Challengers vs incumbents in fintech though the history lenses:
A lesson of see-saw of competition gives banks ample opportunity to respond to the fintech challengers threat
Nikolay praised the demo of now discontinued C24 payment platform, when an uknown startup named Revolut announced its existence in February 2015 at Finovate Europe in London — going from a shaky ground and dubious social media strategy (a denim clad arse of a women splashed across the FB page promised very little of what we know about the platform today) — to a recent massive round valuing the startup with USD1.7 billion post-money valuation.
The team achieved this in less than 3 years, arriving to a post 1 million active users and becoming operationally profitable earlier than most other challengers. As the company goes forward — it starts to connect new services, looking more and more like a traditional service, but having tremendously loyal audience the hearts of which it won by being reciprocally loyal: building a simple product that is unstressful to one’s mind and close to one’s true interests, unmasking the hidden fees that bloated bureaucracy of banks has been skimming of the customer base to prove one’s worth (deliver the P/L or die vs. deliver the value).
Revolut has proven its worth by offering razor-thin — and shown as fair — fee one could get from x-border transactions: increasingly the case for ecommerce connected world populated by globe-trotting customers. It went back to the drawing board to design the end value for customer — and how to deliver it with an agile and flat team.
Now it’s bank’s turn to get back to the drawing board: and get back they might:
Fintech customers flee the complexity of banks, yet the core competence incumbents still retain is the AML/KYC — customers come clean to the world of digital transactions: so identity and compliance components are something they can still do at unparallel scale. What banks require is retolling the front-end and reassembling the end value proposition that is cast though the marketing function:
- less is more: offering simple products with added services calls for simpler structures (less managers fighting for their independent P/L gives more room to think about the end-customer): actually, the dychotomy of risk aversion, numerous billions spent on compliance not allowing to move one inch and collaborate with fintechs is leading banks to embrace more solidly the opportunity of Open Banking: creating “lite structures” that are ringfenced from the legacy of past vintages of customers — and the spaghetti situation with the IT systems — and create new tech for the new world. The age of the container that proposed common language for shipment is nigh for banks: they can agree on interconnection standards, push for global adoption of standards around privacy, data interexchange etc and control the core function of identity — that is paramount for trust
- fintechs are adapting to the B2B2C world: for every champion who has access to capital to go B2C long-term, there is always a challenger who might veer off to white-label and help the incumbents better serve their millions of customers. As CAC costs are spiraling out of control for the modern banking proposition that looks near similar from numerous banks, it’s actually the oppotunity to tap into the existing pools of customers that would allow tech to scale.
Finishing with the Revolut story: the disruption of cross-border transaction fee made banks look closely at the reshuffling of their products: most start collaborating with FX to offer spot-pricing (aiding Currency Cloud and the like), and retool their online authorisation and processing services — passing on the opportunity to use spot-pricing for B2B ecommerce.