Tearing up the financial services value chain
Mike Laven, chief executive, The Currency Cloud
Traditional finance is not as we once knew it. The internet has completely disrupted the financial services value chain. The banks are struggling to keep up with advancing technology. Understanding mobile, cloud computing, social media, big data and how to utilise each capability are key challenges for the banks to overcome, writes Mike Laven.
Their struggle is partly derived from an outdated model of vertically integrated product segments. From loans to current accounts to international money transfers, different departments within banks are seldom capable of operating with one another, providing a clunky experience for customers – a huge failing for the banks in a multichannel age. Instead, a new breed of financial technology (known as ‘FinTech’) starts ups, which are more agile and able to adapt to the changing needs of their customers, are coming together to blow up the financial services value chain.
FinTech has been moving at a phenomenal speed over the past few years, with new firms bursting onto the scene left, right and centre. From mobile wallets to peer-to-peer lending, innovators are redefining old verticals or creating entirely new ones – the likes of Zopa, Funding Circle and Funding Knight are leading the peer-to-peer lending market, offering customers cheaper access to credit and lenders better rates of return. Square and iZettle are improving cash flow for sole traders and small businesses by allowing them to accept credit card payments via their phones using a dongle. Crowd-funding companies such as Seedr and Kickstarter are helping businesses get off the ground by providing a platform for them to obtain fundraising. Other companies such as Kantox, TransferWise and ourselves are offering real-time, transparent solutions for the international money transfer market minus the hidden fees that come so inherently with banks.
In the past, banks provided a fully integrated service to their customers, from deposits, to lending, to money transfers and payments. Tech start-ups look at this landscape and using the logic of the internet, as has been applied in other industries like entertainment and telecommunications, see poor customer service, cross-subsidies and room tremendous efficiencies. Yet, the customer, whether it’s a business or a consumer, still needs a complete service. Here in lies the solution – tech start-ups are picking off a single service, say lending or payments and are using the power of advanced technology to improve customer service, lower cost and increase usability. However, in order to provide a full service, these piecemeal solutions need to work together seamlessly. This is why, in the finance world, tech start-ups need to make their systems open and actively co-operate. This need to bring a complete solution to customers drives intense co-operation across the board, even among some companies that may compete.
For example, tech firms in the wider ecosystem of financial services, such as software giant’s Salesforce, Tradeshift, Intuit and Sagepay, are seeing the benefits of integrating technology from FinTech start ups into their own offerings. By working together, companies can improve on their existing capabilities, in turn for access to large customer bases. It’s a win-win partnership.
Online marketplaces are also reaping the benefits. E-commerce giants such as Amazon and eBay are benefiting from firms like iWoca which provides short-term working capital to their merchants. This means that traders can access the funds they need to buy more stock and grow their business. Support services for payments like MiiCard, an online verification service, are also improving security for online retailers.
Although the new breed of emerging FinTech start ups might be small and lack the clout to take on the traditional institutions alone, together, they provide a much more powerful proposition for end users. By working together, instead of against one another, the FinTech scene is collectively breaking up the banking system and revolutionising business. They must continue to collaborate to compete.
