When FinTech Goes Free-Range
Fintech started as tech for financial firms, but the needs of consumers for other money-related activities had already started to broaden its range. Will COVID-19 and a recession mean a retrenchment or an expansion for broader consumer fintech?
The history of fintech is long, centuries even, depending on what you consider “technology.” Even leaving out carrier pigeons and semaphores, most would certainly include 19th century transatlantic cables as an early example of financial technology. In more recent decades, a way of categorizing fintech was simply technology used for financial businesses, typically banks and investment firms. Often this meant technology built by or for these institutions, and often these products were invisible to their end-customers, or consumers at large. Bloomberg terminals are perhaps a reasonable example.
The most recent, and more broadly interesting, transformations of fintech have had much to do with the consumer market, and the increasing access to financial tools via easy-to-use (though not always) websites and mobile apps on smartphones. Leaving aside many other important enabling, if ancillary technologies such as cybersecurity, cryptocurrencies, and so on, there are many implications of this sudden expansion of “range” for the sector – here are three that might look familiar:
Financial institutions aren’t great at understanding consumers
The transition from simply providing online access to existing products (bank accounts, loan information, investment portfolios) to actually understanding, marketing to, and managing customer relationships is not an easy one to make. So, the big leap into online consumer interfacing is rife with risk, as it’s a brave new world for many financial players.
Consumers are more comfortable with technology because of their exposure to other, more technologically savvy, industries.
It has only been a couple of decades since many smart people said, “no one is going to use their credit card on the internet.” E-commerce, social media, and Netflix have changed buying behaviors (and many industries’ business models) in the ensuing years. This has opened doors for many challengers to traditional financial players, even though the incumbents have many factors in their favor, not in the least including banking regulations and licenses, and of course, scale.
Money is less compartmentalized in the consumer’s mind.
Whereas perhaps not long ago we may have thought of doing “that financial stuff” once a month when bills were due, highly sophisticated financial transactions of many sorts are part of our daily lives – from digital coupons and offers, to digital transactions for items as small as coffee at Starbucks. Loyalty plans, shared payments for Uber rides and even political contributions are all interspersed into our daily routines, communication habits, and social media. This is both an opportunity for new financial tools and instruments, and for businesses to find new ways to attach themselves to consumers. That said, it’s also a risk for financial institutions who believe consumers will look to them first for anything “money-related.”
One way of describing this trend towards the consumerization of fintech is to say that fintech had already moved out of the barn and into the “corral,” but is now at the point of going “free-range” to a greater and greater degree. Keeping track of whose product is whose is quite literally a “branding” problem to be confronted. As fintech products are white-labelled by multiple partners and channels, differentiation becomes difficult and confusing. Managing customers’ expectations and their “journey” begins to be more valuable.
And now, COVID-19.
The potentially enormous economic impact and upheavals that the new Coronavirus is likely to have on the global economy means that everything becomes even more difficult to predict. Will the economic pressures result in a retrenchment for incumbents, and a slowing of entrepreneurial activity amongst new fintech challengers? Or will the pressing and broad-based needs of consumers under duress result in new opportunities for innovation? As an entrepreneur myself, I’d like to believe the latter. However, having been an entrepreneur for many decades, I also know that, without a doubt, there will be winners and losers on both sides of the equation.
Nonetheless, even if slowed down by the current health and economic crisis facing the world, some trends are likely to continue – for one, fintech will very likely have more and more touch points with consumers, both because of a “push” from institutions to create outreach and stickiness, as well as “pull” from customers who want more control and visibility over their money-related activities. Another trend likely to continue, despite (and perhaps because of ) financial pressures on the economy, is the further “unpackaging” of money-related products (insurance, loans, loyalty programs, marketing discounts, etc.) and “repackaging” of these along with the consumer products, services, or even contexts in which those products operate in.
Whether it happens within a few years or perhaps over decades, it would not be entirely surprising if “fintech” eventually becomes “money-tech,”- mixed in and indistinguishable in the consumer’s mind from the actual product they want, enabled by a broad range of specialized financial offerings. If this were the case, then fintech would, indeed, have gone “free-range.”