In my last two articles, I wrote about 'change management.' While I take a short break from that series, I'm moving on to an area that is close to my heart - Financial Technology, in other words, 'Fintech.' I aim to provide a brief introduction to Fintech and discuss the HR challenges faced by financial institutions during its adoption.
Diving right in, the first question to answer would be, what really is fintech?
Definitions.
"FinTech (financial technology) is a catch-all term referring to software, mobile applications, and other technologies created to improve and automate traditional forms of finance for businesses and consumers alike. FinTech can include everything from straightforward mobile payment apps to complex blockchain networks housing encrypted transactions."
- (Columbia Engineering, 2021)
- (Columbia Engineering, 2021)
"Financial technology (better known as fintech) is used to describe new technology that seeks to improve and automate the delivery and use of financial services. At its core, fintech is utilised to help companies, business owners, and consumers better manage their financial operations, processes, and lives. Fintech also includes the development and use of cryptocurrencies, such as Bitcoin."
- (Kagan, 2022)
"Fintech is a combination of the words “finance” and “technology.” Although it’s a blanket term that can mean many different things, broadly speaking, it describes the evolution of an industry where new technology use-cases are developed and deployed to streamline more traditional-looking finance functions."
- (CFI Team, 2022)
While reading through these definitions it may become clear to you that you too have been interacting with fintech for quite sometime already. While it is not a brand new development, the field has experienced exponential growth in the recent years. I suggest here that fintech is no longer limited to technology revolutionising the finance space, but that it has a ripple effect in revolutionising related sectors as well.
To find out 15 things about Fintech, which you probably didn't know about, follow this link.
Examples of use.
Fintech includes technology used in, credit cards which facilitate global payments; ATMs; CEFTS; the SWIFT system which allows you to send or receive electronic payments internationally; PayPal; Stripe; Venmo; Apple Pay; Cryptocurrencies, and Cryptocurrency exchanges such as Binance and Coinbase. Sri Lankans are familiar with Buy-Now-Pay-Later platforms such as KOKO and Mintpay which are also examples of Fintech in action. Banks and financial institutions moving towards the use of blockchain based SSID solutions to revolutionise e-KYC processes is also an example of fintech. A recent case of this was seen in Sri Lanka with the National Savings Bank. Online and mobile banking, robo-advisors, insuretech, regtech, budgeting tools, and online stock broking also fall within the scope of Fintech. I believe these are merely scratching the surface.
An interesting emerging development in fintech is banking in the Metaverse. Banks have already begun setting up virtual branches in the Metaverse, such as Thailand's Siam Commercial Bank and, JP Morgan Chase on the Decentraland Platform (Marr, 2022). A recent study by McKinsey & Co estimates annual global spending by businesses and consumers related to the Metaverse to reach $5 trillion by 2030, which is not too far off (Alcántara and Coffee, 2022). More financial service providers must move into the Metaverse to stay relevant and profit.
Metaverse aside, Ernst and Young's 2019 Global Fintech Adoption Index states that two-thirds of consumers are using a minimum of two or more fintech services in their day-to-day lives, that too with increasing awareness (EY, 2019). This indicates that the financial sector needs to evolve and adjust to meet changing demands.
How does this relate to the HR department of a fintech company?
As Fintech companies are under pressure to deliver significant results while answering to big demands, their employees bear an even greater burden of pressure.
The question that arises in this context is, how can these rapidly expanding, scaling-up fintech companies ensure that they are providing their employees with the necessary support (Fuhl, 2020). It is within the mandate of the HR Department to find answers to this.
HR Challenges in Fintech and Proposed Solutions.
1. Talent Acquisition and Retention Challenged.
Given the highly specialised nature of the field, fintech requires employees to have a unique set of skills and expertise, such as data analysis skills, programming skills, deep knowledge of financial systems, machine learning and cybersecurity, to name a few. In light of this, it is challenging, but necessary for HR to design an 'Employee Value Proposition' that will attract and engage talented fintech professionals, while retaining them with the company for as long as possible (Deloitte Leadership UK, 2020). The success narrative of a fintech firm is entirely reliant on its employees.
Presently, the emphasis on expansion frequently reduces the significance of dedicating time and resources towards developing a long-term human resources strategy in the fintech space (Deloitte Leadership UK, 2020). This poses significant challenges to the acquisition and retention of employees in the long run, such as many individuals being lured away by higher salaries and benefits offered by larger, more established firms.
Therefore, it is within the HR department's power to offer something more meaningful that demonstrates to employees they can advance their careers with the company, in a way that outweighs a large pay-check. Having a 'Chief People Officer' in fintech companies can go a long way in achieving this (Fuhl, 2020).
2. The Challenge of Managing Diversity and Inclusion.
HRM in fintech faces challenges in managing diversity and inclusion, primarily on the basis of it being a male-dominated industry, with too few women working in the fintech industry and holding leadership roles (Brett, n.d.; Fries, 2020; Taylor, 2021). Other underrepresented groups include people of colour, and the underprivileged (Taylor, 2021).
I suggest that where HRM fails to manage diversity and create inclusivity in the fintech workplace, it will only give rise to a multifaceted issue. One side to this would be a limited talent pool and limited perspectives being available to the company. Another is invariably creating a culture that is unwelcoming to certain minority groups, which could be seen as discriminatory. Yet another would be perpetuating the lack of access to financial systems and tools to these under-represented groups.
Therefore, it is within the HR department's mandate to take proactive measures such as offering double finder’s fees to anyone that recommends successful female candidates (Brett, n.d.); reviewing job descriptions to appeal to underrepresented individuals (Brett, n.d.); implementing diversity and bias training; and setting targets for diversity in hiring, supported by learning and development initiatives to support new hires.
3. Challenges in Compliance.
Fintech companies are increasingly gaining a bigger portion of the financial services industry, with more people opting for online banking, investment management, lending, and trading cryptocurrencies, instead of going to traditional physical banks. Naturally, this introduces a range of compliance risks for fintech companies.
During the process of developing a new fintech product or application, some companies choose to prioritise other aspects over compliance, often due to limited resources (Ciancimino, 2022). However, neglecting compliance at the start can lead to significant costs and legal risks in the long run. A few regulations that are intrinsic to fintech companies include data protection laws such as the General Data Protection Regulation (GDPR), anti-money laundering regulations, cyber security laws, anti-terrorism regulations, foreign exchange regulations, fraud, bribery and corruption laws; as well as tax regulations to name a few. While these are non-exhaustive and constantly evolving, they pose a severe burden and challenge upon fintech companies to simply keep up with them.
The HRM function should be constantly updated and prepared to handle the continuously changing compliance risks. Moreover, it is their responsibility to establish key roles such as Chief Information Officer and Chief Risk Officer to oversee the compliance functions of the company. They should hire employees who have knowledge and skills in these areas of work; conduct regular employee trainings to keep the workforce up-to-date on the regulatory aspect of the company's work; establish clear reporting lines and escalation mechanisms for suspicious transactions or breach of regulations; cause to have in place proper sign-out protocols for devices in the workplace; and oversee to ensure the proper functioning of the audit functions of the company (including cybersecurity and data security audit teams).
4. The Challenge with Remote and Distributed Teams
Given that fintech is a global industry, companies have employees working from different parts of the world. Remote hiring often has an advantage over in-house teams because there are limited experts or specialists in cutting-edge data technologies such as Blockchain and Artificial Intelligence that are required for Fintech (Finextra, 2021).
This also poses significant challenges in terms of the remote hiring and onboarding process, redefining occupational health and safety in remote working contexts, the employee rights dialogue, managing performance remotely, managing different time zones, cultural differences and communication barriers.
It is within HRM's scope to develop strategies to address these challenges at the outset, with the help of technology itself. It could also outsource some of the tasks to a company in the remote employee's country, while exercising due diligence and oversight over it.
In Conclusion.
Fintech is an ever-evolving industry, bringing with it new challenges from time to time. To address these challenges, the HRM function of any fintech company needs to be proactive, adaptive, and innovative. It goes without saying that much of it must rely on technology and industry best practices to build a robust, resilient and engaged workforce. This is a prerequisite if we are to see the industry grow and deliver the best for its customers.
Reference Links:
Alcántara, A-M. and Coffee, P. (2022) Metaverse Spending to Total $5 Trillion in 2030, McKinsey Predicts. Wall Street Journal. [online] Available from https://www.wsj.com/articles/metaverse-spending-to-total-5-trillion-in-2030-mckinsey-predicts-11655254794 [Accessed 9 April 2023]
Alux.com (2021) 15 Things You Didn’t Know About the Fintech Industry. Available from https://www.youtube.com/watch?v=uwsoyTPAduY [Accessed 12 April 2023]
Brett, L (n.d.) FinTech has a bigger gender problem than it realises. [online] Available from https://www2.deloitte.com/uk/en/pages/financial-services/articles/fintech-has-bigger-gender-problem-than-it-realises.html [Accessed 10 April 2023]
CFI Team (2022) Fintech (Financial Technology). [online] Available from https://corporatefinanceinstitute.com/resources/wealth-management/fintech-financial-technology/ [Accessed 9 April 2023]
Ciancimino, J. (2022) Top Compliance Challenges for Fintech Companies. [online] https://www.ispartnersllc.com/. Available from https://www.ispartnersllc.com/blog/compliance-challenges-fintech/ [Accessed 10 April 2023]
Columbia Engineering (2021) What is Financial Technology (FinTech)? A Beginner’s Guide for 2022. [online] Columbia Engineering Boot Camps. Available from https://bootcamp.cvn.columbia.edu/blog/what-is-fintech/ [Accessed 9 April 2023]
Deloitte Leadership UK. (2020) Human Capital challenges of a fast-growing sector: FinTech. Available from https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/blogs/deloitte-uk-human-capital-challenges-of-a-fastgrowing-sector-FinTech.pdf [Accessed 10 April 2023]
EY (2019) Global FinTech Adoption Index 2019. Online. Available from https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/banking-and-capital-markets/ey-global-fintech-adoption-index.pdf [Accessed 10 April 2023]
Finextra (2021) How do Fintech Companies Hire and Manage Remote Development Teams? [online] Available from https://www.finextra.com/blogposting/21103/how-do-fintech-companies-hire-and-manage-remote-development-teams [Accessed 10 April 2023]
Fries, T. (2020) FinTech is Sorely Behind in Female Participation, but for How Long? [online] Available from https://tokenist.com/fintech-is-sorely-behind-in-female-participation-but-for-how-long/ [Accessed 10 April 2023]
Fuhl, J. (2020) 5 reasons why fintech companies need to get their HR strategy right. [online] Available from https://www.sage.com/en-gb/blog/why-fintech-companies-need-hr-strategy-right/ [Accessed 10 April 2023]
Kagan, J. (2022) Financial Technology (Fintech): Its Uses and Impact on Our Lives. [online] Investopedia. Available from https://www.investopedia.com/terms/f/fintech.asp [Accessed 9 April 2023]
Marr, B. (2022) Banking In The Metaverse – The Next Frontier For Financial Services. [online] Forbes. Available from https://www.forbes.com/sites/bernardmarr/2022/11/16/banking-in-the-metaverse--the-next-frontier-for-financial-services/?sh=19155e1822d1 [Accessed 9 April 2023]
www.ft.lk. (2023) NSB launches South Asia’s first SSID Solution on Blockchain powered by FlexID [online] Available from https://www.ft.lk/financial-services/NSB-launches-South-Asia-s-first-SSID-Solution-on-Blockchain-powered-by-FlexID/42-746661 [Accessed 9 April 2023]
Taylor, K. (2021) Fintech’s Problem With Race. [online] Available from https://www.fairobserver.com/region/north_america/kiara-taylor-fintech-industry-diversity-racial-inequality-systemic-racism-tech-news-10019/ [Accessed 10 April 2023]
www.ft.lk. (2023) NSB launches South Asia’s first SSID Solution on Blockchain powered by FlexID [online] Available from https://www.ft.lk/financial-services/NSB-launches-South-Asia-s-first-SSID-Solution-on-Blockchain-powered-by-FlexID/42-746661 [Accessed 9 April 2023]
Taylor, K. (2021) Fintech’s Problem With Race. [online] Available from https://www.fairobserver.com/region/north_america/kiara-taylor-fintech-industry-diversity-racial-inequality-systemic-racism-tech-news-10019/ [Accessed 10 April 2023]
This article is useful and timely.
ReplyDeleteMy question to you is, how important is it for a fintech company to invest in developing its employees' skills and knowledge (Human Resource Development) to ensure that the workforce remains resilient and adaptable to the changing needs of the industry?
Thank you for your feedback Nadeer. With regard to your question, I would say that it is vital that they do. It is essential for companies to invest in the development of their employees and Human Resource Development (HRD) in order to remain resilient and adaptable in the fintech industry.
DeleteGood article. How can fintech companies ensure data privacy and security while developing and implementing fintech products?
ReplyDeleteThank you for engaging with my article, Tharinda. I believe I have addressed this from an HRM perspective in this article. Nevertheless, let me reiterate that in order to ensure data privacy and security, the HRM function must, identify and establish roles such as CIO and CRO to oversee the management of these risks; conduct regular employee trainings to keep the workforce up-to-date on the regulatory aspect of the company's work; establish clear reporting lines and escalation mechanisms for suspicious transactions or breach of regulations; cause to have in place proper sign-out protocols for devices in the workplace; and oversee to ensure the proper functioning of the audit functions of the company (including cybersecurity and data security audit teams).
DeleteThank you for further clarifying the measures that can be taken to ensure data privacy and security. Clear roles and responsibilities ensure that employees are adequately trained on data protection regulations and procedures. I agree that having clear reporting lines, escalation mechanisms, and proper sign-out protocols for devices are essential measures to protect sensitive data. Furthermore, regularly monitoring and auditing the company's cybersecurity and data security measures can help identify and address potential risks or vulnerabilities. Thank you for highlighting these important considerations for maintaining data privacy and security within organizations.
DeleteMy pleasure. Thank you once again, for raising this question.
DeleteVery nicely done article. I wonder though, what your thoughts are about the disconnect between management and people of most fintechs in SL and the dissonance therein. Many options presently available are just fronts for established banks, and this shows in the dissonance between what they say and do , and often what spirit their people share and their management hold on to. What would be HR's role in bridging this gap, if there is one?
ReplyDeleteThank you for your feedback. Regarding your question, I completely agree with your observation as it's not uncommon for companies, including fintechs, to experience a disconnect and disengagement between management and employees stemming from differences in vision, conflicting priorities, and communication breakdowns. Given that the fintech culture is only developing at a faster pace since quite recently in Sri Lanka, one could suggest that the disconnect and dissonance could be attributed to a lack of clear direction and purpose at times, or the misalignment between organisational values and the actions taken at others. This coupled together with communication breakdowns, which are quite common in the Sri Lankan context, is a recipe for disaster.
DeleteThe HRM function plays a key role in realigning the values and actions, by identifying and addressing them directly through feedback and training initiatives, taking measures to improve better communication between the leadership and the employees, and fostering a culture of openness, transparency and collaboration. It is also within HR's mandate to reinforce the organisation's goals and values throughout the organisation, at every level.
There is an emerging trend of having a Chief People Officer in tech companies, which I have mentioned briefly in this article. I believe this could be a starting point to bridge the literal gap that exists between the leadership and employees.
I hope this answers your question to some extent.
Thank you for your in-depth and detailed answer. Yes. That's true a CPO is a good starting point.
DeleteThis comment has been removed by the author.
ReplyDeleteThank you for engaging with my article, Chamuda. I believe however that you have merely copied chunks of my article and paraphrased most of it here. With regard to your question, yes I do believe that Fintech presents challenges for HRM. It is after all the title of my article and what this entire article discusses.
DeleteThis is an important topic inside the human resource management Thanuki . The HR department must do more than hire and fire to achieve the total value of the company's collective knowledge. They must also proactively cultivate relationships through internal communications, recognition programs, collaboration, and company culture . Employee satisfaction, training and development, conflict resolution and performance improvement are some of the key areas where HR plays a significant role. This enhances and helps an organization run smoothly and in a structured manner and contributes to business growth in the long run . Core HR functions include job analysis and design, hiring and selection, training and development, compensation and benefits, succession planning, employee engagement and more.
ReplyDeleteThank you for engaging with my article. I'm wondering however, based on your comment whether you were able to make out the specific links that I've drawn between HRM and Fintech.
DeleteThe blog post clearly describes what is Fintech and its use in a business environment. The post is very well structured with many citations and reference list for the reader to grasp knowledge. The flow of the post very correctly takes the reader according the heading "HRM in the Fintech space". A very informative post Thanuki.
ReplyDeleteThank you for your kind feedback, George. Glad that it made sense to you and was easy to follow.
DeleteInformative article Thanuki. Great job. I know this topic is relevant and close to you. I'm quite interested to explore on this. Human Resource Management plays a crucial role in the success of fintech companies by ensuring effective talent acquisition, retention, and development. HRM helps fintech companies build a skilled workforce that can innovate and adapt to the fast-paced technological changes in the industry (Ding et al., 2020). HRM also plays a critical role in shaping the organizational culture, fostering diversity and inclusion, and promoting employee well-being, all of which contribute to creating a positive work environment that attracts and retains top talent (Griffiths et al., 2019). Additionally, HRM in fintech companies plays a vital role in navigating regulatory compliance, managing risk, and maintaining ethical standards, which are essential in the highly regulated and complex fintech landscape.
ReplyDeleteThank you for your kind feedback, Lasni. Great observations too. You've managed to grasp my message very clearly. Expanding on your observation regarding compliance, which I have highlighted in my article, I believe many think that compliance is a purely regulatory and compliance, or risk, or legal function. I wanted to highlight that HRM permeates all these functions and plays a defining role here in the fintech space, which should not be misidentified.
DeleteGreat article Thanuki. Fintech, the intersection of finance and technology, has been rapidly growing and disrupting traditional financial services. However, this has also brought about several challenges for HRM in the fintech space. One of the biggest challenges is the competition for talent, particularly in areas such as data science, machine learning, and blockchain (Koh, 2021). Fintech companies need to be creative in attracting and retaining top talent, as well as investing in upskilling and reskilling their existing workforce.
ReplyDeleteAnother challenge is the need to balance innovation with compliance and regulatory requirements. Fintech companies need to ensure that their products and services comply with regulations while also continuing to innovate and push the boundaries of technology (Gupta & Rathi, 2019). This requires HRM to hire and train employees who are not only innovative but also knowledgeable about regulatory compliance.
Furthermore, fintech companies also need to address issues related to diversity, equity, and inclusion (DEI). Research has shown that fintech companies have a diversity problem, with women and people of color being underrepresented (Joshi, 2021). HRM needs to implement strategies to address these issues and create a more inclusive work environment.
In conclusion, HRM in the fintech space is faced with several challenges that require a strategic and proactive approach. It is important for HRM to address the competition for talent, balance innovation with compliance, and address DEI issues to ensure the long-term success of fintech companies.
Thank you for your feedback and excellent insights based on this article. Fintech is a tough space to figure out and ensure compliance and meet the talent requirements at all times, as it is constantly evolving. Fintech is at a constant tug-o-war due to its ever-changing nature. This, like you have rightly observed poses some great challenges to the HRM function of any fintech organisation.
DeleteImportant topic on how HRM play vital role in FinTech. One of the challenges I have witness is transforming employees to new culture in financial institutes. As this required understanding technology behind the FinTech, new way of doing things(Agile). As it would be hardship specially for senior human resource to get aligned with FinTech. Would be nice if you can add a section on, how HRM plays a bigger role on employee transformation from previous state to new FinTech way of work in the organization.
ReplyDeleteThank you for taking the time to engage with my article. Yes, I will consider your suggestion to extend this discussion, including further aspects of the HRM function in employee transformation. You have said that you have witnessed the challenge associated with transforming employees to the new culture in financial institutions. Are you from the fintech industry yourself? Please provide some insights on what you have experienced in this regard, if you have, as it will help make this discussion more fruitful.
DeleteThank you for this insightful post, as you rightly pointed out, the fast-paced and dynamic nature of the industry makes it crucial for HR managers to stay up-to-date with the latest trends and technologies. According to a recent study (Sadeh, 2021), fintech companies are facing a talent shortage, particularly in areas such as data analytics and cybersecurity. Therefore, HR managers need to adopt innovative recruitment and retention strategies to attract and retain top talent.
ReplyDeleteFurthermore, the increasing need for regulatory compliance in the fintech industry presents another challenge for HR managers. As noted in your post, HR managers must ensure that employees are adequately trained on compliance policies and procedures to mitigate legal and reputational risks. This requires a collaborative effort between HR and compliance teams to design and implement effective training programs (SHRM, 2021).
Overall, HR managers in the fintech industry must navigate these and other challenges to ensure that their organizations remain competitive and compliant in the rapidly evolving fintech space. Thank you again for shedding light on this important topic.
Glad you found this article useful, Praveen. Thank you for taking the time to read it, and provide some keen observations based on my article. Adding on to what you have said in the last paragraph, I believe that HRM is the glue that holds all of this together. As such, their role is of significant importance.
DeleteHere is hoping Sri Lanka rapidly grows in this space. So much to accomplish.
ReplyDeleteAbsolutely! I hope so too.
DeleteHi Thanuki! Great article on the challenges that HRM faces in the fintech space. Fintech is a rapidly growing industry that requires highly skilled and specialized employees, making talent acquisition and retention a major challenge for HR departments. Additionally, managing diversity and inclusion in a male-dominated industry is another obstacle that HRM must overcome. To address these challenges, HR departments need to develop long-term human resources strategies, create an employee value proposition that goes beyond just monetary benefits, and promote diversity and inclusion through proactive measures. The role of a CRO (Chief People Officer) can also be instrumental in ensuring that employees are engaged, motivated, and have opportunities for career advancement within the fintech company. Overall, the article highlights the unique HR challenges in the fintech space and proposes solutions to address them effectively.
ReplyDeleteThank you for your kind feedback and keen observations based on my article, Huzair. They reiterate and re-emphasise some of the key points I have presented here.
DeleteAn important article with valuable insights on HRM Challenges in Fintech. The fintech industry is rapidly growing and transforming the traditional financial services sector. As such, the HRM in fintech faces a set of unique challenges that require new and innovative solutions. As you have mentioned, Talent Acquisition, Retention, Skill Gap, Regulatory Compliance, Diversity and Inclusion, Rapid Growth are some of the challenges that HRM in fintech faces.
ReplyDeleteHRM in fintech must address these challenges to attract, develop, and retain the best talent in a highly competitive industry. The HRM strategy must support the company's overall goals, create a positive work culture, and ensure compliance with relevant regulations.
Thank you for your kind feedback and keen observations based on my article, Chathura. As you have rightly observed, the HRM function has an integral role to play here, and it is my opinion that its role is also evolving as the fintech industry goes through transformations. The HRM function must be agile and dynamic at all times to keep up with this challenging role.
DeleteThank you for the great article. I appreciated the way you outlined the unique obstacles that HR professionals encounter in this rapidly evolving industry, such as the need for specialized talent and the importance of staying up to date with regulatory changes. Your emphasis on creating a culture of innovation and adaptability provided valuable insights for HR professionals looking to thrive in the fintech sector.
ReplyDeleteIn an upcoming blog post, consider discussing how HR professionals in the fintech industry can leverage technology to optimize their operations and create a more efficient, streamlined HR function. Delving into the use of AI, machine learning, and automation for tasks such as recruitment, onboarding, and performance management could offer valuable insights for fintech HR professionals looking to stay ahead of the curve. Additionally, discussing potential challenges and ethical considerations of these technologies in the HR context could provide a well-rounded perspective on the topic.
Thank you for your kind feedback. I will certainly consider a separate article on the interactions between HRM and technology. I have touched upon it, and its ethical concerns in my first few articles on this blog as well.
ReplyDelete