Unbundle Rebundle: Learning from FinTECHs
It doesn’t seem too long ago when innovators in the finance world realized that the banking & financial resources could be made more valuable by unbundling. With the advent of these technology enabled individual financial solutions (in the form of fintechs), traditional banking institutions were baffled. The earliest examples of this can be traced back to the introduction of PayPal & Stripe, who truly disrupted the payments space. Customers no longer needed to buy the whole package from banks, instead they could have whatever services they want individually and from the most efficient provider. Of course, technology has been the key element in the success of fintech startups. Having said that, the importance of unbundling cannot be overlooked.
When it comes to money related services, people are usually hesitant to take any chances. Banks have established their credibility over time, and thus it becomes all the more difficult to replace them. Because of which, as fintechs are gradually gaining momentum, their service is becoming more crucial than their solutions. The key for fintechs to succeed will be to create long-lasting relationships with their customers in order to establish a trust for their brands. This will help them diversify their service portfolios and give the banks a run for their money. To counter this, most banking & financial institutions have made some kind of effort to pump up their digital initiatives. You can read more about this in Banks: Racing towards Digitization. The credibility factor becomes even more significant keeping in mind the efforts made by banks to become digitally advanced.
Some fintech startups who have been immensely successful have started branching into traditional banking products such as checking accounts, debit/credit cards — to directly compete with traditional banks. The most recent example of this can be online payments provider Klarna’s acquisition of a banking license. A license as such can give fintechs the ability to function as a proper bank. Now, more and more startups have begun applying for banking licenses. Student loan refinancing startup SoFi, payments wallet Paytm, to name a few. But with Klarna’s license approval, the possibility of rebundling opens up. Now that Klarna has established its credibility, it becomes relatively easier for it to expand into other services. Rebundling in this scenario can create more value and thus becomes a viable option.
As it seems, the rebundling phase is beginning and could possibly be the upcoming trend in the financial services space.