Amy Neale, vice president and senior business leader at Mastercard, explains why banks and FinTech startups need to work closely together.
It’s sometimes hard to believe the iPhone was launched a little over 10 years ago, paving the way for a smartphone revolution where it seems we have ported our entire lives onto mobile.
With 10 billion connected devices in the world today – expected to rise to 50 billion by 2020 – this is only going to accelerate. This is likely to change commerce more in the next five years than it has in the last 50.
The opportunity is vast and truly exciting to be part of. And of course, change is being fuelled not just by existing players in the ecosystem, but the rise of new entrants is more rapid than ever before.
And yet the very best startups aren’t necessarily where you think they’ll be. Go beyond the established hotspots and there are a number of smaller FinTech hubs emerging in Ireland but also further afield in India, Nigeria, Australia, Brazil and Colombia.
This adds up to a lot of heat in the FinTech market, with talk of huge valuations and startups telling wonderful stories about their future visions. The most optimistic estimate puts us at 39 global unicorns.
We know financial services is being democratised with more customer-friendly alternatives and at a lower cost, but it’s not the exclusive domain of the startup to serve the customer and seize the opportunity in this regard. Only a few will get to do so.
While 68% of millennials would be willing to switch to a more advanced banking technology, the reality remains that 90% of them still choose to have a relationship with their bank than seek an alternative. Most consumers still see financial institutions as those that they most trust to securely manage their data.
So, while the future of financial services gets talked about as if it were a battle between incumbents and startups, it is not a question of who will win the battle to serve the customer. Both have the assets to do the job together.
What I am increasingly hearing is a change.
Startups realise FinTech is hard. The business model is significantly different to a tech startup in any other sector. There are three main reasons for this. Firstly, regulation is hard to achieve, and needs to be approached market by market, making it challenging to build scale regionally and internationally.
Secondly, the sheer number of players in the value chain make it supremely challenging for a startup to navigate. And thirdly, while a great user experience is a fantastic way to gain customers, monetising those customers is quite a different proposition.
Conversely, incumbents find it challenging to the meet the needs of a new type of customer. These ‘digital natives’ expect frictionless mobile banking, aided by cloud technologies that offer a faster service that isn’t hindered by legacy infrastructure. Increasingly, for the benefit of these users, artificial intelligence is changing requirements for both back end efficiency and customer personalisation.
Dealing with people’s money is like dealing with their health – there is no margin for error, and the big, established players feel this even more acutely because of the sheer volume of customers. And so the path is hard whether you’re a large bank in Canary Wharf or a startup in Edinburgh.
Banks want to partner in novel ways and move beyond the light touch accelerator, while serious startup founders are re-thinking their strategies. Those that might once have built a direct-to-consumer offer recognise the regulatory, security and business model challenges.
This new joint approach goes beyond corporate investment funds or recommending each other’s products. This is about true collaboration and the co-creation of joint products.
While we began to see some examples in 2017, this year will be the year for true collaboration, and a whole new set of terms of engagement are emerging in the process.