Think Well, Think Different: M&A Is Helping Fintech Navigate The Swamp Of Uncertainty

Think Well, Think Different is a series of columns devoted to discussing trends in fintech, both from the consumer and founder points of view. Click here for previous columns. 

There’s a decision-making framework called Cynefin named for the Welsh word meaning habit.  Essentially, decisions are put into 4 categories – chaotic, complex, complicated and simple—and a decision is categorized based on the context and environment in which it’s being made. 

For instance, a decision that is made using factors that are known and conditions that are static is considered a simple decision. That decision-making process is straightforward. When the causes and effects of a decision are unknown, that’s categorized as a chaotic decision. 

The remaining two types of decisions, complex and complicated, are likely the most common decisions we are asked to make in our organizations day-to-day.  The key distinction between complex and complicated is what is known versus unknown. For instance, a complicated undertaking is something like rocket science. It’s highly technical and precise. The margin of error is infinitesimal. 

A complex decision, however, is one where the future conditions are either unknown or changing during the process. Walking across a swamp is complex because each step could be firm, mud, water or rocky. The water is moving constantly as you move through and there are other life forms that could interfere at any moment. 

Fintech is less a swamp and more like rocket science, frankly, but building and selling products for consumers can feel much more like walking through a dark swamp. Consumers are irrational.  

Companies, on the other hand, are rational entities filled with irrational people. I mean, when you get right down to it, we’re all consumers. Working in fintech, we sometimes forget that we are also the consumers we are hoping to attract.  

What makes it tough is that product development can be based on data, testing, and tools, while consumer behavior can be based on gut feel, assumptions, and whimsy. To go back to my analogy from earlier, product development is precise like rocket science, while consumer behavior is more like the swamp. Companies are responding by acquiring data and tools in the form of other companies. 

Look at the fintech M&A activity over the past few weeks:

• Visa Inc V bought Plaid for $6.5 billion
• LendingClub Corp LC acquired Radius Bank for $185 million
• Morgan Stanley MS acquired E*Trade for $13 billion 
• Intuit Inc. INTU bought Credit Karma for over $7 billion 

Certainly, not all those transactions fit into “Fintech” (whatever that means these days), but each deal telegraphs where consumer finance is headed. 

Data is the new speed of the game. Flexible platforms are well-capitalized platforms. Or is it well-capitalized platforms are flexible platforms? Customer acquisition must include tools and visibility; customer retention must serve up offers and create a sense of control. 

Moving through the swamp of trying to attract consumers and turn them into customers requires certainty. Certainty about how consumers may behave is unlikely, so the only certainty we can achieve is this: do I like a future where I own this company or this technology or this feature better than one where I wait and see? 

Given all the factors involved in a monster acquisition, the best you can hope for is incremental certainty. Acquiring a smaller fintech company provides a little better visibility or slightly earlier introduction of the company’s core business. That’s enough to make these corporate marriages successful. That’s why we’re going to see a lot more movement in fintech over the next year or two. The consumer trends are evolving rapidly and as the expectations – internally and externally – increase, many established firms will look to respond through acquisition.

In the midst of this dynamic market, I’ll be focused on what are the drivers for these deals and where consumer finance, or fintech, is headed.

• Client experience through data acquisition and verification
• Flexibility in the customer journey
• Personalized solutions tailored to the user
• Control or perception of control over the process

These large brands and companies are navigating their way through the swamp of uncertainty a little more clearly than they were yesterday. Sometimes it’s as simple as “I like the world where I own this new company better than the world where I don’t.” Regardless, it is all-directional for those of us competing and watching consumer financial services evolve this year.  

Good luck navigating the swamp.  See you on the other side.

Photo by Mika Luoma on Unsplash