Fintech, the (faintly uncool) term for financial technology, is booming these days. But it’s wrong to think of fintech as a single sector. There are two very distinct types of fintech innovation that entrepreneurs, consumers, investors and regulators need to be able to tell apart. To understand the distinction, it’s helpful to take a look at venture-backed innovation in general. Modern venture investing has its roots in two very different kinds of businesses: computer technology businesses and health-science businesses (stereotypically, drug development). What those two businesses have in common is massive scalability once an effective solution is found. But where those two businesses look incredibly different are their development life cycles. Part of that is regulation — health science is heavily regulated; software generally isn’t. But there’s a much deeper distinction — the role of time in the product. Particularly when dealing with software, when a computerized product works, it works fast. Emails get sent, documents get saved, data gets analyzed, chats get snapped, machines get learned… Computers can respond within a single Bergsonian moment — the passage of time isn’t an intrinsic part of the user experience. Medicine is different. There, the passage of time is core to the product experience. Health is intrinsically intertemporal; weeks, months or years are needed to fully gauge the impact of a course of treatment on a patient. As a result, the product development life cycle is necessarily extended, with accompanying effects on business life cycles. Upfront investment amounts have to be larger, earn-back periods have to be longer. And that makes sense — it would be hard for a biotech startup to declare victory anywhere as quickly as a software startup might (which isn’t to say markets don’t jump to conclusions). These two models can be applied to fintech, or really […]
