The word FinTech has been around since the 1980’s, but only started gaining traction around 2005. Around 2012 there was an explosion with 1000’s of FinTech and FinTech adjacent companies being founded within just a few years.
While it is a varied market, Fintech’s have generally been categorised into two broad groups. FinTech created (or funded) by existing large financial services companies, and FinTech that looks to disrupt the existing market and take market share away from these existing firms. One way to think about it would be the difference between the app that your bank provides and Venmo, an online money transfer app that is not affiliated with any traditional bank specifically. Or PayPal versus ApplePay. Today I wanted to focus more narrowly on one of these FinTech examples, online banking.
Goldman Sachs took a different approach. Unhindered by a management team from the ranks of the retail business, they purchased GE Capital’s online lending platform. With this they developed a FinTech app ‘Marcus’ based on extensive market research into what clients and users actually wanted from their online bank apps. It is safe to say their success has been measurable. So successful in fact that as of early this month the app has had to shut down new customers in Britain after deposits surged near to regulatory boundaries during the coronavirus lockdown.
In contrast, Royal Bank of Scotland (RBS) launched their version of a response to the challenger banks in late 2019, only to close it down 6 months later. ‘Bo’ as it was known suffered from a number of challenges. First, it was too closely aligned with RBS’s core banking propositions. This did not allow for differentiation from its standard proposition. Second, although it had some of the features of the challenger banks, the app wasn’t operationally efficient, and the user experience did not compete with the standards of Revolut or Monzo users. Thirdly, ApplePay and Google Pay were not supported, and other standards in the challenger bank market, such as fingerprint authentication, were not available. In the end, Bo only attracted 11,000 clients. In comparison, Marcus which has over 4 million clients, and Revolut which has over 10 million clients.
The difference between success and failure in the Fintech world is often a fine line. To be competitive within this market, technology aside, and to build a successful business – the key is having a deep understanding of customers desires. Challenger banks do this by utilising data. Using a data driven approach enables them to not only analyse consumer demands and behaviour in order to develop a more relevant product. But using data has also allowed them to provide better insights to their customers. Allowing them to more easily examine their spending habits, categorize transactions, set budgets and review and improve on these. Accessing rich datasets externally and leveraging their own internal data has allowed some players to be clear winners in an increasingly competitive industry.