FinTech’s Lazarus effect brings business models back from the dead
The FinTech sector is entering a new phase – one where it is bringing old business models back from the dead, writes Michael Backes. In the sector’s infancy, the underlying concern of most FinTech companies was access to data. Entire platforms were constructed to mine the wealth of information that banks and other financial instructions held in order to build new products and services.
This battle has largely been won, precipitating a gold rush of data that new FinTech companies can now leverage to build ever more innovative products.
To put the change in the FinTech sector into context, consider the hurdles start-ups had to overcome to create a simple online payment app in Europe only a few years ago. The sheer number of online banking standards in each country would have required a large enterprise project to gain access to the data needed to power the app. This project would have been led by backend-financial software experts. As this is largely no longer needed, FinTech companies can focus on creating better products and services.This surge of innovation has cascaded across nearly every sector of the financial industry. More and more FinTech companies are setting up shop, fuelled by easy access to data, with the goal of disrupting established sectors. One of the unexpected ramifications of this new phase of FinTech development is the resurrection of defunct business models. Innovative products and services are being applied to business practices that, usually for economic reasons, have become extinct or the preserve of a niche industry sector.
Supply chain financing is one sector experiencing this renaissance. Originally, supply chain financing required a complex paper trail, contracts and agreements duplicated and faxed to multiple partners after multiple meetings. It was a time consuming and admin heavy process that required a large staff, glaringly at odds with the rapid-fire deal making technology enabled by the internet at the turn of the millennium.
As a result, the minimum transaction for these deals remains near half a million euros. This left the sector the preserve of a handful of car manufacturers and airline companies. Now, FinTech start-ups can access the data companies in the supply chain, place it online and leverage it in real time.
A buyer can then create the terms of an agreement with a seller in a matter of minutes without having to involve someone at the financier’s office for approval. This reduces the size of the team required to execute a deal drastically, and the minimum size of deals to €1,000, opening up the market to much smaller companies.
It is easy to appreciate the irony that supply chain financing has been saved by the same rapid pace of technological change that put it in jeopardy in the first instance. Irony aside, this and similar resurrections naturally make industry players and entrepreneurs wonder what other defunct practices could get a renewed lease of life.
The simple answer is that every current and former business model is fair game. FinTech products are reinventing every element of the financial services industry. The disruption of the very building blocks of the industry leaves every business practice open to be tackled with fresh eyes. Couple this with the FinTech industries self-imposed tough approach to regulation and compliance, and the only limit to new products and services tackling old problems is the imagination of FinTech entrepreneurs.