The FinTech world is going through a boom right now. There is reportedly a new FinTech born every 17 hours. I had the opportunity to take part in the FinTech Connect conference in London and to get a sense of where this industry is heading.
Here are my observations on the key topics discussed at the conference:
- Customer Experience
- Transformation
- Speed
- Open banking
- Blockchain
Customer Experience
Nobody talks about banking products anymore — they’re all the same anyway. These days it’s all about the experience that customers are getting while interacting with the bank. Banks used to sell their products and solutions, instead of expressing their desire to solve customer problems. This has given strong ground for new FinTechs to emerge and enable the experience to shift towards banking as it could be — convenient, personalised, fast and transparent.
While customers still trust the big banks to keep their money and data safe, they don’t think those old players can make their life better. A good example here is car insurance — from traditional banks, you can get offers where the only variable is the level of coverage. However, people now expect their personal characteristics to be taken into account — the mileage driven, the days driven, places driven etc. People going to church once a week with their car don’t want to pay the same as Uber drivers who drive hundreds of kilometres every day.
Transformation
Existing banks have started to notice new FinTech players. They’re especially noticing that ⅓ of their revenues have been eaten away by the new startups. Reportedly 90% of banks are already working with at least one FinTech. A good example here is Estonian bank LHV who offers foreign currency payments to its customers through Transferwise integration. Instead of competing with Transferwise, LHV has decided that it’s more beneficial to work together with them to provide the best customer experience.
The other threat that banks are facing comes from the tech giants like Google, Amazon, Alibaba and Tencent. They all have their interest in handling their customers’ money and getting a share of the profits. In five years time, Google Pay and Alipay have the potential to handle the majority of international payments between individuals.
Given the threat from two sides, existing banks need to decide where their strengths are. In 10 years time, ⅓ of existing banks will transform into service aggregators/platforms — they’ll bring together the best experiences from different corners of financial services. Banks themselves will likely only offer a fraction of these services, letting dedicated FinTechs do the rest.
The other ⅔ need to transform into service providers in order to survive. There will be a lot of niche players that offer the best experiences in their own category.
Speed
Customers expectations for financial services have risen. People expect transactions to happen immediately. SEPA and SWIFT instant payments are changing this experience quickly. Hopefully, in a couple of years time, you’ll be able to transfer money abroad and it’ll arrive in a couple of minutes. It will put more pressure on knowing your customer (KYC) and anti-money laundering (AML) checks, but the main flow should be seamless to customers.
Another expectation is the speed of account opening. With new FinTech players on the market, people are getting accustomed with remote onboarding and account opening taking at most a couple of minutes. If this isn’t the case they’ll just find another service provider. Also, signing documents on paper should be consigned to history.
Barclays bank is very proud that they’ve managed to bring down their loan decisions from 6 days to 6 clicks. They’ve built models that help them to better understand their customers’ behaviour which enables them to make the individual loan decisions instantly without a committee reviewing each application on a weekly basis.
Open banking
Open banking came into the picture with the introduction of PSD2 (second Payment Services Directive). EU banks are required to develop open application programming interfaces (APIs) that enable regulated third parties to access customers’ account information and make payments on the customer’s behalf. The goal of open banking is to make the financial industry smart, fast and highly competitive again. For customers, the benefit should be in an aggregate view of their financial lives.
The adoption has been slow though. It’s mainly due to big banks not being interested in allowing others into their playground and not investing enough in this area. Each bank has developed their own standard for building their API that’s often not compatible with others, giving headaches to whoever tries to aggregate customer data over several banks. What needs to happen is customers understanding that the data is not owned by the banks, but is theirs and force banks to open up in a standardised way.
Blockchain
Blockchain or Distributed Ledger Technology (DLT) is something that everybody talks about, but a mass scale service being based on DLT is still 3–5 years away. Blockchain as a technology needs to mature and prove itself to be better than the technology used today. With a service that brings DLT to a global scale, we won’t notice that it’s based on new technology — it’ll just work seamlessly.
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To conclude, the opportunity for FinTechs is huge. So is the competition both from existing players as well as new entrants. It’s likely only a fraction of FinTechs will survive in 5 years time — they’ll either go extinct, get acquired by bigger players or be part of a bigger group consolidating different financial service providers. It’s interesting to be in the field and see the upcoming transformations firsthand.
