A quick & simple guide to FinTech
This article will be published in the upcoming fall edition of the Phiota magazine.
FinTech, what is it?
FinTech is anything financial that operates digitally. Within this term, the industry encompasses various services and niches, from digital banks to NFTs.
I get it; it seems like the world of FinTech is filled with buzz words and coined terms. Trust me, that’s just crypto. It’s simpler than that. This is a new world, so if you find a word you don’t understand, just break it down. I bet you could figure it out. For example, neobank = neo & bank. Neo means new, so new bank. The same originates with challenger banks or digital banks. You can figure it out.
Let’s take a harder one: Embedded Finance. Finance that is embedded into other services and offerings. That’s it! With that out of the way, I’m certain you can figure out insurtech, financial literacy, and buy now, pay later. The meaning is in the name.
Is everyone getting bought?
Yes, we’ve reached a point in the industry where we are approaching the great re-bundling. I’ll concede. That’s a buzzword. Let’s explain that one. But to break it down first, we need a bit of an overly simplified history lesson.
The first boot-strapped FinTech companies were tired of the same old cogs that turned the financial services world and the complex processes attached to everything. If you wanted or needed anything, you usually had to turn to one company. The company you banked with. This is the bundling phase.
For example, Joy and Happiness are parents of two kids. They have a car, a house with a mortgage, a few investments, life insurance, two checking accounts, one savings account, and two college funds for their children. I know! They are doing very well! Most likely, they had all these products and services with one company that was able to provide each of these products with a nod and a smile and a: “Sure, let me transfer you to Lily, in our insurance department.”
The first FinTechs began by unbundling these products and services to offer a better and cheaper alternative. They were never going to compete with the Citigroups and JP Morgans of the world if, to start, they had to offer absolutely everything they did. So instead, they started with something simple. It could have been payments, such as a business card (Jeeves) for Joy. Or life insurance (Dead Happy) for Happiness. Finally, it could have been a checking account with a digital bank (Revolut). But they started small and simple; and new.
With time this young couple would have noticed (look up Ron Shevlin for more on this) that they have migrated most of their products and services from one large institution to several small companies that offered better customer service and easier access to their accounts, great UX, and comfortable rates. This period is called the unbundling of the financial industry.
Suddenly, JP Morgan Chase realized that these small challenger companies had managed to eat at a significant portion of their share of the market pie by not trying to compete against them but instead by trying to do something small ten times better. Suddenly they needed to grow or innovate, but legacy systems in the financial infrastructure were weighing them down. So, they began acquiring their competition. Their competition notices this, and just like Anne Boden, CEO of Starling Bank began the year with fresh funds in a very large war chest for M&As, other companies have done the same.
We’ve reached the re-bundling phase and our current section in a time of the FinTech Industry. Now, you can buy crypto and keep your checking account at Revolut, as well as pay for pet insurance. This change has been noted by Whitesight, who published a deep dive on Revolut’s journey to becoming a super app.
Soon, we’ll see more and more companies fortifying their defenses with a myriad of different products. From life insurance to e-commerce marketplaces to financial literacy apps for kids, so they don’t end up making the same mistakes we did with money we didn’t have.
Hopefully, by the time you’ve read this, it hasn’t changed, only grown in its trend. But you never know with FinTech. After covering the news for three years, I’ve seen giants rise and fall. So, take this with a grain of salt and know that the only constant is change and payments. And do not take my word for it.
Viva la Revolución! What’s next?
Who knows? I don’t. I have an idea, but I’m not that bold as to write it in stone.
But if you insist, here’s my idea of what will happen next: A bunch of companies will fail, but those who don’t (because of XYZ) will become giants worldwide.
FinTech is not going away, it’s not a bubble it’s an advancement of an industry using technology, and it’s here to stay.
Why?
Because it makes our lives easier. Customers wanted it; startups built it. Everyone is aboard this chu-chu train.
Also, if you haven’t already, implement sales generation partnerships, Andreessen Horowitz (a16z) thinks they are the future.
When writing this, a bank just shut down its offices in Mexico, and I was sad. While other companies, regardless of how many scandals are aired, seem to keep dodging that bullet. But I guess that in the upcoming months, these companies will run out of space, and their time will come.
Everyone has read the same post on LinkedIn: “The companies that will make it are those who don’t have to raise funds and can survive on their own.” Or the variation of this is “The companies who will make it are those who can monetize on their offering and are profitable.”
Yes, those companies will make it. It seems ludicrous to even claim that you need to be fiscally responsible to stay afloat as a company, but yes, the winter has come to FinTech (look up Jason Mikula for more on this). So, what comes next? More regulation, more M&As, fewer funds, and more value added to customers.
Alas, as I mentioned, do not take my word for it.
Mila Grandes is the Head of Content at Marcel van Oost. Marcel is a FinTech independent commentator, industry influencer, and news curator. Currently publishing several newsletters and a daily podcast, so you’ll never miss out on breaking news again. Learn more at marcelvanoost.com