The last twenty years have seen more economic and societal change driven by digital technology than any equivalent period in recorded history. In addition to the technology-driven changes, the financial services industry has experienced a fundamental shift post the global crisis. Seismic shifts brought about in large part by the monumental costs and complexities associated with increased regulation, have altered the economics of investment and retail banking forever.
Interestingly, technology itself has eroded barriers to entry in the FinTech marketplace. It has never been easier and less expensive to start a new financial services venture than today. It only takes a little capital to tap into almost any capability required – all delivered on demand “as a service” through cloud computing anywhere in the world. In some instances, traditional banks are beginning to outsource critical IT infrastructure and explore the creation of industry utilities in non-competitive, manually intensive, and costly processes such as anti-money laundering (AML), Know Your Customer (KYC) and customer onboarding. We expect to see a further development of these approaches and a new level of flexibility in technology implementation.
The financial services sector is seeing a number of exciting new FinTech companies emerge, across the full spectrum of the marketplace (insurance, retail banking, exchanges, investment, networks, brokerage, research and risk management). A few noteworthy examples include:
Cinnober – started as four men working in a basement in Sweden, Cinnober is an independent provider of mission critical solutions and services to trading and clearing venues. The trading and clearing technology was based on Cinnober’s TRADExpress platform, which included price discovery, order matching, market data, and market surveillance. This FinTech company was acquired by Nasdaq in 2019 for $220 million.
Chime – a ‘neobank’ whose app offers free financial services, with no overdraft and monthly fees. The 8 million account holders are issued Visa debit cards and have access to the online banking system through chime.com or the mobile app.
Credit Karma – originally offering free credit monitoring and a credit service, Credit Karma has expanded its offerings to include free online tax filing and most recently, high-yield savings accounts. Credit Karma earns fat referral fees for users who take up its recommendations for credit cards, personal, home and auto loans or auto insurance.
ZhongAn – China’s largest InsurTech company, with a market cap above HK$57bn, ZhongAn was established in 2013. The company is based in Shanghai and offers InsurTech products for areas such as consumer finance, lifestyle consumption, health, and travel.
Firms that will emerge as leaders in the decades to come will be those that are able to quickly respond to changes in their external environment, business mix and operating models. Partnering up with FinTech companies will provide large incumbent organisations with a broader range and lower cost to innovation. With greater agility these firms can obtain strategic optionality for an uncertain future.