The way ahead for Fintechs

September, 2020

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Topics

• Compelling User experience and tapping the untapped

• Collaboration with peers and competitors
• Using unconventional channels to market themselves
• Financial Institutions collaborating with Fintechs
• White-labelling or cobranding of Fintech products
• Acquiring Fintech companies
• Engaging Fintechs through Investment/Accelerator programs
• Technology empowering Financial services
• Local solutions for a global service
• Workforce construct in banks

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Compelling User experience and tapping the untapped

• Offering holistic customer experience beyond online and

mobile technologies e.g. planning the entire dream
vacation from flight booking to loan for the funding
• Using IOT and analytics to provide a very personalized
experience to a customer or a group
• Exquisite, yet intuitive user experience
• Tapping potential opportunities in areas overlooked by
formal financial services e.g.
a) credit scoring using unconventional data and
b) safeguarding investors against borrower defaults
c) Mobile money for financial inclusion
• Focus on a single or few business processes has helped.
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Collaboration with peers and competitors
• Start-ups collaborate with other Fintechs for most of their non-core functions
e.g. those in payment and lending space are collaborating with regtechs for
regulatory compliance
• They expose their core-engines through APIs for use by other Fintechs. Xignite,
a wealth management start-up, created their own sets of APIs to access
market data, and now offer more than 1,000 APIs and serve more than 1
trillion API calls annually
• Collaboration has helped Fintechs expand their customer base, focus on their
key offerings, exposing their proprietary functionality to other consuming
applications, leading to a plug and play ecosystem
• The customer is the winner ultimately, having to pay a lower price for the same
functionality as the overall cost is shared by the ecosystem, rather than by a
single player. So, the impeccable service experience is now supplemented by a
functionality at an affordable price, and with a near-instant experience.

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 Using unconventional channels to market themselves
• Fintechs, early adopters, have leveraged social media to get the desired attention of
customers, most of whom are users of mobile devices which have made usage of social
medial and P2P communication easy
• Incentives for referrals and various such programs to increase stickiness
• Most of the P2P platforms use social media to add customers directly through the user’s
contact/friend lists
• Some platforms like Facebook, Google and Wechat use payment as part of their social media
applications
• This has led to even established banks using social media to enhance their business. Some of
the well-known global banks have enabled payments capability using Facebook and Twitter
• Fintechs create online content to educate customers on important financial topics and equip
them with tools to better manage their finances
• Bold branding to make customers aware of the value proposition, and engage them through
gamification and over-delivering.

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Financial Institutions collaborating with Fintechs

• FIs, after embarking on their transformative journey,

realized that while they could bring in infrastructure and
resources, they could not replicate the disruptive capability
of Fintechs
• Many FIs then created separate departments to scout for
new Fintechs to partner with e.g. established insurance
companies tie-up with start-ups specializing in on-demand
insurance for utility items like mobile phones
• There has been an increasing trend of FIs working with
Fintechs, rather than competing with them
• Similarly, more and more Fintechs will be partnering with
FIs to combine their agility with the maturity and brand of
larger FIs.

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White-labelling or cobranding of Fintech products
• Partnerships face challenges with differing priorities and cultures of the two parties.
An alternative is for the FIs to buy the product licences of established Fintech players.
The licence is then either made available as a white-labelled or co-branded product
e.g.:
- A small business lender white-labels its lending platform to be included as offerings
by other lenders
- An European bank has plugged into a payment API provider to offer customers real-
time money transfers
- A Personal Finance Management Firm has partnered with a large UK Bank to provide
best in class savings and debit account, thus enabling the customer with a complete
solution including planning, managing, saving and spending money
- A payment provider and a P2P lender announced a partnership to provide loans to
small and medium-sized businesses
- An Insurance Provider is building its financial advising platform by building its own
code and integrating a start-up code as well
• All of these and many more such partnerships indicate that more and more FIs are
either integrating Fintech products as part of their offering or are using them through
cobranding.

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Acquiring Fintech companies
• Some FIs have started acquiring Fintechs to augment their portfolio of
services:
- A US-based financial advisor platform was bought by an established wealth
management firm for its brokers and advisors
- A US life insurance giant acquired a Fintech start-up selling financial planning
software and providing online plans and phone consultations. A year later,
this start-up team has helped the insurer build a redesigned online portal
and a mobile app
- An innovative provider of payment processing technology, taken up by a
card processing firm, became the latter’s one of the largest distribution
partners
- A French bank acquired a German start-up to provide a digital interface to its
banking platform. The start-up was an online-based bank that complete all
of its services under 60 seconds.
• In most cases, after the acquisition, the acquired company operates as a
separate entity or is entirely merged in the parent company, with no
branding of the existing company.
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Engaging Fintechs through Investment/Accelerator programs

• Banks, technology providers and service integrators help build the

ecosystem for encouraging Fintech innovations and investing early in them.
As the Fintechs progress on the road to success, these institutions either
acquire them, partner with them, or create a new entity altogether:
- It is estimated that three of the largest Fintech investors are large global
banks and/or their financial investment arms
- Established banks are helping Fintechs develop the next generation
disruptors through their accelerator programs, usually in return for equity
- A core banking platform provider has launched its marketplace, wherein
business apps are sourced from partners, Fintech providers and innovators
- A global bank has founded an enterprise data management firm to enable
the launch of their financial analytics platform
- Multiple technology service providers and product companies have
launched their digital academies and innovation centers to help start-ups
build innovative ideas using their platforms.

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Technology empowering Financial services
• Very few start-ups are actually using the technology to cause disruptions; instead, they are
using it for process improvements
• Some possible ways technology will disrupt the industry:
- Chatbots and AI are the first steps in providing a machine-driven customer experience. This
will not only provide a superior customer experience, but also reduce spending on manpower
- Personalization would transform the way we perform financial services. Fintechs would be
able to analyze the needs and wants of an individual, and therefore, be capable of offering
more than financial services e.g. they suggest promotions and offers that would suit an
individual
- Increased usage of biometrics for identification and authorization. This could lead to Fintechs
offering payments through voice or eye movements. Biometrics could keep an individual
always authenticated without a need to do so every time
- Implementation of just-in-time for financial services e.g. somebody with surplus funds would
be able to choose between various lending offers, identify the best service provider and be
able to see the impact of on his financial planning
- Blockchain could start managing all multiparty interactions like family finances, financial
dispute resolution, etc.
- Various wearables can offer the most detailed view yet into customer behaviour. Between
them, they could give a 24-hour picture of every action a customer takes.

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Local solutions for a global service
• Future of Fintechs will be driven by their acceptance in various countries through the regulatory and government
support
• Fintechs would have to collaborate and build their relationships with the local governments
• For success globally, they would need to understand the needs of locals within a specific area and tweak their
platform to address the same through their agile culture and setup
• Opportunities in some countries/regions:

- India – The biggest driver for growth would be financial inclusion. This would open up opportunities in all of
financial services i.e. banking, insurance, payments and wealth management
- China – With high level of internet and mobile penetration, coupled with low penetration of formal banking,
Fintechs will continue to transform the underlying financial industry landscape. The high-earning middle class will
need more solutions in wealth management. As a word of caution, a large number of Fintechs have been shut
down in the last few years – e.g. almost 50% of the P2P lenders. Government’s focus in regulation will drive away
the non-serious players
- Africa – Financial inclusion is the main driver. Cross-border transactions are getting redefined through cryptos and
blockchains. Online security needs to be beefed up through blockchain. Variations within countries would need
tweaking of solutions for local requirements
- US, UK and Europe – Even though ~80% of the fIntechs are from here, untapped opportunities exist for
consolidation across the industry value chain and adaptability to the sharing economy. Like in retail, online giants
would close down brick and mortar businesses.

• In summary, the growth story of Fintechs will continue, with technology disruptions challenging the traditional
way of doing financial business.

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Workforce construct in banks

• Technology’s dominance in banking experience landscape will lead to

entirely new operational competencies
• Jobs that may become critical to revenue and growth
- Data scientist – bridge between business and IT
- Machine Learning specialist – for building systems with cutting-edge AI
- Experience designer/storyteller – to remove friction when placing bank
and it’s utilities in the customer’s life
- Behavioural psychologist – for behaviour gamification
- Blockchain integrator – to integrate blockchains with core banking systems
- Compliance and risk programmer – since these areas will be embedded in
automated processes
- Identity brokers – to implement new Identity Verification systems
• Organizations to become less hierarchical and more collaborative, focussed
on customer delivery
• Functional areas – Technology, Delivery, Business operations, Banking.
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