• Luc Gueriane, Chief Commercial Officer at Moorwand


• 07.04.2021 03:45 pm
Fintech

Fintech is a market that is in many ways defined by specialism. The first fintech disrupters took aim at specific services – such as international money transfer, loans or credit - and through technology reduced costs, improved the experience and boosted accessibility. 

But the wider financial services market has – until recently – long been dominated by a handful of banks offering an extensive range of services to a wide range of customers – consumers, businesses, corporates, investors etc. And these big banks have been enabled by big vendors which provide the majority of core banking systems relied upon to this day. 

This homogony and lack of competition – both between banks and between vendors - led to complacency and as a result, a lack of innovation. A problem that continues to haunt legacy banks today.

Hans Tesselaar, executive director Banking Industry Architecture Network, summarises it best: "You can shine up your legacy system and try to make it look more modern with new coding wrapped around it, but that will only last for so long."

This reliance on legacy technology has hindered the ability of incumbents to move away from the universal banking model and embrace technology to adapt to customer and market requirements. The financial crash led to a mistrust of banks and regulators around the world who - wary of “too big to fail” - encouraged and created space for fintech innovation. And the success of the fintech sector initially and still today, is that fintechs take a niche requirement and solve it better than anyone else.  

With the fintech market growing almost exponentially, the demand for innovation is growing with it. The rise of Banking-as-a-Service is a product of this demand. To compete, fintechs no longer need to "own" the technology they sell. They can outsource their requirements almost exclusively to a third-party provider.  

However, there is a danger in outsourcing too much to a provider. We’ve seen in the past the risks of not having full control over the value chain and being too reliant on one single partner. And it also raises an important question – if you want to be a great specialist do you need to work with specialists? 

    I believe that to ensure resilience, create differentiation and drive scale, you do. 

Building resilience

The events of 2019 and 2020 which saw services that served millions of consumers go down, sent shock waves through the industry. As the fintech community moves forward, it's important to acknowledge how the ecosystem supported one another. For those companies that were unfortunate collateral damage, and had their accounts frozen overnight, reliance on specialist partners was critical. In-depth knowledge and expertise of the technological and regulatory implications enabled partners to migrate services across quickly and effectively, causing minimal impact to customer experience, reputation and revenue. 

For fintechs starting to realise their propositions, these events highlight the importance of bolstering resilience through creating a support network. While there are providers which offer all-in-one fintech services, businesses must understand the cost involved in relying on these short-cuts. There's not only the monetary cost to consider, but the difficulty of migrating a whole programme when all the separate services—from issuing and BIN Sponsorship scheme access and beyond—are entwined into one package. In fact, HMRC Treasury is further investigating the risks of reliance upon sole providers as part of its work to ensure operational resilience.

Standing out from the crowd 

The fintech revolution introduced competition which ran deeper than just cost. Fintechs are now competing, and therefore innovating, on more fronts than ever before. Cutting through the noise is no mean feat, but the key is doubling down on what makes a proposition different—how is this product or service alleviating a pain point in a new way? Or even solving an untouched issue? From here, fintechs can begin to specialise.

Yet becoming a specialist isn't a siloed journey and reliance upon the fintech ecosystem is essential. Creating a proposition that will achieve longevity requires working with experts to advise and provide highly tailored solutions, enabling fintechs to solve new problems in new ways. 

While off the shelf all-in-one service providers offer a level of simplicity, relying on generic services will likely result in generic offerings.

Scaling on demand

The fintech landscape is evolving at such a rate that innovating quicker than the pace of change is critical. Otherwise fintechs risk losing relevance before they've even entered the market. But the rapid rate of evolution also means it's essential for early stage fintechs to pivot and re-align strategies consistent with technological, regulatory and market developments. 

Off the shelf propositions have limited flexibility as they enable fintechs to deliver similar services to what already exists. And when fintechs start to scale specific parts of their proposition these 'flat-pack' services can limit growth opportunities. In contrast specialised partners have seen it all, giving them the experience and know-how to journey alongside a fintech, advising on what parts of a proposition to dial-up and then providing the technology and licences to do so. Working with a partner also means accessing their network, and in many cases, the wider fintech ecosystem. 

Trust in experts 

From academics to scientists, the world has been a rocky place for experts over the last few years. But expertise is what makes fintech what it is today. Expertise is the foundation for any specialism. That specialism has changed the fabric of the financial services market forever. And that specialism is now the future of our industry in the form of embedded finance.  

To ensure the future of our industry, it’s important that we continue placing value on specialisms to create richer, stronger and more diverse payments experiences for all.