OBSERVATIONS FROM THE FINTECH SNARK TANK
If I had a nickel for every bank exec that told me their institution pursues a “fast-follower" strategy when it comes to fintech, I’d be on the Forbes Richest People list.
I'm sure it makes them (and their boards) feel good to say that, but they have misconceptions about the potential value of a fast-follower strategy and what the strategy entails.
Fast Follower Nonsense
They're not alone. An article titled Fast Followers Not First Movers Are The Real Winners reported the following research findings:
First movers had a 47% failure rate and companies that took control of a product’s market share after the first movers pioneered them had only an 8% failure rate. Like early pioneers crossing the American plains, first movers have to create their own wagon trails, but later movers can follow in the ruts.”
Nonsense. First off, being a “later-mover” doesn’t make you a “fast-follower.” Nowhere in the article (or the research it cites) is there any mention of when the later-movers moved.
More importantly, failure rate is not the appropriate metric.
The 53% of the first-movers who did succeed might have earned fantastically high rates of return on their investments and captured market share that was never lost to the later-movers.
What did the later movers get? They may not have failed, but did they generate the same returns as the first entrants? Did they gain meaningful market share? Did they capture profitable segments of the market?
Without answers to these questions, relying on the rate of failure is misleading.
More Fast-Follower Nonsense
In another article titled You’re Better Off Being A Fast Follower Than An Originator, the author relates the following example to support the contention of the title:
In 1998 Goto.com created the pay per click search engine and advertising system. It wasn't until October 2000 that Google offered its version of a pay per click advertising system. Google is a $25 billion dollar company with most of its revenue from AdWords. Goto.com was acquired by Yahoo for $1.6 billion. Why do fast followers win more often? First Movers tend to launch without really fully understanding customer problems or the product features that solve those problems.”
More nonsense. The fallacy here is that fast-followers (or later-movers) make conscious choices to not launch before others do in order to wait for the first-movers to make mistakes enabling them to learn more about customer problems.
Did Google have its search engine technology ready to go back in 1998? Did it consciously sit back and say “hey, let’s let goto.com launch first and fail, so we can swoop in and learn from their mistakes”? I don’t know. Maybe Google did. But I doubt it.
Banks' Speed of Fintech Adoption: Slow and Slower
According to JP Nicols, Managing Director at Fintech Forge, which runs the Alloy Labs Alliance, an innovation lab and accelerator for banks:
Banking leaders often describe their approach to innovation as being a ‘fast follower.’ My typical retort is that they're half-right. Most are definitely followers, but there usually isn’t anything fast about their approach.”
When it comes to digital technologies, the rate of adoption among financial institutions is so similar that no one can really claim to have consciously and deliberately pursued and executed a fast-follower strategy.
The reality is that an overwhelming percentage of banks and credit unions deploy digital products and services (e.g., online/mobile banking, online bill pay, eStatements, etc.) at the speed with which their vendors offer those services. Or slower.
In All Siri-ousness
For all the talk about disruption in financial services, there has been no technology that has given anyone a competitive edge by either being first or second to deploy.
Case-in-point #1: According to a December 2009 press release:
CashEdge announced that two top U.S. banks are the first in the nation to launch POPmoney, its groundbreaking new email and mobile person-to-person (P2P) payments service offered through banks. Five additional financial institutions have signed on to launch the service in early 2010."
Neither the first-movers nor the fast-followers gained much traction in the P2P payments market. Venmo came into the market, scooped up a ton of P2P market share--but only did half the volume that Zelle (a really late-mover) did in 2018.
Case-in-point #2: An American Banker article titled Will Siri Force Industry’s Hand on Banking-by-Voice? cited a consultant who said:
If you miss a critical feature on launch day, you’re going to be playing catch-up and fighting App Store reviews asking for that functionality. Our banking clients find value in being first-to-market with new iOS features, and it’s twofold: customer experience for retention and media buzz driving acquisitions.”
Nonsense. There's no proof of this retention impact or “value” in being first-to-market with new iOS features.
Just ask all those banks and credit unions who rushed to support Apple Pay when it was launched what good that did for them.
Fast-Follower Realities
The discussion around fast-following is pointless.
It’s not about whether or not you’re first or second to deploy a new technology. It’s about whether or not you gain a competitive (or economic) advantage by doing so.
Even if there was a reason to be a fast-follower, the reality is most banks would be hard-pressed to execute on it. To do it, they would need:
- A team of people evaluating technological developments in the market, accurately assessing the rates of adoption, and the potential economic impact.
- An agile, rapid planning process that takes the inputs from that team and makes quick decisions to fund deployments.
- A team of people to rapidly deploy the technological innovations after a “go” decision is made.
How many banks claiming to pursue a fast-follower strategy have that in place? Answer: None.
