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Fintechs – 'Fintastically' getting stronger en-route to transforming the FS landscape

The Financial Services (FS) sector is risk averse, has been and most likely will remain so. Historically a sector that maintains a perception of being different, complex, and often resistant to disruption and digitisation.

However, “the order is rapidly fadin'. And the first one now. Will later be last. For the times they are a-changin (Bob Dylan).

2008 crisis questioned old world FS. What followed was a proliferation of brands that were small, agile, with a fresh story that pushed the envelope on digitising money –“Fintechs”.

FS at its core is just technology; that packages FS products (take physical cash out and it’s just numbers) allowing customers to engage in a complex web of participants for monetary interactions and exchange of value.

Fintechs have forced every traditionalist (organisation and individual) to think different, be different. They unbundled FS products with a focus on specialism and an ability to package differentiated propositions for specific customer segments exploiting the latest technologies. Clearly Fintechs are here to stay and growing stronger.

2021 the Fintech sector had a record $90+ billion in global funding with 42 fintech unicorns (valued at over $1billion). The numbers are on the rise – 2021 had 10,000+ Fintechs in the US, followed by closely by EMEA and then Asia Pac.

Is it time to think different again however......and this time by the Fintechs?

Isn't it time for Fintechs to self-reflect as they rush forward to fundamentally transform the way customers consume FS services (Retail & Corporates)? Is too much choice going to destroy what Fintechs aspired to achieve? They wanted to bring an alternative but with so many, are they risking pushing the customer to stay put, and continue in the state of FS inertia?

It’s time, for sure to think consolidation, partnerships and recognise the stresses of solo survival vs collaborative growth. Fintechs (and their founders, often young and youthful) need to think long term growth potential; where the choices may be “Buy, Borrow or Build” but alongside a need to explore “Sell, Submit or Shut”.  For certain some Unicorns will continue to pave the path of success but even they are realising that the future is about playing together, with like-minded and complementary participants in the game.

Four models of partnerships are taking root:

  1. Partnering with Banks - Open Banking made it possible. Banks are increasingly looking to partner with Fintechs to bring a richer proposition to customers. List of examples is increasing Starling Bank; Plum’s Money management used by both Starling and Monzo; Belgian KBC Group and TreasurUp offers a white-label treasury platform; JP Morgan and OpenInvest - for investments; Bank of America acquired “AxiaMed” - health care payment and technology company focused on facilitating secure patient payments; Goldman’s Marcus and GreenSky - lending capabilities and market-leading merchant and consumer ecosystem. The list goes on. Furthermore banks like HSBC are openly promoting a desire to collaborate. Clearly a sensible partnership model but one that needs robust due diligence - data privacy capability, regulatory compliance, cultural alignment etc.
  2. Partnering with other Fintechs and tech start-ups:  Fintechs and other techs (Reg Tech, Mar Tech etc), all bring specialised value and focus. As small outfits with somewhat like-minded cultures there is immense potential to seek out synergies (funding, customers – acquisition and management, compliance, infrastructures etc). Infact FCA the regulator in the UK is encouraging this. Examples are emerging with Stripe and Klarna that is pushing the BNPL (Buy Now Pay Later) model
  3. Partnering with the Big D2C Consumer Tech Giants (Facebook, Apple, Google): The bigger D2C tech players have a great advantage – scale and captive audience, with plans to add on new FS centric propositions through partnerships with banks. Amazon partnering with Bank of America for Amazon Lending, the Apple credit card issued by Goldman Sachs plus own in-house solutions – AliPay, Facebook Pay etc. The intent is clear – new ways of customer engagement focussing on FS. One can easily foresee partnerships that would create an ecosystem of Fintechs being made available through single-sign ons through such mammoth globally relevant organsisations.
  4. Partnering with the Big Tech Providers: Fintechs are tech firms, focussed and specialised towards a customer value proposition. But they grow – with people and technology leading to the need for ERP, HR, Expense management, Contractor resourcing, CRM etc. This is where the big technology Cloud providers come in as partners and supporters leaving Fintechs to focus on what they should stay focussed on.

Clearly therefore, collaboration is here and now.

So how should a leader (who started, shaped and runs a personal vision) think about playing with others. It’s tough I am sure for people who had the vision, who did the coding and those that refined the differentiators. The following pointers intend to encourage structured thinking:

  1. Revisit and refocus original purpose: Why did it start? And will that purpose be compromised by joining others, those that also started with what could be similar purposes – to disrupt FS
  2. Why play solo when you can join a team: So many ideas, so many disruptive propositions, new technologies and new business model – all  targeting the same customer? Can some come together to package a more holistic proposition for the customer (a new bundle, ironically packaged by those that unbundled!)
  3. Join up to face up: With the sector under ever increasing pressure from regulators, need for customer / data privacy and security protocols, why fight solo and chase the ever increasing burden when you can work alongside others who may have worked things out better, quicker
  4. Stay focussed on the customer: Isn’t that why one indulges in start-ups – customer centricity? So why do all that can be partnered on (HR, Compliance, Finance) with organisations or purchased technologies so you can focus on end customer value

In any case things will play out soon. Sometimes things are inevitable. The world is moving progressively towards ecosystem partnerships – it’s bound to happen. It will. And Fintechs may just be the ones who continue to push through, to an outcome that is truly different for the FS sector against yesterday and today. But only if they play together!

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