What SMEs can learn from Fintech
Financial services are reaching a point of crisis. Fintech is now the fastest growing sector in this industry and, according to a report by PwC, more than 20% of financial service business is at risk to FinTechs by 2020.
At the heart of FinTech is using new technology to bring new products and services to businesses and consumers. A recent UK Government report “FinTech Futures” identifies four areas where FinTech will have a massive impact: Machine learning and cognitive computing, Digital currencies and blockchain; Big data analytics, optimisation and fusion; and Distributed systems, mobile payments and peer-to-peer applications.
There are already plenty of examples of FinTech enabling different forms of investment. Crowdfunding and peer-to-peer lending, for instance, has brought access to investment to the common man. Bitcoin, the world’s first digital currency, has been in play since 2008. The thing these two examples have in common, is that they do not require a traditional bank.
This kind of disruption will only accelerate with the continued proliferation of the “Internet of Things”, according to a recent paper published by Deloitte. “Banking by forms, mailed statements and cards must ultimately become obsolete, especially as millennials age. Financial services will be all about contactless real-time interaction delivered through mobile devices and other means of contactless interaction.” And yet just a few years ago no one had even heard of the term “Fintech”.
Whilst banks were reeling from the shocks of 2008 and facing unprecedented regulatory upheaval, startups were flourishing – and taking over. SMEs can learn valuable lessons from the disruption brought upon the financial services industry by FinTech. What did FinTech do?
1. They simplified the process
Fintech is based on a simple model: understanding consumer’s needs and finding innovative ways to meet those needs.
Disrupters in all spaces – think Airbnb and Uber – have one thing in common: simplification. They have harnessed new technology to connect business to consumer in a way that consumers find easy to use and secure.
2. They figured out how to reach new customers
According to the UK Government report, FinTech could play a role in reaching the 2.5billion unbanked around the world.
The same report estimates that smartphone penetration could be as high as 95% in the future (in 2015, 58% of adults had internet access via a mobile phone).
The digitization of business means that more customers, who weren’t previously considered based on their demographic or their location, can now be reached. FinTech has taken advantage of this to design products and services available to anyone with an internet connection.
3. They got to know their customer
One of the driving forces behind the success of some FinTech ventures is their focus on customer data.
How many mentions on Facebook, which Twitter posts resulted in a conversion, how many emails were read and by whom - this is all valuable information in the drive to build and keep customers. Collecting this data, analyzing it and then putting it to good use is what is driving the success of many FinTech startups.
4. They found a niche
Fintech have found a niche in finance, financial services and money itself. One example why FinTech is booming is that they lend money to customers that traditional banks have been unable or unwilling to lend to.
Some have gone further and concentrated their efforts on a particular segment of the market. This, combined with making their service customer-driven and service focused, has brought about their success.
5. They collaborated strategically
Smart financial institutions have realized that they can collaborate with FinTech to ensure the longevity of their organization. Indeed, one of the biggest investors in FinTech is banks. Where they lack the resources to be innovative, FinTech has them in droves, but where FinTech startups lack the resources to bring their products to a global audience, established institutions can do so, and fast.
If business doesn’t disrupt its own industry, chances are that someone else will. If businesses lack the capacity to embrace digitization, and all that could mean, to their business and their customers, then strategic collaboration could well be the way forward.