The world doesn’t need another Fintech solution!

How many times have you thought to yourself ironically: “Great. Another X. That’s exactly what the world needs now!”. Where X can be replaced by neobank, alternative lender, stock trading app, FX, fraud or KYC solution, etc.

Well, I think the reason is because this is (often) true! Sure, there are a number of Fintech areas that are still immature (such as Sustainable Finance, SME financial management, asset renting, debt collections, etc). But, a big part of the product stack has been invented already.

Wait a minute. If this is the case, then why are many corporates still trying to launch Fintech propositions with little success? Why is there a huge list of old-generation financial service providers that are still struggling to digitalise their offerings? What happened to the eternal promise of embedded finance?

The main challenge is that financial propositions are very complex and we have just scratched the surface so far. Let’s have a look at the stack (bottom up):

  1. Regulation. First of all, you need to be regulated. Hundreds of pages and hours spent in the initial application, and many more annually in regulatory reporting and interactions. Plus, capital.
  2. Infrastructure. The licence is not enough. You need the low-level plumping, the connections into the decades-old banking infrastructure in order to set up accounts, issue cards and move money around.
  3. Core banking software. This is the fundamental software and database, where all the basic calculations are made (e.g. deposit interest, loan prepayment fees, etc.) and account data is held. It’s not rocket science, but it simply cannot go wrong. And ideally, it should be modular, easy to configure, interconnectable and future proof. Go figure.
  4. Data. Collecting and analysing client data, both directly and from 3rd parties. Open banking data aggregators have covered one slice of this data (banking transactions), but there are many more. Some examples include home or car ownership data, existing insurance policies, demographic and lifestyle data, credit bureau data, etc.
  5. Applications. These are the tools that bring the functionality and help deliver the solution, such as KYC, fraud, lending, treasury, FX, investments, etc. Most players are focused on one of these areas, so a hefty integration effort is needed.
  6. Front end. Most people think that in banking the front end is just a CSS template or a WordPress page. It’s not as simple as that. Think underlying business logic to meet local KYC requirements, certifications and annual audits. It can cost up to €250k to build and maintain just one year the front end of a business banking application.

Another description of the stack can be found in Angela Strange’s post here.

So far, the various Embedded Finance providers (Banking as a Service, Open Banking data aggregators) have covered primarily the first three layers and partially the fourth layer. Huge progress has been made, as doing all this without interacting with banks was unthinkable 3-4 years ago, but it’s far from enough.

How do you pull in and analyse all the data that you need, which is in different formats and taxonomies? How do you orchestrate, i.e. integrate and build a supporting workflow for, the handful of applications needed to deliver your Fintech proposition? How do you build new products or bespoke extensions to existing products that suite your client base? And what about building and maintaining the front end? In-house? If you have the resources and know-how. With a 3rd party system integrator/ consulting firm? That’s a one-off effort that needs a lot of time and money.

That’s what the world needs: platforms that can help deliver end-to-end Fintech solutions in a fast, easy and future-proof way. Some platforms have already popped up in Europe and the US: Unit, Backbase, Weavr, Solid, Toqio, Aazzur, Prime Trust, Fintech OS, etc. Their differentiation lies in various dimensions:

  1. Geographic focus. E.g. Unit, Prime Trust and Solid are present only in the US (for now)
  2. Use case focus. E.g. Toqio focuses on Business Banking use cases, whilst Weavr on Consumer Banking ones
  3. End-to-end vs. development-only. E.g. Backbase and Toqio offer an end-to-end solution that caters for complex use cases and organisations that are not so digital. On the other hand, Weavr and Solid offer an SDK for developers, which is very simple to use, but at the same time requires a digital platform to embed to (note: not all clients have one).
  4. Client focus: Another differentiation is the target client type (non-financial corporates, Fintech companies, non-banking financial institutions, etc.) and size. However, go-to-market strategies are changing fast among the platforms, so we will have to wait and see on that one.

All of the emerging players in this segment are early stage businesses, so we are very excited for what’s yet to come! So, wrapping up…

The world doesn’t need new Fintech solutions. It needs platforms that will help everyone assimilate what’s out there already.

What do you think? Do you agree or are we missing something? Also, if you are a Fintech middleware/ API platform, we would love to hear from you!

Disclaimer: I am part of the investment team of Seaya Ventures, a VC fund that has invested in Toqio (mentioned above).

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