Disruption Insights: Skills and Experience From Other Industries Enable Corporate Innovation

It’s not easy to find an expert with experience from Accenture, Deutsche Bank, and Barclays Wealth, as well as 12 years of running a consulting firm. But this is exactly what Sharmil Patwa has under his belt.

Sharmil is the founder of Opus Una Financial Services Consulting, a company offering wealth management consulting and engineering solutions for, among others, wealth managers, private banks, and investment offices. In this episode of Disruption Insights, Sharmil comments on recent developments in the world of finance, shares why he prefers to talk about “values” instead of “impact,” and what he sees as a big obstacle for corporate innovation.

What technologies or solutions are really trending in fintech? Can we expect exponential growth in any fintech areas (like regtech or insurtech)? What role will regulators play in the expansion of financial startups? In the Disruption Insights series, we gather insights and opinions from industry experts to answer the most pressing questions to foresee what the future fintech landscape will look like.

💡 Trends in fintech

Solutions disrupting the industry right now

Current consolidation activity, pandemic-catalyzing digital acceleration, growing levels of financial education, and an increased focus on poor investment performance create excellent opportunities for wealth managers to further develop their operations and win new business. So, the conditions are ideal for the evolution of wealthtech.

Paradoxically, those who have modest levels of wealth and probably need advice the most, because it pertains to achieving financial goals, don’t have access to such services. While many robo-advisors deal with automated investment management reasonably well, most don’t deal well with financial planning.

Wealthtechs that manage to incorporate an accessible, low-cost, but commercially viable solution, will gain a huge competitive advantage.

To date, wealth management has been very TradFi-, and lately CeFi-focused. As DeFi becomes more popular and even mainstream, more private clients want to access DeFi products.

That’s why their advisors need to be able to facilitate access to these solutions while solving usability, security, and privacy issues. So, solutions that can create the bridge between DeFi, CeFi, and TradFi have great commercial potential.

🌍 Current state of affairs

Impact of the market downturn

A market correction has been long overdue. Looking at the medium term, valuations will become more realistic. Companies with solid strategies and business models supporting profitability will still be able to raise money.

More organizations have to focus on becoming cash flow positive faster, enabling them to invest and rely on organic cash flow rather than external capital, leading to more stable and disciplined growth.

Some businesses that have scaled fast off the back of large sums of external capital and are still cash hungry will find themselves in a precarious position. We’re already observing some fire sales, and the recent crises around Silicon Valley Bank, Silvergate, and Signature only mean that we’ll in all likelihood see more.

💸 Fintech now and then

VC investment in fintech

The issues with SVB, Silvergate, and Signature will reverberate and we have to closely observe what happens after the dust settles. Without a doubt, in the short term, until the VCs understand their own position, the likelihood of funding new ventures or follow-on funding is going to be reduced.

In the medium term, where VC funds still have dry powder, I would normally expect them to deploy it, otherwise it hurts the funds’ returns.

I hope we’ll see more judicious and conservative investment.

Almost certainly, we will see some banks that don’t engage in fractional reserve banking flourishing, as companies will seek to park their operating capital with banks that don’t have the same levels of liquidity risk.

We will also see that VCs will be more interested in understanding their portfolio companies’ financial risk management policies and procedures. If I was a limited partner in a VC fund, I would certainly expect that.

Corporate innovation reimagined by digital acceleration

In my space – wealth management – most financial institutions have recognized that one way or another, they have to either innovate faster or speed up access to innovative solutions.

Some are sensible enough to recognize that in reality it's very difficult to innovate from within, especially being an incumbent. In the case of banks, rigid governance and control mechanisms are not the biggest catalysts for innovation.

Banks that realize this and decide to make a “big bet” sometimes create a separate entity which can be governed autonomously but with the support of a big organization. This model is not always practicable, and even when it is, we have seen quite a few failures.

Autonomy is fine, but if on the human resource side you have populated your new entity with 100% big bank staff, culturally nothing is likely to be different. I strongly believe in the importance of bringing in skills and experience from other industries (most of which do digital much better than we do in Financial Services) if corporate innovation is to be successful.

🌱 Sustainable fintech

Definition of sustainability in fintech

Ultimately terms such as ESG, SRI, impact are all about having a positive influence or off-setting a negative impact businesses may have on the world. Everybody has their own view on what is good and bad, and degrees of good and bad.

So, I prefer to talk about values. I deal with quite a few B2B fintechs that help clients invest in companies that support their values. That’s why I tend to focus on the solutions for customers and values-based investing.

Areas of sustainability in fintech you’re most hopeful about

Sustainability can have many faces, so the first area that is important is ensuring that a client has the ability to identify investments that represent what they care about. Once you find those companies, then you need to be able to invest in them, but in a way that is commensurate with your risk appetite and tolerance.

For most individuals, making direct investments is not appropriate, but it is difficult to find instruments that tick the boxes of what you care about, combined with diversification and appropriate levels of risk. I see more and more wealthtechs that address this issue, being an extension of shareholder activism to retail investors. This will bring us one step closer to listed companies having to do the right thing, to a point where a high standard of corporate responsibility is the default, not the exception.

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If you want to discuss any of the topics above with Sharmil, drop him a line at spatwa@opusunafsc.com