With numerous opportunities to disrupt traditional financial services, from home-buying to retirement savings to replacing over 1 billion gasoline-powered road vehicles, Fintechs should continue to focus on innovation and developing disruptive products for consumers and businesses.
Nuruddin Walyani s a finance professional with over 15 years of experience in financial services and technology – focusing on strategy, business model and innovation.
Here he shares his view on the opportunities available for fintechs if they are up for the challenges of innovation.
There are over twenty-five thousand fintechs globally today, all trying to disrupt the financial services industry. Gone are the days where everything to do with money – from personal and business bank accounts to foreign currency payments, investments and corporate financial services – was the domain of big banks. The last decade has seen the spawning of numerous fintech startups that have created their own place in the world of 21st century commerce and finance. Targeting specific consumer and business pain-points, these ground-breakers have opened up a wide variety of financial service options for users to choose from, all enabled by the latest technology and the ubiquitous number of connected devices that we have today.
Most fintechs entered the market to provide consumers and businesses with an alternative to the traditional financial service providers. They have improved and innovated products, bringing simplicity and great user experience, and often pricing their service at a fraction to the traditional operators. As a result, startups have achieved mass customer acquisition and many have become leaders within their niche segment, (Square, Paypal and Adyen are a few examples). Some have reached profitability, whereas others are still burning cash. Most are still focused on innovation and developing better products to achieve growth.
Fintechs have a number of competitive advantages giving them a unique opportunity to continue to innovate and completely change the way that individuals and businesses deal with money. They are ideally positioned in bringing advancement to the way that people and businesses transact, invest, and manage their finances. Fintechs competitive advantages comes from their ability to create new solutions and products using technology, agility in bringing to market new product or service with a quick development cycle, and success in acquiring tens of millions of users in a relatively short timeframe.
But some are trying to turn into banks – obtaining banking licenses to do so. A quick detour into the status of the banking industry: According to the 2019 McKinsey Global Banking review a majority of banks generate returns below the cost of equity, and over the past decade the sector has expanded below GDP growth. There is overcapacity in the sector. Given the dearth of growth, banks end up targeting similar growth drivers, all based on the same macro-fundamentals. Which raises the question, why do fintechs want to become banks? Have they truly exhausted the creative growth potential available to them? Or have they given up on their core focus of disrupting the market? Far more value-creating would be to consider themselves as innovators and focus on developing disruptive products and solutions – to address the unmet customer needs and the archaic processes of the 20th century – creating simple yet transformative solutions for the future.
We are at the foothills of the 4th Industrial revolution where the electronification and digitalisation of mechanical and manual processes, and the exponential rise of connected devices with the Internet of Things (IoT), will further transform the way that people live their lives and businesses produce for and serve their customers. Numerous other changes – such as the great wealth transfer (greatest intergenerational wealth transfer of $30-50 trillion from baby-boomers to later generations takes place over the next 25 years); other demographic shifts creating economic impact in almost all corners of the world; platform business models that give new definition to ‘economies of scale’, and which will define the commercial networks for the next decades; and the transition to a net-zero carbon world – require new ways of meeting business and consumer needs, and fintechs are ideally placed to play that role.
These seismic shifts are giving rise to many opportunities to disrupt traditional processes with the help of technology by creating new ways of doing things. For fintechs these could include modernising the home buying process (including transacting and financing); bringing retirement savings and pension accounts into the 21st century; or creating commercial and financial ways to replace the over 1 billion fossil-fuel powered motor vehicles on the road today, including partnership solutions to power the electric cars of the future (with over 270 million gasoline vehicles in the US, 280 million in Europe, and over 400 million in Asia – it will be impossible to get to net-zero without changing our fossil-fuel driven transportation methods). The opportunities for fintechs are enormous!
Banking and financial services has always been about intermediation and access – either for transactions, cross-border trade, investment and capital, or for risk distribution. The innovative firms of today will shape how we use these services in the future.