Fintech is all about disrupting, modernising and democratising financial services, yet when it comes to gender it is performing worse than the ‘old-fashioned’ banks. Silvia Pavoni looks into the reasons why.

Women in fintech embedded

Talking to The Banker, the chief executive of a London-based financial technology firm recently said that he very much supported the idea of more women in the field: “They are good at keeping things in check, so I can focus on my actual job.”

The male CEO may not have meant to be derogatory and imply that supporting functions, rather than leadership and technical positions, are women’s natural place in fintech, but his choice of words is indicative of a certain mindset that many women say is responsible for the low headcount in the sector. Fintech shows a yawning gender gap, one that is considerably worse than the already lamentable record of the financial services industry as a whole.

In the UK, women represent only 7% of fintech boards and 16% of executive committees, compared with 31% and 24% for banking groups, according to research by the UK Treasury and Virgin Money released in March.

In Europe, out of the top 50 EU fintech companies by funds raised in 2014, only one was led by a female CEO (Elly Hardwick at London-based Credit Benchmark), according to data from Dow Jones Venture Source and Factiva. The picture in Silicon Valley is not much better. Research by the US-based Female Founders Club, which invests in women-led start-ups, shows that in California’s Bay Area only 8% of total companies that received their first significant round of venture capital funding, or Series A funding, were led by a female CEO.

A woman’s place?

There exists a perception that women are not suited to the demands of entrepreneurship and a tendency to assume that they are slower – though steadier – in providing financial returns, notes Nicole Anderson, CEO of Fintech Circle Innovate, a company that connects start-ups to financial partners. “Knowing investors as I do, during Series A funding if investors are just after quick returns, then most female entrepreneurs tend to be dismissed,” she says.

Indeed, a 2014 study from Harvard, MIT and Wharton universities found that men are 60% more likely to succeed in pitching to investors than women. On the other side, only 7% of investing partners at top venture capital firms are women, according to CrunchBase, a private equity investment tracker, a proportion which does not help challenge gender stereotypes within investment committees.

There are other issues. At banks, for example, the pool of women with first-hand exposure to products and markets that fintechs set out to disrupt is still limited, according to Anna Mazzone, managing director of Trunomi, a provider of know-your-customer data-sharing technology. This means that fewer women than men have a handle on the issues and therefore fewer can offer solutions. Given that only a small portion of senior bank executives end up launching their own venture anyway, naturally the number of women who decide to exit the corporate ranks and dive into entrepreneurship shrinks further still.

“In order to be successful in fintech, you need to understand the [finance] industry and the market structure so that you can figure out how you can disrupt it and solve a problem,” says Ms Mazzone. “When you look at the finance industry, are there enough senior women? And even when you do understand the industry, you also need to be comfortable with technology. Running a division in a bank is not the same as running a tech firm.”

Gender matters

The very industry that fintech sets out to disrupt and modernise – financial services – is not particularly progressive when it comes to gender. Numerous pieces of research have shown that companies benefit from larger numbers of women in decision-making roles. A 2014 Credit Suisse study found that greater gender diversity in companies’ management correlates with improved corporate financial performance and higher stock market valuations.

Females on boards

The bank’s CS Gender 3000: Women in Senior Management report shows higher returns on equity, higher price-to-book valuations and higher shareholder payout ratios in firms where more women occupy senior positions. The report looked at nine years’ worth of data from 3000 companies across countries and sectors. Notably, it shows that firms led by a female chief executive achieved an average return on equity (ROE) of 15.2%, compared with the 11.9% delivered by those under male CEOs. Furthermore, splitting numbers by sector shows that financial services companies where women occupy more than 15% of senior positions had an average ROE 2.5 percentage points higher than companies where that proportion was below 10%; for technology firms, the difference was an even larger, at 7.2 percentage points.

To improve the situation, numerous networking and mentorship programmes have been set up to support women in financial services, and there are efforts to attract larger numbers to entrepreneurship too. Enterprise WISE from the University of Cambridge’s Judge Business School is one example. It launched four years ago and targets women at post-doctoral or early career level in the fields of technology, science and engineering. US universities, renowned for their business schools, have also grown concerned by the small number of women in start-ups and have developed tailored programmes to address this.

Targeted academic courses help the female cause, says Ms Anderson, particularly in Europe, which traditionally lags behind the US when it comes to entrepreneurship culture. They may also encourage a larger number of women to work for start-ups without necessarily desiring to launch one. Ms Mazzone recalls how in a recent round of interviews for a technical position, although she was determined to find a woman, the two dozen candidates she spoke to were all men. “When I ask for female candidates, headhunters tell me there aren’t any. How can that be?” she asks.

Taking risks

Numerous pieces of research highlight a female tendency to be more risk averse than men, as well as more realistic when it comes to the results of their potential ventures when pitching to investors – something that may result in a less enthusiastic presentation. Furthermore, social norms around parental responsibility, which women often tend to shoulder more heavily, play a role because the all-consuming work hours required by a start-up are often incompatible with family life. This is coupled with the initial economic sacrifice founders must make while waiting for the business to hit its stride.

“It's quite common that I work until 3am and sleep two, three hours a day until such time as I can’t anymore; then I have a full night’s sleep and start again,” says Jocelyn Braun, chief executive of AinFin, a financial transaction platform and former global head of product and strategy at Old Mutual Global Investors; she is intent on improving financial inclusion for society’s poorest. “Seven days a week, more than 12 hours a day – you don’t do that in a corporate environment, not every day. How many people are prepared to do something like that and not see a regular income?” she asks.

Start-ups and fintechs may not be for everyone. But all will lose out if women willing to take on the challenge are denied the opportunity because of stereotypes or innacurate assumptions. Consumers of financial services may miss out on greater innovation, and investors on greater returns.

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