For the last decade or so, FinTech companies have grown, disrupted, and moved at an exponential rate. This has forced traditional incumbent firms to adjust, rethink their business models and do what they can to embrace digital innovations. But now, the FinTech market, born as a disruptor, is beginning to mature and enter into a period of rapid change. Firms wanting to continue to play a part in this thriving new era need to understand the forces that are pushing these changes.
We’ve identified 3 trends which will play a big role in how the FinTech market evolves.
Collaboration and consolidation is inevitable – from all angles
As innovative technology begins to become more understood and adopted, we will start to see new firms entering the market, trying to innovate those original innovations and trying to sweep up market share and customer loyalty. This will result in larger FinTech firms consolidating with the smaller, newer FinTech firms in order to meet their own growth targets. We will also continue to see traditional firms (the established financial services firms) partnering with or acquiring the larger FinTech firms in order to benefit from their digital expertise. These types of collaboration and consolidation will allow the traditional firms and the larger FinTech firms to bring in new technology, new resources, and most importantly more customer loyalty and market share for their businesses.
A prime example of FinTech consolidation is PayPal, one of the original FinTech players, acquiring Xoom in 2015 in order for PayPal to broaden its services into digital money transfer and management. This sort of consolidation is inevitable with new firms continually popping up and adding to the innovative atmosphere of the industry. An original FinTech firm like PayPal, who once saw themselves as the disruptor, will start to become a more mature business and as these types of firms grow so their rate of innovation slows. The only way for them to stay cutting edge, innovative, and meet their expansion goals is to acquire or merge with other firms, who are smaller, more nimble, and even more cutting edge.
On the converse, as FinTech firms look for growth and traditional firms (established financial services firms) seek digital expertise there will be collaboration from higher above – in other words collaboration between FinTech firms and traditional firms. FinTech firms may have developed innovative platforms and applications that create improved customer experiences but many lack skills in customer acquisition and other fields needed to grow quickly. This is an area where traditional firms have hard-won capabilities that can help those FinTech firms grow quicker. These types of collaboration are a win-win situation for everyone because both groups replace their own lack of expertise with the expertise of the other.
With a fast growing industry comes a constantly evolving regulatory regime. Regulators around the world are playing catch up and trying to provide the necessary regulation needed to balance the interests of business and consumers. Positively, we are seeing regulators trying to play a more proactive role in overseeing the industry, often boosting its development with initiatives to assist these firms to grow and provide better solutions for consumers. In the UK, the FCA launched Project Innovate which is a programme that guides tech start-ups through regulatory processes and provides a resource for start-up regulation assistance. These types of initiatives not only help regulate the industry but help new firms get to grips with regulation much quicker. We see these shifts in regulatory regimes playing a big role in the expansion of the industry.
Expanding scope and diversity
The scope of products and services that FinTech firms offer is going to expand rapidly. The industry began with a strong focus on payment applications, money transfers and lending but the industry has already expanded into more than 30 areas such as Cyber Security, Telematics, Robo Advisory’s, Next Generation Trade Finance, Mobile POS, Payment Infrastructure, just to name a few. These new offerings span right across the spectrum of financial services, investment banking, insurance, retail, and wealth management. This expanding scope and diversity has the harshest effects on traditional firms because every new area that gets disrupted is an attack on another stream of revenue. These attacks are and will continue to come from all directions. This is another reason why, as discussed earlier, collaboration and consolidation will be a big part of the future as traditional firms attempt to protect their businesses and get to grips with the rapid changes in their environment.
As part of this expanding scope, the larger FinTech firms themselves will start to increase their range of offerings in order to grow their reach even further. This will most likely require some kind of relevant extension where FinTech firms can offer additional services to their already established customer base. One of the original FinTech firms, SoFi, started out as a firm lending money to students to help pay off their student debt but has since grown to provide career coaching and networking services. These types of expansion make good business sense. SoFi’s customer base consists of ex-students who have an interest in career coaching as well as networking as they look to build their careers. We expect a lot more diversity and expansion in the future.
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