As the tech-based financial-services sector matures, many fintech startups are staking out new territory in the incumbent financial-services industry, said investors and fintech entrepreneurs at a May 16 MGCS panel discussion, entitled “Fintech – Disruption or Innovation in Venture?” Instead of being disruptors, fintech startups are becoming partners with banks. In place of offering standalone financial services, they are blending their technologies with existing core services. Instead of pursuing a segmentation strategy, they are broadening their audience and sector focus.
“Many fintech companies started as disruptors, but now they are working within the incumbent financial system where they have become help-mates to banks [and other financial institutions],” said Joan Susie, chairman of Bank Director. The new, if still evolving, partnership makes a lot of sense for both sides of the equation. “[On the one hand], banks cannot innovate quickly, and [on the other hand], fintech startups find the costs of customer acquisition, regulatory compliance ─ and building trust ─ are very expensive,” she explained.
Banking institutions and intermediaries are being pushed by changing technology, government regulations and cybersecurity concerns to take a closer look at fintech wraparound technologies that can provide faster, lower-cost, more-secure services to their customers for tasks such as check deposits, bill payments and money transfers.
Larry Berlin, senior vice president at First Analysis Corp., termed this mobile- and data-driven change the “Uberization” of the financial-services industry. He identified four key areas of fintech where growth-equity investors might look for good investment deals:
- Marketing services that can help banks, credit-card companies and brokerage firms personalize their online engagement with customers
- Security services that will enable institutions to detect cyber-intruders and secure their data and identities from theft
- Transaction services that can facilitate B2B and B2C customer payments, as well as money transfers
- Software as a Service (SaaS) that licenses software to customers on a subscription basis and generates recurring revenue
The panelists offered this advice to fintech startups that are attempting to gain a toehold in the financial-services market:
- Build the right product and ensure it works 100% of the time
- Select the appropriate target audience for the product
- Focus on marketing, networking and building confidence with prospective customers
- Be patient and expect slower adoption rates by established banking institutions
- Look for new market-entry opportunities in the securities, insurance, credit and even health-care sectors