The Race in the FinTech World
The New Entries Race to FinTech
As I previously stated from my Tweet, I have been seeing more FinTech companies advertising on the London Underground in the UK. I noticed the majority of the companies in the FinTech start-ups are usually targetted at retail customers, focusing on smarter and more efficient ways of investing, borrowing and savings.
Do the advertisement on the London Underground get the job done? Speaking from my own experience, for public awareness, I think so, and I believe some are great ideas too. However, I don’t think there is not much uniqueness to what their competitors can offer to the consumers, such as digital banking (Revolut, Starling Bank, and Monzo). The branding and advertising are an important part of their business to get right as their strategy is to grow their subscribers quickly and gain traction by capturing the market before other competitors. The consumer does not require an additional account if their current digital banking meets the functional use. People don’t change if they don’t have to, such as their default search engine, or their desktop wallpaper.
Referrals are a great way to gain tractions, which incentivizes users to share the great services that can be done quickly on a mobile app. Revolut claims to have +150m users on their webpage (would be interesting to know more on the detail like active users).
How do they Make their Money?
I often think how do these FinTtech start-ups generate revenue? Maybe through advertisements, service fee, hidden fee, what is the catch? For a user sometimes it is not clear in the early stages of these FinTech startups of how they make a profit? How do they operate without making a profit?
I do understand that a lot of these FinTech Startups are funded by Private Equity (PE) or Venture Capital (VC), where equity is usually given by the company. This is like rocket fuel for the companies growth, though the downside is that it that may affect how the company is driven. This is very different from a alternative financing as a loan structure, where the lender loans a sum of money. This commonly a burden for the startup companies due to the interest expenses that are obligated to be paid as the company is not generating a high enough amount of revenue in its early stages. This is not ideal when a startup company’s main objective is to grow at a fast pace. Ideally, it wants to reinvest it’s profit back into the company to invest in infrastructure. Usually, after the company has grown the PE or VC will want an exit strategy so they can reinvest their capital into another potential company. This can be done via a buyout from a larger business or go public and by issuing an Initial Public Offering (IPO).
The Opportunities, and Threats (GDPR Compliance)
I believe the opportunities for harnessing customer’s data is huge, as companies can identify and tailor products and services to their customers. This can be a potential win-win scenario for the customer and the provider as the services could mitigate risks by understanding the customers’ behavior and patterns from the large data.
For companies operating in the EU, a major caveat is that companies are required to comply with the GDPR. The consequences of companies that do not comply are required to pay substantial fines to the EU. I think this is great for the consumer protection and data misuse. Currently, GDPR is a big challenge for businesses to maintain customers as customers are asked to provide consents for use of their data and consent to companies email distribution. Some call it the ‘Digital Wild Wild West’ prior to the implementation of GDPR.
From my experience, I am receiving a lot of emails from companies that I have subscribed to but haven’t found the time to provide consent for sending me more emails! My intentions are to go through my email list in one go!
Future for the Big and the Small
Some start-ups in the FinTech space are directly competing with banks and investment intermediaries. Are FinTech companies currently big enough to disrupt the traditional banks? In my opinion, it is not a significant factor, mainly due to the comparison of the userbase and user adaptability for digital banking. In the future not very likely neither, though the digital banking alternative might be possible to cause more of an impact in the next decade.
Currently, I noticed in the banking industry, a common theme is that banks are reducing staffs from bank cashiers and operations in-house. Suppose they are prepared to respond?
I will be uploading content consisting mainly of Financial related news, interesting topics, and my opinions. It can be seen on my webpage: richiewong.co.uk
