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Beware of accidental fintechs: responding to unforeseeable financial services disruption

By Brian Jackson, Sr. Industry Architect, Microsoft Enterprise Services, Microsoft on March 22, 2018

Filed under Financial Services - Banking & Capital Markets

It’s hard to spend more than a few minutes reading about financial services these days without seeing some perspective on how fintech companies are disrupting the industry. Recent reports estimate that global growth in venture capital investments in fintech have grown at 35 percent annually from 2010-2017, a number that does not include the substantial investment made by banks over the same period, both in fintech ventures as well as in developing “fintech-like” capabilities within traditional institutions. Every segment of the financial industry increasingly seems to be undergoing some form of disruption, from payments and lending, to investments and advisory, to insurance underwriting and beyond.

Accidental fintech: the Go-Jek example

As remarkable as these changes have been to watch, equally noteworthy have been the disruptions driven by players who began with a focus far outside the financial services industry and only later came to be considered fintechs. The Indonesian company Go-Jek is an excellent example of this type of “accidental” fintech. Go-Jek’s core business is ride-sharing, similar to Uber or Lyft, but primarily focused on motor scooters rather than cars. The experience is quite familiar in many ways: open an app and enter your pickup point, but instead of a car coming to your location, a scooter driver meets you, gives you a helmet to wear, and whisks you away, weaving through Jakarta’s dense traffic toward your destination.

A key challenge for Go-Jek, however, was to find a way to provide the same seamless payment experience as other ride-hailing services, but in an economy where 70 percent of retail transactions used cash and 65 percent of the population was unbanked. To overcome this challenge, Go-Jek developed an electronic wallet, fully integrated into their ride-hailing app and capable of being topped up not only by bank account but also by handing cash to the driver, which can then be credited to the wallet.

After some period of operating in a regulatory gray zone, Go-Jek’s wallet received the blessing of OJK (Indonesia’s chief financial regulator), allowing it to expand its functionality to include peer-to-peer payments. Concurrently, Go-Jek expanded its core business beyond motor scooter ride-sharing to include car-hailing, food delivery, house cleaning, and a wide variety of other services, all payable through its wallet application. Capitalizing on its growing popularity as a general purpose mobile payment platform, Go-Jek in December acquired three Indonesian fintechs in the payments space, including the nation’s leading gateway for access to credit card rails. Thus, in a little over two years, Go-Jek went from being a ride-hailing service for motor scooters to becoming the most disruptive payments platform in the world’s fourth-most populous country.

How to respond to the unforeseeable

Given the unpredictable nature of innovation, how can traditional financial institutions best position themselves to compete against upstarts that currently aren’t even on the radar as potential threats? While this question has no simple answer, two factors play a critical role in being able to respond effectively to unforeseeable disruption: (1) being informed, and (2) being agile.

  • Being informed requires financial institutions to break down data silos within the firm to better understand customer behavior and needs, including the ability to anticipate unarticulated needs. Understanding the market also compels financial services firms to look externally to see what type of new experiences customers are gravitating toward and what they’re saying about their current bank, investment advisor, or insurance company. Technologies such as social listening serve a critical function in better understanding how customer attitudes toward financial products change over time, while fintech partnerships enabled through APIs provide an opportunity for traditional firms to learn what resonates with customers through experimentation.
  • To increase agility, cloud computing offers multiple benefits that allow financial firms to move new ideas more rapidly from concept to implementation without the need to spend time and capital acquiring infrastructure. The cloud also provides on-demand scalability so that when a bank discovers that a new product is a hit with customers the infrastructure can grow to meet demand, in real time in many cases. Finally, the natural fit between cloud computing and DevOps practices (especially when supported by containerization) can dramatically reduce the time required to build, deploy, and maintain the software that powers a new financial services product.

Through both Microsoft first-party innovations as well as our support for open source software, the Azure cloud provides a robust set of options that make it easier for financial services firms to stay deeply informed about changes in customer preferences, while also improving the speed at which financial institutions can respond to these disruptions, even the ones that seem to come out of nowhere to make a significant impact on the industry.


For more on Microsoft’s perspective on the future of banking, please refer to The Future Banking Ecosystem: Innovation and Evolution in the Digital Era.

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