 1161-1183.
Dr. Patrick Schüffel, Professsor, Institute of Finance, Haute école de gestion, Fribourg Chemin du Musée 4, CH-1700 Fribourg, patrick.schueffel@hefr.ch,www.heg-fr.ch
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