Even though some people are still trying to ignore the trend of “FinTech”, it is already a pretty crowded space. In the early times (the wave I am talking about started around 2013/14) we saw that new services were rather focused on the “outer circle” of Financial Services. In these outer circles were traditional offerings that were relatively (!) easy to attack from outsiders and these new players were able to gain some kind of momentum (in worst case only media attention). Today, there is not a single area of Financial Services that is not exposed to weekly news about a new player entering the sector. Or even more extreme: there is no news about it, because new players entering the space is not a story worth anymore.
But how can new players can get their share in the redistribution of FinTech pie? Attracting consumers in Financial Services, especially with a B2C business model, is expensive and requires a pretty long breath. These players have to figure out how they can go through this valley, survive and prosper in the long term.
FinTech is not fast but speed is increasing
I remember that in early 2014 it was pretty easy to keep track of most of all startups launching around the globe in any part of FinTech. Today is already complicated to get all the news for one country or one sector of FinTech. Yes, in other industries it is happening way faster. The only reason cooperations are so popular in FinTech but not in other industry going through a similar phase of disruption is the unique slowness of consumers and entry barriers for new players. Nevertheless, the speed is increasing which is good for consumers but it gets more and more difficult to enter the space. The famous rule from Peter Thiel “You have to be 10 times better than second best” is very applicable to FinTech and the factor “10 times better” might be even too low to succeed in FinTech.
Many entry points have been used
In order to grow in FinTech and especially in B2C banking, you have to find your niche to get early customers, validate your hypothesis, learn and then grow from there. But what “niche” is really worth exploring and thus an interesting entry point? If you are looking at the companies succeeding in the last years, you can see many players that found an entry point to build a promising company out of it. Some of these entry points were:
- Mobile-Only and convenient banking app (e.g. N26, Starling)
- Cheaper foreign exchange rates (e.g. Transferwise, Revolut)
- Trading cryptocurrencies (e.g. Robinhood, Revolut)
- Contract management (e.g. Aboalarm, Moneymap)
- Savings (e.g. Digit, Qapital)
- Investing (e.g. Acorns, Nutmeg)
All these players had a hypothesis at their beginning, that the consumers would be willing to switch due to the better fulfillment of their needs. It is important to mention that these are just entry points and not winning strategies. The future of these players success is not mandatorily successful, but all of them have already some kind of impact.
How long does competition require to copy
Most of these players are or will be copied by incumbents (banks or other FinTech players) in the near future. Some players have successfully transitioned to additional offerings and provide more value, than just the initial benefit while entering the market. If the entry barrier is low for the inital service, this strategy has to be figured out very quickly, otherwise competitors can easily catch up and consumers have less or no reason to switch or start using the new service. Consequently, the target group needs to be exploited quickly by the new player and a strategy has to be in place for future growth.
What are the next entry points in B2C banking?
Unfortunately, I don’t have the crystal ball to answer that question. I believe that the past has shown us that there are not many entry points. Being cheaper or provide other monetarily advantages for the consumers is always a good way. Just “being digital” is in most cases not sufficient. Personally, I believe that banking solutions will be more likely to be offered by industry outsiders. Banking anyway has lots of connection to different industries, so that is not far fetched at all. We are seeing today already that price comparison tools and loan platforms are entering the B2C banking space. So that might be the first step, but I wouldn’t be surprised if a complete industry outsider (maybe but not mandatorily GAFA) will take a chance and succeed. Over time we will see what these entry points are. Whoever is exploiting it, needs to get early traction and provide a “full offering” to avoid quick copycats from incumbents.