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Friday thoughts: The future of finance

Finance is fundamental to the function of modern society. From how to produce, exchange, consume, and discard our goods and services, all of those activities are reliant on finance to work. Therefore, we should all be keen on what the future of finance looks like.

Here is a view of the past:

  • Legacy systems, processes, and ideas that got stuck in the land that time forgot
  • Embedded resistance and/or inability to make significant change or pivot
  • Organizational cultures that lack risk tolerance
  • A spoken desire for innovation, but a lack of appetite for the risk it brings
  • Trend-driven (read: management consultant-driven) big project pushes that fizzle out because of the above

Okay, that was harsh, but both necessary and true. Finance is not so much broken as it is a bit behind. What is the future?

Not Fintech.

What? I know you are thinking that I am either kidding or being contrary just for the sake thereof. I promise you I am not. Finance and technology are already inextricably linked. It is not news to anyone who works deep within its bowels that it cannot function without technology that has been put in place over the last 40 years.

Moreover, many fintech providers are creating snazzy front-ends but leveraging existing banking infrastructure for it to work. (I’m looking at you payments!)

Instead, what is going to help finance remain relevant, accessible to the retail consumer, useful to the more prosperous consumer, and sustainable even for the largest institutional investors and clients, is going to be people changes that come with cultural transformation.

How to get to the future

  1. New blood / new ideas. Look outside of your traditional sources of financial services lateral talent and start pulling people from other startups or even established SMBs that have great success. The terminology and lingo changes, but functions (front, middle, back) are always conceptually similar.
  2. Mix it up. Entry into finance into front office/client-facing teams versus entry into operational teams is often a function of school brand. I would rather the hungry soul from a non-target school than the one who has been setup all their life to do exactly this. You do not need to wipe the slate completely, but open up more spots for the non-tracked.
  3. Up-or-out…managers. Consulting shops are notorious for this: either you are moving up or after a certain amount of time you are asked to move out. In too many banks, though, layoffs tend to be targeted at the middle / lowest ranks (I see you, location strategy!) and your senior managers are shuffled, but rarely pushed out. More than anyone else, I think it is senior management that needs to have feet to the fire. If a manager does not work out, pull a new one from within a team to pull an organization up and push it forward.

Do you see the common thread in the above? If not, I can point it out: people. This is all about people. The future in finance will come about by refreshing and expanding the types of people who are involved in its practice. “Fintech” is eating traditional finance’s lunch because they are canted towards hiring and cultivating a particular style of person that wants to change things for the better.

If you are a bigger, legacy banking organization and you want to make it to the future, you need to start with your people, stop with the politics, and end with a new culture.

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Reading Tip! If you want to really get into the nitty-gritty of finance versus fintech, I would recommend this ongoing and constantly relevant series called “What is fintech?” by the folks over at FT Alphaville. Endless amounts of useful reading. [FT.com free membership required]

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