Livia Benisty, Chief Business Officer for Banking Circle recently took part in a Finextra webinar looking at how FinTechs are evolving their operations and managing partnerships in the face of ongoing economic turbulence and financial uncertainty.
- Jane Cooper – Researcher, Finextra [Moderator]
- Livia Benisty – Chief Business Officer, Banking Circle
- Vincent Marchand – Head of Fintech Lab, Global Cash Management, BNP Paribas
- Shaun Puckrin – VP of Product, Checkout.com
Following opening introductions and remarks, Livia kicked off the session by defining what would be meant by FinTech for the purpose of this discussion: non-incumbent legacy banks, i.e., financial institutions that have taken on larger roles in the financial system through the use of tech, and offering an alternative to traditional incumbent banks. In general, FinTechs are financial services companies relying on new technology to provide a better customer experience and wider range of products. However, Livia also highlighted that the existential crisis the webinar focuses on, is largely around those FinTechs that are reliant on VC or private equity funding.
Commenting that there has been a lot of money flying around and a lot of unprofitable ideas in the past decade or more, so the decrease in funding could be a correction rather than anything more dramatic. The new focus on profitability has been inevitable for some time.
Vincent Marchand added that we are currently shifting from a ‘Growth at Any Cost’ mindset in FinTech to one of ‘Profitability Above All’. Valuations are no longer based on the number of clients acquired, but on revenue, valuations and profitability. Shaun Puckrin agreed, adding that regulatory improvements allowing more types of businesses to get into financial services have improved the situation and the user experience. He also highlighted that while FinTech is powered by tech, it has also relied upon the unbundling of the banking stack to lots of different specialist providers. This has brought huge benefits in many areas, but in others, it remains unclear whether such a niche solution or product area can be a profitable business in the long-term. This is of course why partnerships have become so important in the FinTech world.
Is Bundling or Unbundling the future?
In response to this point from Shaun, Jane asked Livia if going back to bundling risks organisations losing their core differentiator by trying to serve and please all the people all the time. Livia felt that remaining focused on the customer helps avoid the potential pitfalls of rebundling banking. The end customer, whether merchant or individual, is looking for more services in one place – because they previously accessed these services form a bank that didn’t serve them well, or from a multitude of different providers. Neither of these is efficient or sustainable.
Integration with different partners is expensive, so we are seeing a drive towards rebundling, with previously very specific and niche FinTechs offering a wider range of solutions either building additional products themselves or offering them via a platform of white labelled solutions.
Are we approaching a boom in mergers and acquisitions?
In response to an audience question, the panel discussed whether the reduction in funding and the rebundling trend is likely to lead to increasing M&A activity in the near future. Shaun stepped in first, confirming it is inevitable that we will see increasing numbers of M&As, as everyone looks for a bargain. That does mean valuations may be lower than expected, not least because the funding to acquire has to be found. Shaun believes there is plenty of opportunity for M&A, but the deals will be more judicious and selective than we may have seen in the past.
Livia went on to share that FinTechs need to improve reliability, speed and cost for customers, to increase value and competitiveness. This must be coupled with offering the services your customers are looking for, and there is a lot of work still to be done there, particularly in the B2B market.
Vincent added that FinTech has experienced a huge wave of redundancies in the past year, highlighting the importance of cost-focus to help FinTechs survive. He believes that will become even more important in the coming years, bring in the conversation back to profitability. Livia added that funding is available for the right companies, and it will pick back up but until that time, or until a FinTech can secure that sought-after funding they need to keep a focus on profitability, gone are the days when a business can comfortably run at a loss for ten years.
Shaun summed up by reassuring the audience and panel that it is not doom and gloom, we just have to be focused, look after customers and teams to ensure the business gets through this downturn and comes out stronger. Vincent agreed with Shaun, confirming that going back to basics of doing business and remaining profitable is extremely important now, along with re-focusing on the core business.
Livia added that as she has stated earlier, this is a period of correction, not doom and gloom. She also sees that it provides interesting opportunities given the shifting relationships consumers and merchants are having with financial services providers that were previously just their day-to-day bank. There are now options, ways of serving your markets and introducing new relationships that may not have existed before.