Five ways to close the gender gap in fintech

by Ashley Nagle Eknaian, program chair of the MS in Digital Innovation for FinTech, Brandeis University

 
It’s no secret that women in both banking and technology tend to be in the minority. When you combine those two fields into the phenomenon that is fintech, “super minority” becomes a more accurate label. In recent years, organizations like Girls Who Code and Girls Who Invest have made a tremendous effort to encourage young women to take an interest and pursue careers in STEM fields. Supporting and championing these types of programs are vital to create meaningful change for the gender gap in the coming decades. However, we also need solutions that can benefit women currently in the workforce. Here are five things that can help increase gender diversity in fintech today:

1.  Show woMEn the money. Startups with at least one female founder received only 10 percent of all venture investment from 2010-2015 . Attracting more capital to startups with at least one female founder isn’t about equal opportunity. It’s about funding scalable, profitable businesses that research shows post greater returns for their investors over time. For investors out there looking for the next unicorn, women-powered startups are an underrepresented resource for potentially big ideas.

2.  Welcome aBoard!Currently, women make up only 8 percent of fintech directors globally. However, studies indicate that diverse teams perform better and deliver stronger financial outcomes. Different backgrounds, cultures, experiences, etc., are what inform our own unique perspectives on the world. Collectively harnessing the power of “different” by forming diverse teams promotes an environment of professional challenge and diversity of thought. If you are a founder looking for advisors, or a board member with no female counterparts, consider the power of “different” and make a difference by adding female board members.

3.  Help wanted.Managers tend to hire people with similar backgrounds, which can lead to homogeneous teams. If you are hiring, make sure you have a diverse (including both male and female) pool of candidates for any open positions. There are some fabulous companies/technologies out there that can help hiring teams mask demographic data at all stages of the recruiting process to level the playing field for both gender and ethnicity. Fun fact: In 1952, the Boston Symphony Orchestra pioneered the idea of blind auditions (performing behind a screen) to mask the identity of performers. It took decades, however, these types of auditions were instrumental (pun intended) in increasing the number of female orchestra performers by 30 percent.

4.  Pay it forward According to a recent study, only 54 percent of women have access to senior level mentors. If you have been successful in finance, technology and/or fintech, mentorship is a great way to support others who are still climbing their way up.  Be the mentor that you needed early in your career, share your experiences, and encourage future women leaders to break down barriers standing in their way. This isn’t just a one-way street either; reverse mentoring is a great way for leaders to keep pace with a multi-generational workforce, changing consumer expectations and the latest tech trends.

5.  Mind the gap! Address the issue head on – there is a gender diversity gap in fintech, and we cannot overcome this challenge unless we have real conversations with one another. Talk about it, talk with colleagues, peers, managers, investors, advisors, founders, mentors, and mentees. Share fears, concerns, goals, and aspirations. Ask questions and discuss things you can do to make a change (maybe starting with items 1-4 on this list). There isn’t a simple answer or a one-size-fits-all approach. The only guarantee we have, however, is that if we do nothing, we’ll make zero progress.

Can fintech’s mono-solution providers survive?

by Mike Storiale, adjunct professor, Rabb School of Continuing Studies, Brandeis University

When financial technology began its ascent, single-solution providers like Simple and Lending Club opened the door to expertise and simplicity rarely brought to the table by traditional banks. Solutions designed to meet unique needs created excitement from consumers and investors alike.

Throughout the industry, experts discussed the need for banks and fintech providers to offer an open architecture that would empower customers to build a set of financial solutions that worked best for them. As the industry matured, however, it became apparent that a more rudimentary problem was holding fintech back – a balanced business model.

Over the past 25 years, we’ve witnessed the rise and fall of innovative companies that created a single solution with little diversification. The dot-com crash in the early 2000’s was full of well-intentioned problem-solvers who built great organizations, but lacked the contingency plan a balanced product offering affords. They were flying high without a net.

Customers are finicky

The mono-solution business model that most fintech companies chose excited customers who could relate those products to specific problems they felt their banks were not solving. When early entrants offered a better way to send money and alternative lending options, as well as simpler checking accounts, they seemed attractive in an industry that traditionally ignored outcries from its customers for better products.

Moreover, customers had often been plagued with the decision fatigue that came with traditional banks’ offerings –multiple variations of each product– few of which fit anyone perfectly.  

But while consumers were willing to try new products that fintech startups brought to the table, they remained reluctant to leave the mainstream banking system for a new financial lifestyle. For banks, this gave them the opportunity to win customers back as they developed complementary products to compete with the innovators creeping in on their space.

Even though research showed that few consumers ever felt “warm” with their bank, often ranking them just slightly less hated than airlines and cable companies, it was difficult to leave the one-stop-shop that was completely intertwined with their everyday lives. Though cobbling your perfect financial offering together sounds utopian, for most consumers it was simply more work than they were willing to take on.

A risky model

While the boon of the early years may make some think otherwise, fintech is not immune to typical business risks. One of the core rules of business is to diversify your product offering to protect yourself.  However, when we begin new technology ventures, we often believe that we will be able to succeed on a single solution. Fintech’s rise began during a time filled with historically low interest rates, massive changes in regulation, and a consumer base willing to try new things.

While this opened the door for success, it also meant that it mattered less if a startup’s balance sheet was diversified enough to withstand market fluctuations, because fluctuations simply weren’t happening. Solutions that focused on lending to consumers outside of the traditional market didn’t have to experience the risks of a volatile rate environment. As the inevitable becomes reality, however, speculation circulates as to whether an unbalanced offering can withstand the storms the financial industry often faces.

In addition to market risks, the gap is narrowing in the “tortoise and the hare” race between fintech startups  and Bank’s. Even the smallest banks have begun investing money into innovation, while the ones with significant capital have started entire technology hubs and enacted strategies to acquire their biggest tech challengers.

Although big banks continue to face regulatory scrutiny of their core business model, they have evolved and learned how to innovate, catching up in the race to grab customers with products that differentiate themselves. At the same time, fintech companies are finding it difficult to maintain the minimal regulatory oversight that enabled the rapid growth seen in the early years of innovation.

Last month, SoFi filed the paperwork to obtain an industrial bank charter, opening the door for the online lender to offer the same core banking services as its mega-bank counterparts. SoFi’s bold step is not the approach taken by all fintech companies, but many continue to look for partnerships with more full-service financial companies to ensure revenues continue to flow, even if their core business falls out of favor.

The tipping point

The outlook for the next five years in fintech growth may closely trend with the growth in new bank charters. While de novo bank growth stalled after 2008, the up-tick in 2015 and 2016 highlights startups that believe they can become successful hybrid organizations; part bank, part fintech.

Still, taking the hybrid path isn’t without its own challenges. Stringent capital requirements, intense regulatory oversight, and the difficulty of growing a balanced product mix can make it unattractive for entrepreneurs and investors alike.

Mono-solution providers should evaluate the future of their revenue stream to determine if diversification can help mitigate their risks in a changing market.  If they are able to take their innovation into new, multi-service arenas, we can expect to see unprecedented growth in the industry.

Mike Storiale is an Adjunct Professor at Brandeis University’s Rabb School of Continuing Studies where he teaches a graduate course on the global economy and the emergence of fintech.