Lessons from Fintech

Q&A with Mike Wood, Head of Customer Development, and Jeff Tyler, Head of Product, Data Science & Engineering, Two Sigma IQ

Wood and Tyler had a front row seat for technology adoption in financial services during the Great Recession. They share fintech challenges and lessons learned for insurance leadership making the digital transition.

Tell us a little bit about your early career experiences in fintech and the digital evolution of the finance industry.

Wood: We were fortunate enough to work in financial services for Bloomberg, which sat at the intersection of the financial industry and technology during a time of rapid change. As a result, we had a front row seat to many of the changes and challenges in the industry and saw firsthand how technology played a central role in allowing the industry to create new solutions for their new reality.

In the last 20 years, the financial industry has had to navigate through significant changes in market structure, risk management, and automation. From the proliferation and collapse of the derivatives market that led to the financial crisis in 2008, to the adoption of electronic trading that has changed the way traders work, technology has played a critical role in helping the global markets system adapt and survive.

Tyler: I feel like we were on the roller coaster itself at Bloomberg. As an engineer, I was sent out to visit our West Coast clients during what was the most volatile period, right after the lawyers and regulators had descended on Lehman. Building trading software through that period and especially in the aftermath was rife with challenges, and out of those challenges came a lot of learnings that I think are applicable to other industries facing their own movement toward technological innovation.

What are the most crucial advantages of incorporating fintech into industries like insurance?

Tyler: Fintech is such a broad term, but I think the unifying theme is that the industry has had to constantly adapt to lots of different stimuli. They didn’t always get the right response immediately; they had to try things, fail, update their assumptions, and try again. Their ideas and missteps can be helpful when addressing technological innovation in other parts of the financial industry, including insurance.

Wood: I think it’s always a good idea to study the parallels between how other industries have adapted over time and the challenges you currently face. The banking industry has been through an incredible amount of change over the past 30 years driven by economic, environmental and regulatory pressures. Investments in fintech have helped the industry adjust and thrive along the way. Looking at how the financial services space has evolved to meet these changes provides a good road map for the insurance industry.

What challenges do industries and companies face in driving change?

Wood: So much time and effort is put into coming up with the right technical approach that firms often forget about the human factor. Behind any technology, there is always a user, and how that user is led through the needed behavioral changes is absolutely critical in getting to successful business outcomes.

In my experience, the outcome of any technology project is often determined by how aligned IT is with the leadership on the business side and how committed and active that leadership is in driving change with users on the ground. I’ve experienced large-scale technical projects that start off as having the support of leadership but fall short in the project’s implementation because leadership underestimated the cost and effort of modifying human behavior—or in some cases, failed to account for it entirely.

Tyler: If the users are feeling pain and you address that pain, the uptake and behavior modification Mike mentioned is palatable.

That said, change is not a one and done event. Given we’re talking about the financial industry, let’s use them as an example—they are changing and adapting constantly. Fintech overall, not just the financial institutions we served, is exploding with new innovations. How to get loans approved is changing, for example. Decentralized finance, while controversial in some circles still, is headline news.

If you look at who survived when significant challenges hit the financial services industry, it was the firms that had already embraced new technologies—the ones that already had a learning mindset.

Jeff Tyler, Head of Product, Data Science & Engineering

What are some triggers that can expedite an industry or a company’s embrace of new technology and a shift toward a more digital approach?

Wood: The most significant triggers that really propel an industry to make significant changes and accelerate usually come from external factors. A change in the regulatory environment, for example, drove massive change in the way banks approach risk management and allocation of capital in response to the financial crisis in 2008.

What are some key pitfalls companies should be aware of when implementing a new technology?

Tyler: In my opinion, projects that address speed without addressing the process are a misapplication of technology. Efficiency goals should be an opportunity to apply technology and/or data to the root process issues. The more systems and subsystems that need to integrate with the new technology, the riskier the project gets. In those situations, leaders need to ask themselves why they have so many different systems that rely directly on each other and make sure they have their process right before they try to make it faster.

Wood: It sounds obvious, but you have to understand the business application and results you are looking for. My advice would be to understand the problem, design to solve that problem specifically, and work to introduce the change in an incremental fashion. Make sure the people who will use the solution are involved in its creation.

How can companies that want to adopt new technology but who might not have a deep background in that area set themselves up for success?

Tyler: Leaders need to have a learning mindset and instill that in their corporate culture. The more that adapting and learning are institutionalized, the more likely it is that the organization will be successful in navigating the change foisted on them by external events.

If you look at who survived when significant challenges hit the financial services industry, it was the firms that had already embraced new technologies—the ones that already had a learning mindset. That doesn’t mean it was easy or that they made all the right calls, but they started from a place of strength because they started from what they didn’t know and prioritized around that.

Wood: The biggest thing a company can do to drive change is be able to articulate the problem, who has that problem, and the impact of that problem. You cannot change the fact that you may not have the background or experience necessary to solve the problem, but you can control your understanding of the problem and its impact.

Too often companies jump straight to solving a problem that hasn’t been sufficiently articulated and aligned around. Spending more time up front on the problem has a cascading effect; it will make you a better partner, and it will focus the conversation on outcomes rather than potential solutions and approaches that you may or may not have thought of.

Leadership plays a key role in getting teams to focus on problem statements, creating a culture that is open to new approaches, and in driving new approaches from an adoption perspective.

Read the article from Leader’s Edge here.