Fintechs and the Ecosystem Economy: The Role of Currency Management

The breakneck performance of leading technology stocks this year is widely attributed to macroeconomic factors such as receding inflation expectations and a pause in short-term interest rate increases in the United States. But here's another possible explanation: investors are rallying —no pun intended— around the new Ecosystem Economy.

This emerging ‘Ecosystem Economy’ is analysed in a book by Venkat Atluri & Miklós Dietz. The Ecosystem Economy. How to Lead in the New Age of Sectors without Borders [video]. According to the authors, the barriers between traditional sectors of the economy are coming down.

Instead, large platform companies are reorganising traditional sectors by focusing, like never before, on technology-empowered customers. These (impatient) consumers are now firmly in command. Wherever they go, they seek one-stop shopping experiences to satisfy their changing and ever-expanding needs.

All in all, Atluri and Dietz estimate $80 trillion in revenue flowing to small, medium and large ecosystem players in the coming decade or so. This exciting scenario is filled with opportunities for fintech companies as they find their place in the new economic landscape.

The emergence of global ecosystems
Global ecosystems, according to the authors, will be centred around two types of needs. On the one hand, individual human needs will be addressed in areas like Travel, Home, Commerce, Talent, Mobility and Wealth. On the other hand, B2B services like SMEs and Enterprise services will also be targeted. The companies involved will act either as large ‘ecosystem orchestrators’, or as smaller partners/competitors.

Take the so-called Home ecosystem. This area is already operating through platforms that include real estate and rental search engines, and online services for inspection, appraisal, moving, renovation, legal issues, decoration and maintenance. Needless to say, this one-stop shopping experience is incomplete without financial services like financing and insurance.

As financial services become embedded into most ecosystem platforms, a broad process of ‘fintechisation’ is gaining ground. It will only gather momentum. Astute participants will identify ‘ecosystem gaps’ and move to fill them. Here’s one such gap: currency management.

The role of currency management
Consider the following ‘ecosystems’, and how automated currency management can help fintechs play a decisive role:

Enterprise sector: Services to large companies encompass M&A, treasury management, treasury technology infrastructure, long-term funding, strategy consulting and risk management.

⇒ Potential FX-related improvement: in-house FX services to optimise currency management between headquarters/subsidiaries, including netting opportunities.

Small and Medium sized companies: Neobanks are serving the financial needs of micro-businesses and SMEs by offering business cards, invoice management, expense management and bookkeeping and recording.

⇒ Potential FX-related improvement: seamless FX markets operations in different currencies with easy implementation via APIs.

Travel: Participants are scrambling to bring many different customer needs —flights, hotels, conferences, events, tickets and others— under one place. Increasingly, this involves embedded financial solutions like payments, insurance, rentals and financing.

⇒ Potential FX-related improvement: embedded SWIFT and SEPA international payments in dozens of currency pairs.

Commerce: Retail purchasing needs are increasingly addressed through ‘buy now pay later’ (BNPL) solutions and digital marketplaces with goods and services offered in seamless packages of payments solutions, consumer loans and loyalty programs.

⇒ Potential FX-related improvement: guaranteed FX markets rates during predetermined time lapses.

A broad reorganisation
There are, quite obviously, a number of risks involved around the emerging global ecosystem economy. One such risk stems from unnerving geopolitical developments and their potential implications in terms of ‘de-risking’, supply chain disruption and broad changes in the regulatory environment.

If, however, the business reorganisation centred around the customer proceeds along the lines suggested by the authors of the Ecosystem Economy, there would be opportunities for fintech companies to cover the financial aspects of the immense range of offerings that will be on display.

And, like it or not, we live in a multi-currency world. In other words: ‘fintechisation’ goes hand in hand with automated currency management solutions.

The time to act is now.