Car may have been invented in the late 1800s: yet it’s the cost structure of Model T that sent it for mass adoption
As industries are changed by the change of cost perception and overall cost structure, so is fintech rewiring the parameters of profitability: through scale and scope.
Scale and scope, they say: numerous writings in prominent journals and books taught businesses of cases of how global giants focussed their range of products and services and scaled their offering across the globe.
With the advent of the Internet, global tech champions did exactly the same: using the low-cost highway of the web to scale their services while controlling for acquisition and retention of users they onboard through a variety of channels. In doing so, they have also mastered the art of agile: testing something on the controlled but open environment, offering a contrarian approach to that of banks that first tried to make sure they know everything before committing themselves to anything.
Yet the product the scale of Ford Model T, the one that transformed US employment market (where farriers was a respected and sizeable profession at the dawn of the 20th century, then people working on manufacturing lines of numerous businesses changed the way routine work was taught and organised) has not been possible without a bold bet to achieve the low unit cost economy allowing for the innovation to take hold. Still, as with many other innovations (one can read about a great deal of those in a podcast-series-turned-into-book by Tim Harford): they all are united by:
· Virality and other gamification elements creating stickiness
Cost can be either internal (through scaling) or external (through cost of capital — by the way, one of the precursors of the Industrial Revolution was both the Black Death that led to rising of paid salaries in towns as well as dissolution of Monasteries that mobilised capital for kingdoms while knowledge from them spread into towns and stimulated better outputs per unit of invested capital).
Fintechs are the Black Death for walled cities of FS incumbents:they increase temperature for cost of managing existing relationships, themselves supported by ample corporate capital investments, they can play long and win the wavering crowd of middle customers: looking for modern solutions while not being of interest for incumbents due to uncertain revenue opportunities.