Blurred lines – When does a tech company become a FinTech?
The lines between traditional financial and traditional technology companies are becoming more and more blurred. As tech companies explore the benefits of offering financial services to their customers, financial companies are evolving to deliver digital solutions.
Many different types of tech companies have been involved with financial services in some form; from ecommerce players to mobile network operators, social media platforms to search engine giants. Although they may not be able to offer a full suite of core banking services just yet, many have excelled in providing their client base with innovative payment and lending solutions.
In the world of ecommerce, a shift into financial services perhaps felt like a more natural transition than for other types of tech businesses. By developing their own payment solutions, or by offering financing options, ecommerce firms can reduce friction in the purchase path, improving the customer journey and increasing loyalty. When integrated with incentives such as loyalty cards, points schemes, and cashback on purchases, a seamless payment process can significantly boost conversions.
Amazon has often been lauded as an innovator; its one-click checkout and Amazon Prime subscription service have set the standard for online retailers across the globe, but its mobile payment app, Amazon Wallet, was short lived, lasting only 6 months before the plug was pulled. However, in Asia, ecommerce platform, Alibaba, has seen huge success with its mobile payment offering, AliPay, particularly in China, where it has become the number one payment method, beating even PayPal.
Another factor that has influenced tech companies’ shift into financial services has been the explosive adoption of mobile devices. Mobile phones have given financial access to hundreds of thousands of unbanked people across the globe. Mobile banking is nothing new, with mobile network operators identifying early on that even basic devices can be utilised for banking. Vodafone and Safaricom launched M-Pesa back in 2007 to provide basic banking services to people across Africa, resulting in many people no longer needing to use traditional banks. With no legacy infrastructure to hold them back, more and more technology companies began to provide solutions outside of the banking ecosystem.
While mobile payments have dominated in some countries, the pace has been slower to pick up in the West. Have mobile wallets been as successful as tech giants like Apple, Samsung, and Google predicted? Or will the lack of adoption amongst the masses lead them to develop financial products in other areas?
More ‘Fin’ or more ‘Tech’ – which has the advantage?
Without a doubt, financial institutions can learn a lot from tech companies when it comes to delivering digital solutions to end users. Challenger banks identified this gap in the market and moved in to fill the void. With the ability to be more agile, these new banks have begun to chip away at incumbent market share, often by specialising in a niche area of financial services. Whether they start off by providing current accounts, SME banking, lending, or payments, as challenger banks gain traction, they are able to increase the number of core banking services; adding value to their proposition.
While the tech giants have been successful in some areas of finance, it’s not just established companies moving into the space to steal market share from incumbents. Clearscore, a credit scoring company that gives its users free access to their data, has achieved huge growth, acquiring 6 million users in less than 3 years. Their CEO, Justin Basini, has a background in the payments industry, and co-founder, Dan Cobley, was the UK Managing Director for Google MD. With the business scaling so quickly, does this demonstrate that having the support of an established, tech industry influencer helps FinTechs by adding more ‘Tech’ to the ‘Fin’?
On the flip side, a number of high-level Goldman Sachs employees have been left to join or start FinTech firms, using their financial expertise and experience to provide support and guidance to startups.
Equal opportunities for all
Whether or not a tech company sees itself as a FinTech, accessing core banking infrastructure is difficult without a banking licence, and building it from the ground up is expensive.
Banks struggle to keep up with the more agile tech companies when it comes to developing new solutions, and new entrants are moving into many areas in which banks have held the monopoly for decades.
But there is a way for everyone to overcome these challenges. Financial utilities, which provide access to banking infrastructure, remove these pain points. Not only does this allow tech companies to enter the space, but it also gives banks the opportunity to focus on investing in improving the digital experience for end users rather than rebuilding legacy infrastructure, by taking care of back end operations.