THE RATE OF FINTECH EVOLUTION HAS DRIVEN CHANGE WITHIN THE INDUSTRY UNLIKE WHAT WE HAVE EVER SEEN BEFORE. WHY SHOULD YOU LOVE THIS EVOLUTION LIKE WE DO?
At Gluon we are relishing our ongoing work with fintechs and financial SME’s to help support and drive fintech innovation. We’ve seen the industry stagnate, dominate, stumble and be the source of worldwide downturns and public backlash. But no period has been more exciting to us than right now, seeing technology push the pace of innovation. Let’s look at some of the key reasons we love this change!
FINTECH EVOLUTION IS DRIVING BETTER CUSTOMER SERVICE
Back in late 60’s, Citibank employed consultants Mckinsey and Company to look at ways to make the bank more efficient. McKinsey’s recommendation was to structure departments vertically in alignment with products – hence the siloed approach to banking structure was born. Chris Skinner, fintech writer, and commentator, highlighted this on his blog to great detail. The article reasoned why banks are organised around products rather than customers. For the banks, this structure has helped them drive profits and greater products but has it driven customer service?
On the other side, the evolution of digital and mobile has given tech innovators a great advantage. They can instantly communicate with customers and drive this feedback into better and better products, essentially giving the consumer something they didn’t necessarily know they wanted, but once they have it, a far enhanced experience over what they had been used to. With a more agile foundation, a higher reliance on service, and often improved data leverage, fintech innovators are responsive to the needs of their customers.
And let’s not forget, timing is everything here. Many fintechs are conceptualised by very progressive thinkers with great knowledge of the banking system. One good example of this is Jon Stein, founder of US startup Betterment, who recently spoke with The Economist:
“Betterment started because I’d been in the financial services industry for years as a consultant to some of the countries largest banks. And (there were) lots of smart, well-meaning people but they were just so slow to move and so slow to innovate and not thinking about the customers and I wanted to build a company, products that would change financial services that start with what customers want and that wasn’t going to happen in the banks, too little incentive to innovate and too many conflicts.” Jon Stein, CEO & Founder, Betterment
FINTECH EVOLUTION IS DRIVING BETTER PRODUCTS AND INNOVATION
In the effort to improve the customer experience and innovate, new products are being launched that target various silo’s/product lines within the banks and financial services. Many innovators with banking experience looked at banks’ fee structures versus the customer experience and saw opportunities. Coupled with the evolution of the smartphone and customers’ increasing acceptance of online transactions (driven by the likes of PayPal and Amazon in the 2000’s), fintech innovators coupled an enhanced experience with a reduced cost model to leverage better services.
In the payment sector, we saw the rise of unicorns like TransferWise and Stripe. Coupled with regulatory changes to financial advice, we saw the rise of robo-advisors such as Wealthfront, Nutmeg, RobinHood and MoneyFarm.
Challenger banks have tested the market using business models built around issuing gift cards linked to API backed apps that allow customers key insights into their spending. This platform allows these banks to assess the market demand and reiterate (where necessary) before approaching investment and full banking licenses to operate.
One such company is Monizo which is targeting the freelancer market in the UK to bring an enhanced experience to a segment that has been overlooked by banks. By concentrating on this market Monizo can provide a tailored service to UK freelancers that addresses their specific needs.
Monizo founders, CEO Sam O’Connor & Chief Product Officer Adam Goodall
“When we went freelance we got really frustrated with how little banks were doing for us. It takes ages to set up an account and they do nothing other than send and receive money, it’s a very basic service. So we wanted to create something totally different that helps freelancers day to day with things like getting paid on time, keeping records and figuring out tax. Rather than getting a banking licence, working with a regulated banking partner means we can concentrate on creating an awesome product instead.” Adam Goodall, Chief Product Officer at Monizo
The fintech evolution is set to make advancements against each silo within the banks, from Know Your Customer (KYC) and credit scoring processes to insurance tech (InsurTech) – Slice and Lemonade – and alternative finance – Funding Circle, Lending Club & RateSetter.
FINTECH EVOLUTION IS CREATING INSIGHT
Emerging fintech companies have sought to leverage data in ways that have been conditioned through observing big tech companies like Google. The ability to analyse data, re-iterate concepts and pivot make fintechs nimble competitors for the banks who are constrained by their size and regulatory processes.
For the bank, that has thousands of customers, making a change to payment systems or gaining further insight into data, can cost millions of pounds. This cost translates into time lost for the banks where changes need to go through departments and potentially board approval before being subjected to comprehensive stress testing and deployment.
These forces are what have most likely moved the banks to collaborate, incubate, and invest in fintechs. For less cost, risk, process, and internal restructuring, banks can collaborate with fintech to gain customer insight, enhance processes and better serve customers. Back in July, Santander increased investment into its UK based InnoVentures, from $100m to $200m. UK based Contis Group recently announced, via their full agency banking relationship with NatWest and Visa, the ability to offer white-labelled UK current accounts with faster payments and direct debit facilities.
“Contis, with the excellent support of its partner NatWest, has achieved yet one more major milestone in providing its “white label” and “own brand” partners the ability to deliver a fully-functional payments experience; from banking through to card payments, which enables them to offer their customers the real-time payments experience required in today’s digital world.” Mike Fromant, Chief Information Officer, Contis Group
Regulatory changes such as PSD2 (Payment Services Directive) are showing that the regulatory bodies and government (in this case the EU) are encouraging the fintech evolution by opening up the API ecosystem to allow disruption, collaboration, and innovation.
“I’m hugely excited by the opportunities presented by PSD2. Current account and loan customers tend to be the most digitally engaged so the immediate goal for banks will be to encourage these customers to use their existing interface for savings, mortgages etc. that may be held with other banks today. Banks will have to up their game to ensure that they’re as well known for their great customer experience as their reputation for security.” Peter Cornforth, Senior Manager, Mobile Strategy, Santander (UK)
FINTECH EVOLUTION IS EXCITING!
Sadly there will be losers in fintech evolution as the efficiencies created will shift labour demand further towards the technical side. Let’s not overlook the fact that after the downturn created by the GFC, many people employed in financial services felt an immense strain as public perception hit an all time low. For the first time since the GFC, financial services have energy and pace. Banks are working hard to put customers first and integrate technological solutions in a sometimes frenzied environment, whilst fintechs are seizing opportunities to pass on cost savings to their users and drive new financial services and products.
Gluon Consulting works with fintechs and SME financial companies to provide software solutions and consultancy. We build full-stack, enterprise-grade solutions that bring clarity and efficiency to the ways your organisation generates value, seizes opportunities, adapts to change and protects itself from risk.
Our core team have over 4o years experience with more than forty clients and hundreds of users from a dozen different industries, including financial services, supply chain and logistics, industrial automation and robotics, e-commerce, and more. In all cases, we have translated our clients’ needs, aspirations, and frustrations into tangible and lasting IT value.