Fintech startups are experiencing rapid growth and increasingly playing a role as enabling new capability and innovation for traditional financial services players. I recently spoke with Macquarie about the need for fintechs to understand their social purpose. This article expands on those comments.
The Social Licence of Finance
All forms of finance depend on a social licence. There are strict regulatory regimes in place for banking, wealth management, superannuation and pensions, insurance and other forms of finance. Importantly these regimes are just one part of supporting a social licence and the support of wider stakeholders. In many cases the regulation exists to enable wider community support or has been created to rectify loss of community trust in the finance industry. The finance industry complains about the burden of regulation but much of this regulation has been created in crisis or because of the danger of a rapid loss of trust in the industry. As the old quote goes
When community support and trust falls, all forms of finance quickly experience business risk, operational and existential issues. We only need look at our recent experience of the Global Financial Crisis or the stories of the Australian Banking Royal Commission to understand the degree to which community frustration and real business issues can arise when financial services players do not live up to social expectations.
The social licence exist because finance fulfils social purposes. Finance is an enabler of other business, personal and social activity. The benefit of finance in enabling or reducing the risk of that activity is key. When the finance industry’s attention shifts to money alone, it is losing its social purpose and that social licence is in jeopardy.
The Social Licence for Fintechs
Fintechs are the newer players in the finance industry. In some sectors of the wide range of fintech innovation, like crowd funding and blockchain, regulatory regimes are only now being created to catch up with the change they have created. In other parts of the fintech landscape, like attacker banks or new intermediaries, the goals of fintechs are to actively disrupt the approaches and practices of existing finance industry players. With a large, global addressable market, the daily challenges of innovation and a goal of disruption, social licences to operate may not always be a startup’s first consideration.
However, all fintechs must remember that the social licence that applies to finance applies equally to them. The nature of the finance industry is such that even the most disruptive of fintechs will depend on the community’s trust and confidence in the sector. More importantly, most fintechs depend on collaboration and partnerships across an ecosystem of innovation that includes other fintech startups but also includes partnerships with large financial services players. Some of the greatest and quickest value fintechs can bring is helping large financial services players to reach new markets or transform themselves with new ways of working or interacting with stakeholders.
The Role of Social Purpose for Fintechs
A social licence exists because a business fulfils a social purpose. Every fintech should challenge itself to understand how its business enables a social benefit to others beyond the organisation. Like the finance industry as a whole, fintech exist enable others. Their ongoing social licence depends on being able to clearly express a social purpose. Clever rent seeking, speculation or technology is not enough to enable a fintech to survive, let alone succeed.
At LanternPay, we have a clear social purpose and it is at the heart of our claim and payment platform – we enable consumer choice and control in healthcare, aged care and disability. We believe that giving consumer’s choice and control will improve their experiences of healthcare, agedcare and disability and create platforms for the sustainability of those important industries. Our platform can help hardworking providers of care to focus on care provision and remove the administrative paperwork of multiple different payment processes for different schemes. We can deliver efficiency This purpose guides how we develop our platform, how we price our service and how we operate. This purpose has been key to winning the support of consumers, providers, government payers and a range of other partners as we grow. Importantly, our social purpose engages all our employees, many of whom have direct personal or family experience of the benefits of choice and control in care. Growing a new two-sided platform in a rapidly changing health, aged care and disability industries is not easy work, our social purpose is an important ongoing part of our growth.
Fintech startups are a critical part of the future evolution of the finance industry and realising new capabilities for society as a whole. Fintechs need to understand their social licence to operate and support it with a clear social purpose.