From monoliths to ecosystems: FinTech and the future of finance

Do you remember the days when you had to visit your bank branch – or a ‘hole in the wall’ – to check your statement?

It feels like a lifetime ago. Yet while such a concept will be alien to the younger readers among you – much like floppy disks and Nokia mobiles – the golden age of FinTech is barely five years old. Revolut, after all, was only founded in 2015.

Consumer and business customers are fast becoming accustomed to increasing levels of service from their banking providers. “The FinTech premise, 10 years ago, was all about providing a better digital experience – because adjacent industries were already doing that with the advent of social media and smartphones,” says Mark Hartley (below), CEO and founder of BankiFi, sixth on our FinTech 50 ranking last year. 

“Lots of clever apps were built and that spilled over into banking. There has been a proliferation of FinTech companies offering all kinds of financial services.”

Open banking – a series of reforms to how banks deal with your financial information instigated by the 2008 financial crash – effectively lowered the barriers to entry, with consumers able to connect their bank account data to a host of applications offering unprecedented functionality and insight into their finances.

Levels of FinTech investment have exploded in recent years, with investors clamouring to back platforms for everything from personal finance management to remittance payments, charitable donations and investments.

Hartley’s FinTech provides both the technology for the Co-operative Bank’s SME banking mobile app and runs a standalone app, Incomeing, available to business customers of any bank which was also developed alongside the Co-operative Bank. 

He cautions: “The digital banks raised the bar in terms of offering a slick digital experience. But these days, there are a lot of solutions out there looking for problems to solve [rather than being created to provide a specific service].

“My prediction is that in the next two to five years, there will be a correction in the finance industry. The companies with meaningful business models which solve real-world problems and look after their clients will survive, while there will be a lot of casualties in the FinTech space.”

Mike Rhodes, founder of ConsultMyApp – the app marketing agency behind banking app Tide’s mobile-first platform – agrees with that sentiment. “There is certainly a lot of money going into the FinTech space – some with questionable valuations and levels of funding,” is his view.

“It’s likely that over the coming months and possibly years we will see this extraordinary level of funding drop off. It is [also] likely that the sheer number of FinTechs will drop off, especially as funding dries up for the startups that aren’t able to provide clear results and show sustainable growth… only those businesses with an attractive proposition and a strong customer base will likely survive.”

Catherine Douglas (above), managing director for SME at the Co-operative Bank, says FinTech players have improved financial services overall. “FinTechs tend to be more expert in new technology and automation – putting digital first – which is helping to improve traditional services,” she says.

“[BankiFi] can bridge the digital gap between what we offer as a traditional bank and what consumers are wanting from us. If we’d just tried to deliver these services ourselves as a bank, it would have taken us a lot longer to do so, without a doubt.”

A new £500,000 co-development deal was announced between the Co-operative Bank and BankiFi late last year. “We collaborate well together,” says Douglas. “Because we’re an established bank with processes and procedures in place, that helped BankiFi – but BankiFi has helped us to think differently and execute things more quickly than we would have been able to on our own.”

Rhodes points to the link-up between Lloyds Bank and marketing giant Publicis Sapient as a further evolution of this theme. “On the whole, the collaboration between traditional and challenger banks shows a lot of promise. Traditional banking institutions are also growing smart to the fact that they need to modernise their offerings if they are to remain market leaders,” he says.

“Fostering partnerships with combined tech and marketing firms is one way they can equip themselves with the required expertise: Lloyds Bank partnered with Publicis Sapient to evolve their user experience and more closely reflect what FinTechs were doing in the space, with the goal of evolving the customer journey in line with their specific needs.”

Anita Kimber (above), an EMEIA business transformation leader at EY, describes the transformation of the sector as moving from ‘monoliths to ecosystems’.

“There is a real need in the market to make it easier for SMEs to get access to cash to run their businesses more efficiently via financial services as well as banks,” she says. “The FinTechs who are successful will be the ones who can help in that ecosystem: it will be a mixture of the bigger FinTechs plus smaller ones which provide niche needs. 

“That’s the whole point of ecosystems now: we’re moving away from monoliths to ecosystems. 

“We’re at a point now where the combination of open banking with open finance is opening up a world of possibility for FinTechs. Some SMEs have taken really good advantage of the innovation. 

“I genuinely think it’s more innovation than disruption because we haven’t seen banks going out of business because of this – but what we have seen is more services able to be provided to consumers and SMEs. The FinTechs able to take all of the regulation, the privacy and security will be the ones who will be able to scale successfully.”

Open finance legislation from the European Commission is expected in the middle of this year to extend open banking principles – around the sharing of data to improve competition – to investment-based financial products including savings accounts, mortgages, insurance, pensions and investment advice.

This will also open up the industry to other players such as Big Tech companies. “Big Tech is coming for the world of finance,” says Gavin Brown (above), senior lecturer and associate professor in financial technology at the University of Liverpool. “The COVID pandemic has amplified the pace of this trend: going forward, expect to be able to purchase your pension from Google, a loan from Amazon and even your monetary system from Facebook (Diem). 

“The decision by Big Tech to further monetise their communities is a logical one in the era of open banking.”

Brown believes open finance has the potential to provide better value and more tailored financial products to users, as informed by their personal data. “Many commentators believe that such sacrifice of personal data is the price to pay for better finance,” he says. “Nonetheless, the relinquishment of such data is at the discretion of the user and therefore within their gift to relinquish, or not.”

BankiFi boss Hartley is not so confident. “Many people believe that the main threat to banks will come from Big Tech firms such as Google, Amazon and Facebook. I genuinely hope that people are waking up and realising that these platforms are actually doing far more harm than good,” he warns. 

“If you think they have their users’ interests at heart, consider how they have evaded media regulation by hiding behind the fact that they are platforms rather than content publishers. 

“I’m sure Big Tech would like to claim that it holds your credit card information to enable more efficient payments at checkout, but how can you be sure that information isn’t being sold on or distributed in some other way, especially if you reside in a geography not protected by rigorous privacy law such as GDPR?”

Brown of the University of Liverpool agrees with EY’s Kimber that the Financial Conduct Authority is a leading light globally in the regulation of financial services and points to its regulatory sandboxes.

“Inevitably there is a lag between industry best-practice compared with both the knowledge and rules of a typical regulator. For their part, regulators are aware of this lag,” he explains. “One strategy has been the use of sandboxes… a safe space where FinTechs who do not meet existing rules can continue to operate with the endorsement of the relevant regulator. 

“This attracts the FinTechs who want regulatory endorsement, and similarly attracts innovation, thus allowing the regulator to learn from new disruptive practice to inform the rule-making of the future – a symbiotic win-win.”

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