While fintech technically refers to all “financial technologies”, it has become the de facto term for most disruption in financial services. It encompasses the startups, incubators, funds and accelerators that are changing the way technology enables financial services of all flavours. It came to the fore with traditional companies being unable and/or unwilling to satisfy customer needs, and often seeming arrogant and rigid in the process of retaining their customers.
There are a huge number of players in fintech around the world – from Transferwise in money transfers, to Nutmeg in investing, to Atom in banking, to iZettle in payments, to Friendsurance in insurance. Amongst incubators and accelerators funding and supporting fintechs in the UK, there is Barclays with its Barclays Accelerator, Santander with its InnoVentures fund (iZettle is in this portfolio) and Level 39, all of which provide various enabling services for start-ups.
Unlike the industry stalwarts they are trying to displace, fintech disrupters tend to be quite focused – rather than trying to meet all of someone’s banking needs, for example, they aim to address one, or just a few, specific banking needs very well (be it cost, convenience, access, peer-to-peer, etc.). Fintechs are also largely unencumbered by legacy systems, so they’re not fighting against their acquired/built technology past of their bigger and better-funded traditional competitors.
Every area of financial services is being disrupted because nearly every potential customer has a mobile phone that suggests that the answer to their financial prayers is a click away, via a responsive site or downloadable app. Privacy risks are giving some customers pause, especially when it comes to transactions requiring access to personal information, but for those that successfully make the leap once, the potential benefits become more attractive and easier to rationalise. Patience and the lack of integration across multiple providers are also barriers, but again, customers are ever more willing to trade off certain needs, especially if they think they will save, or sometimes make, more money as a result.
All of this activity creates options and opportunities for customer needs to be better addressed, albeit potentially through multiple providers vs a one-stop-shop. As we look forward, there will be yet more start-ups finding new niches (or new ways to exploit existing ones), and many of the traditional institutions will gradually get better at incorporating technology into their operations and being more customer-centric. The pace at which the latter happens, and especially how deep it goes into conveying meaningful value propositions through positive, integrated and consistent customer experiences, will determine what the landscape will look like two to three years from now. Traditional firms are past the point where they can experiment on the side; substantive change needs to happen, with continuous and visible iteration.
By Felicia Rosenzweig, partner at Prophet