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Why is Fintech So Focused on New Payment Rails?

n>genuity – By Mike Massaro

Innovation is evolutionary, not revolutionary, and fixating on new rails is missing the point

Who knew building new payment rails is a polarizing topic?

I sat on several panels at payments industry conferences this spring, and through those experiences it became apparent that some in our industry believe starting from scratch and building new rails from the ground up is the only option. So, I spent a few sleepless plane flights exploring my thoughts on this topic.

But first, some context.
Over the past two years we have seen an evolution from bitcoin to blockchain to crypto-technology to a shared ledger. The fascination with this transition by the media and fintech insiders is very interesting to me, specifically because it’s a great example of what so many people often miss about the startup world – in short:

1. Building a company is hard work. Just a few challenges including getting the product right, providing great service to customers, solidifying a business model, hiring the right people and creating a successful, nurturing culture.
2. Things fail. Way more than you hear about in the media – and even the failures or struggles are spun to sound like positives.
3. An initial idea may be indicative of a market need, but capitalizing on it typically takes years to realize. And more often than not, those first off the starting line are not the ones around at the finish line.

Consider:

- Without Napster, would there have been a Pandora, Spotify or Apple Music?
- Without Prodigy, Compuserve, IRQ or AOL, would there have been a Facebook or SnapChat?
- Would we have the present-day smartphones and phablets without the failures of the Newton, Palm Pilots, Blackberry, etc.?

All of these products required many large and small innovations, but they were all a result of long, evolutionary cycles spanning years and even decades as opposed to an overnight epiphany. My obvious point is that innovation is often more evolutionary than revolutionary. And although putting in time and hard work does not make for Hollywood movies or trade publication headlines, none of the above examples could have happened without it.

Thankfully, we are fortunate to be operating in a startup and fintech culture that understands failure is part of the process that leads to innovation. It’s one that recognizes the positive learning and growing that comes from it. And we all learn from those early efforts to build something better.

Why new rails aren’t necessary
With all of this said, let me bring this back to the fintech world that we all live in.

As I listen to the unrelenting talk about “new rails,” otherwise known as the core banking system that allows for the exchange of value, I fear we are too focused on finding the easy short-term solution or shortcut. There are two main justifications being pushed to get people to support new rails:

1. The fintech ecosystem is unable to innovate or provide new value to consumers without some type of new Utopian financial technology, messaging system or infrastructure.
2. Decades of complacency and lack of innovation have led us to a point where “starting over” is the only path that can work.

If you believe either of these messages, all the investors, entrepreneurs and engineers should just pack it up and wait four or five years until some group makes life easier and better for the rest of us to build great financial products and services.

A complete consumer re-focus
Thankfully, the scenario above is not our reality. Ideas happen, people invest, companies are founded and great solutions are built. This has happened for generations in many industries.

Companies like Flywire and many others are innovating every day and building solutions that consumers love. They are not waiting around for any industry consortium, government agency, hack-proof algorithm, or regulatory body to create the perfect environment for success.

Here are a few of the things we (and I believe many of our peers) have observed on our journey:

- Consumers are generally frustrated with the financial services products in the market today. They don’t like the complexity of getting into (or out of) a relationship with banks, loan originating/servicing companies or investment firms and advisors.
- People don’t always know what is possible, but they like to try new stuff and will adopt happily if it provides real value.
- Not all consumers value things the same way. For some it’s their time, for others it’s service, and for others it’s cost.
- Generally speaking, people are realistic about price and value. There is no preset requirement for being free or even cheap, but there is an importance to transparency and fairness. Consumers don’t like being taken advantage of or being overcharged for a service, so striking the right balance between value, price and transparency is important.
- Consumers do not believe that special treatment should be limited to the few. They love to be treated well and embraced as unique, because they are.

If you believe your business model requires revolution to be successful, you should first take a long look in the mirror. Are you ignoring reality? If you are wrong, and consumers do not flock to you in record numbers, will you have the ability to reset into an evolutionary mindset – or will you go extinct?

Despite what the media would suggest, great products and services do not magically appear on a white board or fly off the paper napkin in a restaurant.

In fintech, we don’t need new rails, because great innovation does not require revolution. It requires great people willing to listen to their customers and work hard to create a consumer experience that meets those needs.

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