Why every company will soon be a fintech company
One day, every company will be a fintech company.
Companies will be offering financial services to their customers as a way to generate another revenue stream, personalise the customer journey and improve the overall user experience. In this article, I’ll be covering three reasons why companies that have nothing to do with finance will get into financial services and what that transition may look like.
1. A new revenue stream
Incumbent banks are strongly disliked by their customers. According to GlobalWebIndex, 45% of US and UK millennials want to change bank in the next 12 months and 62% of Americans, according to a consumer survey Bain report, would rather bank with a big tech company.
And then fintech alternatives step in: they make banking sexy, intuitive and attractive. They call themselves “challenger banks” and “neobanks”. But the truth is that you can offer banking services without becoming a bank. Some sources in the industry argue that most fintechs don’t plan on ever becoming a bank, even though they may use the word “bank” in their description.
As incumbent banks focus on transforming their legacy infrastructure, nimble start-ups and data-rich companies such as Facebook, Apple, Netflix and Google (FANGs) are innovating. They roll out products quickly and design products centred around the customer journey and experience. Fintechs have gone all-in by offering great banking solutions, and FANGs are entering the space too, with the Apple Credit Card, Shopify Payments and Uber Money to name a few. Soon, every other company will realise that they too can offer banking solutions to their customers.
Banking solutions open up another channel for a company to make money through loans and credit. Financial services also allow companies to gather data about customer preferences and therefore offer more personalised user experiences to consumers. Personalised marketing and customer experiences attract more buyers to a product, which translates into additional revenue generated.
Fintech veteran, Chris Skinner, predicts that every company will offer profitable banking solutions, leaving the large incumbents with expensive products such as deposits. This means that banks will have to start charging for customers to use their accounts, creating another section of unbanked customers. These newly unbanked customers will then head to those companies that offer better user experiences and tailored customer offers. This positive feedback loop means there is a lot of space for growth in the banking solutions sector.
2. It’s easy to offer finances “as-a-service”
But how can a company offer banking solutions? What about all the regulations in place?
Building a bank is no easy feat. To build a bank, a company would need a licence; this takes several years to acquire and may require “borrowing” from another bank. Then they would need a large database to manage your customers’ money, as well as appropriate integration with payment providers such as Visa and Mastercard. Banks also need to meet the correct regulations in order to provide credit, authenticate users and combat fraud. This takes a lot of time, money and resources.
That’s where fintechs come in: thanks to the tech ecosystem, many different fintechs partnering together can provide “banking solution as a service”. Instead of a company creating their own banking solution, they can integrate with five other fintechs that will already meet all regulations and have extensive experience working in the sector. One fintech provides the know your client (KYC) checks (e.g. Onfido), another provides the credit checking (e.g. Credit Karma) and another one offers the open banking licence (e.g. TrueLayer). All the company needs to do is “plug-in”.
This means it won’t be so difficult to offer financial services and companies can easily add banking products to their offering. As more and more companies add banking solutions to their products, fintech will be everywhere.
Companies such as Plaid in the US and Truelayer in the UK are already doing this. By using a company like Truelayer, a company doesn’t need to understand how the Second Payments Directive (PSD2) works or how to meet the regulations – they take care of all that. Not only does Truelayer do all the legwork, but they also provide the data in a readable format, making it easy for companies to build a holistic view of their customers’ profiles.
These new connections make the entire process streamlined. With fintechs getting very good at one specific thing and then integrating with other fintechs, companies can easily offer financial services in a way that gathers relevant data, fights fraud and keeps customers at the centre.
3. Payments are becoming invisible
Payments are slowly disappearing from the equation. Cash moves to contactless, contactless moves on to mobile payments and soon, payments will be more of an afterthought. A consumer sees a product they want on social media, on the street or in a shop, and all they have to do is open their phone and click “Buy Now”.
The whole definition of payments is changing. Instead of payment networks, people will be paying with their identity: the company they’re buying from knows it’s them through their financial services branch, so all they have to do is validate the payment.
Banking solutions offer companies an opportunity to completely personalise the shopping process. If their customer has problems buying a large ticket item, the company can bundle the product into a loan to help purchase the item. By offering financial services, companies can remove the friction that comes with payments and focus more on customer engagement and brand identity. The companies that won’t adopt this will simply sell fewer products, as consumers will move towards brands that offer frictionless, integrated and personalised user experience.
As payments remove themselves from the equation and providing banking services becomes easier, companies will start offering their own financial services to customers. Not only does this open a new revenue stream, but it means companies can build a thorough picture of their customers and therefore offer much more personalised products and services.
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