Fintech is largely associated with:

• Mobile functionality
• Big data
• Accessibility
• Simplicity
• Cloud computing
• Convenience
• Personalization
• Agility

While traditional banks are currently embracing some of these features, there remain considerable distinctions between them and fintech startups. Here are some of them;

While FinTechs continue to gain ground in the financial services sector, they have some shortcomings. For instance, check out the following;

1. The organizational structure of FinTechs have few barriers to change. As a result, they are responsive to innovation. Their structures can easily be torn down and rebuilt as contrasted with traditional banks.
2. The key feature that distinguishes FinTechs from legacy banks is that they focus on overarching customer experience management, unlike their counterparts that focus on risk management.
3. Key to the FinTechs is the readiness to embrace technology and innovation in the provision of financial services. It is important to point out that the financial sector is highly regulated, making it undesirable for legacy banks to fully embrace technology and innovation for fear of regulatory constraints. It is in this light that Stewart Bromley, of Atom Bank of the UK has stated that while FinTechs are usually associated with energy, freedom, pace, adaptability and customer centricity, legacy banks are keen on governance and risk management which effectively inhibits their innovativeness.
4. FinTechs offer convenient products to customers. You can transfer funds, make purchases or even take an insurance cover anywhere and anytime. With traditional banks, you need to go to the banking hall or an ATM lobby. With FinTechs, you can also obtain credit without having to go through a long and tedious process. No paper work, no collateral, simply a click of a button on your phone or PC.
5. Crowdfunding is a very unique aspect of financial technology. People need not meet physically to contribute to a cause. People in different parts of the world can make their contributions on the cloud.

While FinTechs continue to gain ground in the financial services sector, they have some shortcomings. For instance;

• Inadequate risk management expertise
• Lack of experienced leadership
• Inability to raise substantial capital
• Inability to gain consumer trust.

Clearly, both FinTechs and banks have strengths and weaknesses in the financial industry. It is for this reason that the World Fintech Report 2017 noted that the two will eventually coexist and complement each other.

What is Technology-Enabled Services (TES)?

The definition of TES is amorphous.  Emergence Capital wrote in 2011 an article titled What the heck is TES?  They defined TES are information service offerings that technology companies develop and operate on behalf of their customers.  Index Ventures in 2020 defined TES differently: Companies offering tech-enabled services bundle software and humans to provide “superhumans-as-a-service” as a turnkey solution.

The confusion arises because, on the spectrum between pure services and pure software, there is a lot in the messy middle.  At times, some technology companies look a lot more like services companies than they would like the public markets to believe, and sometimes services companies use and sell a lot more technology than many want to believe.

My view is the test of a software product should be how autonomous it is without the value devising from human use.  It’s not complicated, but the deeper the tools are in the stack’s back-end, the more they are pure technology.  The more the software requires a skilled and trained operator to extract value continuously, the more the opportunity for technology-enabled services.

Examples of successful technology-enabled services:

• Uber: The Company enables physical and digital worlds to make movement happen at the tap of a button for everyone, everywhere.
• Jumia: The tech company has become one of the most visited one-stop online retail shop for individuals and also companies in Uganda, with deliveries to all regions across Uganda.
• SafeBoda: The tech company is revolutionizing transportation, payments, and on-demand services in Uganda through affordable services at a click of a button.

The inflection point:

We’ve arrived at the inflection point, which seems more gradual than dramatic.  As more and more no-code and low-code products become more ubiquitous, more digital natives reach the workplace, and software has actual, functional AI, the necessity for technology enablement will become more acute.

What does it mean for evaluating businesses?

The key to evaluating businesses that have a TES component is understanding where cost for the labor sits and how it is compensated and incentivized. I see four models for TES:

1. Large services firms with formal and exclusive partnerships or proprietary technology e.g. Uber and Spotify
2. Large services firms with informal technology partnerships e.g. IBM
3. Freelance or solo-practitioners with deep domain expertise using the best tools available.
4. Technology firms with in-house services. Sometimes these services are embedded in sales and customer success.  One hypothesis is that sometimes unprofitable SaaS companies embed services in their sales cost lines instead of including them in Cost-Of-Goods-Sold.

No matter how you cut it, there will be more merging of SaaS and professional services.  But there are many open questions on what models will prove dominant.  The SaaS or the Service?  Who owns the relationship with the payer/customer?  Who has the most competition?  Which product or service is a commodity?  The most likely outcome is that there will be a mix.

The critical pieces for technology-enabled services to get right. 

• Value-based pricing vs. hourly costing.  Trading time for money is classic professional services.  The best TES should be outcome-focused and priced for the results delivered.
• Differentiation on culture.  Culture eats strategy for breakfast.  For firms that hire and train staff to perform services, corporate culture is everything.  Cultures that promote continuous learning, apprenticeship-models, and constructive feedback will thrive.  Those mired in petty politics without an outcome orientation for clients will struggle to prove enduring value.
• Deep specialization. There is always a place for people and firms that are absolutely the best at what they do.  Technology, as an accelerant, makes specialization more vital as the deep domain experts will be at the forefront of the technological development in their fields.
• Know your business and match your founder and capital structure accordingly.  The technology founder used to leading with the power of a software product is not the ideal operator for TES opportunities.  You need to manage your talent and cost structure in different ways.  Some of the companies mentioned in the Index article have already disbanded, like Atrium, the YC-backed company hoping to reinvent legal services.

When will the future arrive?

Like most things, it’s both already here and will take longer than we expect. But what’s obvious is that the most profitable, most enduring services will need to be enabled by the best technology.