Long reads

Disruptive challengers: How fintechs are pivoting for profit

Laust Bertelsen

Laust Bertelsen

CEO, Banking Circle

In response to the 2008 financial crisis, regulation was altered and the financial services market saw a new type of provider enter the landscape. These new entrants didn’t have the same legacy infrastructure slowing them down, and so were free to innovate, stir up the industry, and deliver exciting solutions.

Working with infrastructure providers like Banking Circle, they were able to respond to the growing list of pain points and frustrations faced by businesses and consumers transacting in an increasingly global online marketplace. 

However, despite their success and expansion over the last decade, fintechs still face numerous challenges on their journey to providing the best possible financial services for businesses and consumers. Margins are becoming ever tighter and the need to reduce costs and speed up cash flow is growing daily.

Many businesses are focusing on improving efficiency to help them reduce costs on resources and remove complexity which slows internal processes. This is counterbalanced by the need for a wider range of products and services. A key challenge for fintechs is understanding what their merchant customers need and being able to create differentiation for a competitive edge.

The steady growth of e-commerce has led fintechs’ merchant customers to shift online, meaning digital payment methods are essential. Recent Banking Circle research amongst merchants in the UK, Germany, and Holland found that just 34% of SME merchants still use a physical outlet for sales. 49% use online marketplaces, 46% have their own websites, and 39% harness social media as their sales channel. Fintechs, therefore, need to be able to offer payment options that work seamlessly with each of these platforms to ensure they stay ahead of the competition.

Merchants are also looking for added-value services from their Payment Services Provider (PSPs), which is another challenge that needs to be addressed for fintechs to stay competitive. Over a third of the merchants surveyed see marketing assistance as a key benefit offered by their PSP; 31% value direct debits, and the same proportion want to be able to pay EU and UK VAT through their PSP.  

Banking by non-banks

The research demonstrated that merchants want more than financial support from their PSP. Adding such services to the fintech portfolio increases stickiness and helps the company to remain competitive. However, what fintechs really want is the ability to offer banking services without being a bank and dealing with all the regulatory and investment requirements that go along with that title.

Fintechs want their customers to see them as their bank. They want their own Bank Identifier Code (BIC) to simplify cross-border payments, and they want to provide instant settlement, direct debits, credit, and clearing.

These big ambitions require innovative partners and innovative solutions, which Banking Circle is providing.

Realising fintech ambitions 

Fintechs offering access to a suite of solutions and added-value propositions in one place will be an attractive option for merchants. Keeping multiple solutions under one roof simplifies integration as well as payments themselves. The more solutions a fintech provides to its customers, the more payments those customers will send to that fintech. The challenge, however, is that no non-bank fintech can single-handedly build and maintain a broad enough suite of solutions to remain competitive.  

Fintechs were built to meet a specific need, and to meet it better than a traditional bank. They were not built with the capacity to design, engineer, launch, run, and continually update and upgrade a vast array of financial services solutions.  

The only way for fintechs to offer their customers a wide enough range of propositions is in partnership with expert external partners like Banking Circle. The financial ecosystem contains almost limitless broad and niche financial solutions ready and waiting for fintechs to pick and mix. Choosing the right partner with the right solutions means fintchs can offer market-leading solutions underpinned by fit-for-purpose tech and supported by the relevant regulatory expertise. 

Recognising the global marketplace in which so many merchants now operate is critical. According to the recent Banking Circle research, of the four biggest pain points merchants experienced with their PSPs, two relate directly to cross-border payments: speed of settlements (29.5%) and FX facilities (27.5%).

Tomorrow’s history

As we move forward, fintechs will continue to need to innovate if they are to remain competitive and retain customers. Embracing new technology is essential in future-proofing their offering, with machine learning and artificial intelligence playing increasingly important roles in all areas – from tailored Buy Now Pay Later offerings within the payment journey to advanced fraud detection and decision-making processes. 

Banking Circle continues to innovate to deliver solutions that will not only enable even the smallest fintech to offer market-leading solutions capable of being personalised for each customer. It will also ensure payments are more accessible, faster and more secure regardless of geography or currency. Technology is increasing financial inclusion by providing access to banking solutions for anyone, anywhere.

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