FinTech Series | Concluding Thoughts
FINTECH STRATEGY
With customer acquisition costs high, and regulatory hurdles to overcome, financial services firms are faced with a choice of whether to build their own capabilities or seek out FinTech partners to help drive innovation initiatives.
FinTech startups have the advantage of not being encumbered by legacy systems and processes. As a result, they are generally able to move faster and develop solutions that compete directly with traditional methods of delivering FS. However, there is a need to be cautious of the Silicon Valley ‘fail fast’ paradigm as FS are a highly-regulated industry where safety and security is an imperative.
There are two main types of FinTech propositions: “invented” and “disrupted”. A disrupted service is one that has historically been offered by incumbents, such as automotive insurance or foreign exchange trading. An invented service is one that didn’t exist before but is now possible through technology and alternative business models, such as peer-to-peer lending and mobile-phone payments. Some invented services fill niches in the market, and others have the potential to redefine and transform entire financial subsectors.
FinTechs use technology to disrupt traditional FS by offering consumers a more compelling product or service featuring enhanced capabilities, convenience, or lower prices and fees. For instance, the clearest application potential of blockchain will be the disruption of payments for banks as well as customers by reducing the cost and time taken to transfer money. Emerging disruptors in this space can build their businesses around blockchain from the start to achieve agility. By identifying and testing viable technologies as they appear, such companies may later provide a ready-to-use solution for enterprises.
Broadly, this all means that there are three general strategies available to FinTechs:
- Collaborate with traditional firms, such as banks and insurance companies. More than 75% of FinTech companies main business objective is to collaborate with traditional firms, such as banks and insurance companies.
- Compete without collaborating with traditional firms. The pressure is on FinTech firms to reduce go-to-market time, and this highlights the need to focus on their core competency and to partner with other FinTech firms for successful operations
- Get acquired by a traditional firm, merge with or get acquired by a FinTech firm.
Source: Capgemini, World FinTech Report (2018)
CONCLUDING THOUGHTS
Finance is seen as one of the industries most vulnerable to disruption by software technology. This is because similar to publishing, financial services are made of information rather than physical goods. Although traditional financial institutions have been shielded by regulation until now and weathered the dot-com boom without major disruption the new wave of FinTech startups are increasingly disaggregating the operations of global banks.
Of course, not all FinTech startups are out to hurt banks, and in fact, many services use legacy platforms to bring them more customers. Collaboration has been one of the most prominent themes in how FinTechs have been achieving scale and it is predicted that this is set to continue.
Blockchain has grown in prominence recently across a variety of industries and offers great potential benefits to FS firms. In particular, blockchains have the potential to reduce the cost of transacting in a financial system. Banks are slow to come around to innovation, but with a little effort they can remain more competitive than ever. Newer digital standards and transparency laws even the playing field, and institutions quicker embrace of new technology can position themselves better for success.
The main impact of FinTech will be the surge of new FS business models, which will create challenges for both regulators and market players. FS firms are turning away from trying to control all parts of their value chain and customer experience through traditional business models, and instead move toward the centre of the FinTech ecosystem while leveraging their trusted relationships with customers and their extensive access to client data. Partnerships and industry alliances can help bring new technologies to broader adoption and work out implementation kinks. Reaching out to other companies and finding areas to work on together can improve customer relationships and user experience.
While what happens next in tech is always difficult to accurately predict, FinTech is now ubiquitous in consumers’ lives and throughout the financial services industry.
The first article in this series was a little while ago but you can revisit it here and I am planning to be add some upto the minute content soon on this pivotal time for the industry soon!.
