The Balancing Act for Fintech Startups Disruption vs Governance

Fintech startups are built from the ground up with technology as their primary driver. This allows Fintechs to operate with a level of efficiency and speed that is challenging to match for organisations that leverage technology only as an enabler function, shared Vamsi Krishna Ithamraju, Chief Technology Officer, Axis Mutual Fund, in an exclusive interaction with Srajan Agarwal of Elets News Network (ENN).

How have fintech startups influenced the transformation of the financial sector?
What key strategies have they employed to gain a competitive edge over established institutions?

India and India-stack have been a melting pot of innovation over the past decade. Fintechs have clearly emerged as avant-garde entities, often perceived as disruptors rather than mere collaborators. EXamples galore across the BFSI segments, from Insurtech to Payments, be it a certain Acko, Groww, or BharatPe revolutionising access to financial services.

Their gift lies in the absence of “technology baggage” that typically encumbers established legacy organisations. These nimble entities are born in the cloud, unshackled by limitations of monolithic architectures or enterprise license regimes, granting them a significant competitive edge. This renders a “one-upmanship” allowing them to pivot and adapt with agility, with a substantial runway ahead, unimpeded by the technology debt that plagues traditional systems.

Innovation stories are now enhancing our daily lives with simple, intuitive, and personalised experiences. Meanwhile, legacy companies grapple with the need to continually train and upskill their workforce, a process fraught with costs and time constraints. In contrast, Fintechs can afford to be selective, recruiting talent already equipped with the requisite skills and mindset for a digital-first economy. This enables them to hit the ground running, bypassing the steep learning curve that often plagues digital transformation initiatives.

Do you think traditional financial institutions can compete with Fintechs in innovation and customer obsession? What in your opinion, are the main hurdles they face in this transformation?

Traditional institutions are indeed playing a fast catch up with a phygital model (blending their brick-and-mortar model with new-age digital customer touchpoints). However, Fintech startups, on the other hand, are built from the ground up with technology as their main driver.

While established financial institutions are well supported by technology, they often struggle to integrate agile ways of working into their existing frameworks. Fintechs are almost fully digital, meaning they are technology outfits with strong engineering and data capabilities.

The key here is to leverage technology and make it the central driver for business strategy.

What about the cultural differences between traditional financial institutions and the Fintechs? What do you think helps Fintechs foster collaboration?

The people culture works as a differentiating aspect for Fintechs in the lack of a linear corporate structure. Pods and digital tribes are formed to execute projects enabling diverse teams to come together on projects, breaking down the walls between departments. These teams report to a tribe leader (not necessarily a CTO or a CDO), creating a sense of common purpose and shared goals. In fact, the tribe culture is a key part of the Fintech spirit— allowing fast ideation and knowledge sharing letting them cater to dynamically evolving market needs and pursue customer obsession.

Fintechs are facing significant regulatory and operational challenges. How can they effectively balance rapid growth and innovation with compliance?

While all that I said earlier about Fintechs may paint a “walk in the park” picture, it is important to note that Fintechs continue to face significant hurdles and are susceptible to
regulatory pitfalls. Not having the same history as established companies could mean there are a lesser number of all-weather professionals and seasoned team members, especially when it comes to dealing with understanding regulation and timely implementation of complex asks to comply. Fintechs have no easy way out here and must develop an appreciation for regulations, balancing their fast-paced development with the need for strict compliance – the memories of license suspensions to severe warnings issued to large payment banks are still fresh in our minds!

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Their ambition to innovate and disrupt the market is commendable and helps democratise the world of financial services and achieve citizen scale when they invest in a solid, continued dialogue with the regulators and their representative outfits.

Several Fintechs had to layoff talent post the rapid expansion during the pandemic. How do you see the hiring trend in Fintechs?

The “Growth all the time” pursuit does lead digital native businesses and Fintechs to either hiring too quickly or overhiring with limited control on talent costs, which can accentuate their financial stress in an economic downturn.

Excessive dependency on select individuals for critical technology assets complicates the matter further, especially during the zero-to-one journey (in the lack of a strong process-oriented approach), who have been part of building the core systems. Such situations can interrupt the smooth running of operations and the overall stability of the Fintech business.

All these challenges do pronounce the need for enterprise-grade IT governance and strategic planning in the Fintech industry.

Views expressed are personal and not to be associated with Axis Asset Management company.