The introduction of fintech ended universal banking. In a perfect storm of the financial crash and technological advancement, fintech introduced competition and color to a previously monopolized and gray industry by unbundling and in some cases rebundling the concept of a bank.
Taking aim at the inefficient or backward parts of banking—payments, loans, credit etc.—the fintech industry placed value upon specializing, born out of the belief that they could provide a better, more customer-centric banking experience.
Following the arrival of fintech after the financial crash, mistrust of banks spread through the public, and concerns around how they control economies intensified. Regulators then began driving the growth of fintech. Open banking is a case in point. Lawmakers created this policy to boost competition and innovation and stop so much resting with so few.
For a long time, universal banking dominated the financial services sector—a handful of banks, enabled by a handful of monolith technology providers, offered a range of services to all. The lack of competition in the market resulted in a lack of innovation—an absence that continues to plague legacy banks.
As the market continues to grow, so does the demand for technology. The rise of banking-as-a-service is testament to this. To offer financial services today, fintechs no longer need to “own” the technology—a necessary gear change that will accelerate the embedded finance era. With competition increasing and new business models being introduced, fintechs are realizing that the key to longevity is being a specialist—solving a specific problem in a way no one else can. But to create the best and most specialized solutions, fintechs must work with the best and most specialized partners.
Why? Resilience, differentiation and scale.
The events of 2019 and 2020 saw services that served millions of consumers go down, sending shock waves through the industry. As the fintech community moves forward, it’s important to acknowledge how the ecosystem supported one another. For those companies that were unfortunate collateral damage, and had their accounts frozen overnight, reliance on specialist partners was critical. In-depth knowledge and expertise of the technological and regulatory implications enabled partners to migrate services across quickly and effectively, causing minimal impact to customer experience, reputation and revenue.
For fintechs starting to realize their propositions, these events highlight the importance of bolstering resilience through creating a support network. While there are providers which offer all-in-one fintech services, businesses must understand the cost involved in relying on these shortcuts. There’s not only the monetary cost to consider, but the difficulty of migrating a whole program when all the separate services—from issuing to BIN sponsorship to payment scheme access and beyond—are entwined into one package. In fact, HMRC Treasury is further investigating the risks of reliance upon sole providers as part of its work to ensure operational resilience.
The fintech revolution introduced competition that ran deeper than just cost. Fintechs are now competing, and therefore innovating, on more fronts than ever before. Cutting through the noise is no mean feat, but the key is doubling down on what makes a proposition different—how is this product or service alleviating a pain point in a new way? Or even solving an untouched issue? From here, fintechs can begin to specialize.
Yet becoming a specialist isn’t a siloed journey and reliance upon the fintech ecosystem is essential. Creating a proposition that will achieve longevity requires working with experts to advise and provide highly tailored solutions, enabling fintechs to solve new problems in new ways.
While off-the-shelf, all-in-one service providers offer a level of simplicity, relying on generic services will likely result in generic offerings that struggle to stand out.
The fintech landscape is evolving at such a rate that innovating quicker than the pace of change is critical. Otherwise fintechs risk losing relevance before they’ve even entered the market. But the rapid rate of evolution also means it’s essential for early-stage fintechs to pivot and realign strategies consistent with technological, regulatory and market developments.
Off-the-shelf propositions have limited flexibility as they enable fintechs to deliver similar services. And when fintechs start to scale specific parts of their proposition, these "flat-pack" services can limit growth opportunities. In contrast, specialized partners have seen it all, giving them the experience and know-how to journey alongside a fintech, advising on what parts of a proposition to dial up and then providing the technology to do so. Working with a partner also means accessing their network, and in many cases, the wider fintech ecosystem.
As the fintech industry matures and takes stock of how it has disrupted the banking industry for good, it’s critical we continue placing value on specialization to create a better, customer-centric banking experience for all. Early-stage fintechs are hurdling different barriers than the ones of their predecessors. A long-term vision and a support network of experts has never been more important to those starting out today.
