Fynsa
What competitive advantages do Fintechs have over incumbent players?
BigTechs leverage the exploitation of their large databases and user bases to aggressively enter financial services. In some more developed markets they follow alliance strategies with banks, but in less developed markets they even seek to have a banking license. seek a banking license.
On the other hand, FinTechs base their success on the exponential growth of the technologies behind their business models, exploiting the gap created between the linear growth of traditional financial services and the exponential growth of new models leveraged on disruptive technologies. The technologies behind the BigTechs and FinTechs with these new business models are long, but among those that have had the greatest impact on financial services we can highlight: the Cloud, the Internet of Things (IoT), API (application programming interfaces), Blockchain or Distributed Ledger Technology (DLT), and Big Data and Artificial Intelligence.
These technologies have strongly impacted the economic forces that govern the financial industry, and as a consequence, the value chain has been deconstructed and financial services have been unbundled, generating a wide variety of innovation-driven offerings. the value chain has been deconstructed and financial services have been unbundled, generating a wide variety of innovation-driven offerings.
Saturated market or are there still opportunities?
Having said all of the above, it seems that everything seems to be quite mature in the financial industry, and the opportunities are getting smallerand the spaces for opportunity are shrinking, but the truth is that opportunities are appearing from other verticals.n opportunities are appearing from other verticals.
The first stems from the gap, in terms of the maturity of the FinTech ecosystem, between developed and developing markets.in terms of the maturity of the FinTech ecosystem between developed and developing markets. The root of this gap is multifactorial, but regulatory initiatives have proven to be one of the most important enablers of the FinTech ecosystem.The root of this difference is multifactorial, but regulatory initiatives have proven to be one of the most important enablers, due to the legitimacy they provide to these new business models. Thus, developed markets have mature ecosystems driven in large part by their regulations, thanks to initiatives such as Open Banking or specific regulations for FinTech activities. On the other hand, less developed markets are still less developed markets are still catching up in this regard, but the good news is that most are already discussing possible regulations, based on success stories from advanced economies. It is in this space that there are opportunities to develop mature and proven business models in advanced economies to focus on neglected niches in developing countries that are ready to issue new regulations.
But how to detect these new opportunities?
The question we seek to resolve then is how to evaluate the existing opportunities to develop them. The answer is not simple, and will depend on the level of development of the financial industry in the country in question.
The first aspect that a country must develop is a good payments infrastructure. If this area is not well developed, we will find opportunities in digital payment models (e.g., transfers with digital wallets), remittances (e.g., transfers with digital wallets), in remittances (international transfers of small amounts, very common in countries with expatriates), or in payment initiation for merchants. or in payment initiation for merchants (with QR codes or alternative PoS systems).
At a second level, and in more advanced markets, are credits and micro-credits, where we can highlight models such as Buy Now Pay Later or Crowdfunding models, such as Peer to Peer (P2P) or credits to SMEs.
The last layer of development includes asset investment models, with robo-advisors, and more complex initiatives such as the InsurTech area (new insurance business models, facilitated by technology) or asset tokenization (this vertical is gaining momentum with private networks created by large financial institutions, such as Blackrock or JPM). (new insurance business models, facilitated by technology) or asset tokenization (this vertical is gaining momentum with private networks created by large financial institutions, such as Blackrock or JPM).
Another vertical of opportunity stems from the need for banks to still look for ways to reinvent themselves, leveraging their main assets: their infrastructure and stability.
Initially, the response of traditional players to the FinTech movement, focused on implementing strategies that sought to eliminate frictions in customer experiences, mainly through the digitization of financial services. Thus the concepts of digital banking and neo banking were born. However, these models managed to improve operational aspects, but failed to win back customer trust, and the growth gap with FinTechs and BigTechs continued to grow.
Thus, as time went by, two new trends began to be identified, Contextual and Conscious Banking. These strategies are born from the industry's understanding that technology or digitalization serves as an accelerator for the transformation of business models, but is not the serves as an accelerator for the transformation of business models, but it is not the objective in itself.
Contextual and Conscious Banking?
In Contextual Banking the development of opportunities is based on the search for alliances with platforms for the sale of goods and services, so that banking services are invisibly integrated into the platform. This strategy seeks to provide contextualized financial services, also known as Embedded Finance. These are open ecosystems, where banking services are invisible, and these are embedded in non-banking ecosystems. An example could be offering a microcredit at the time of payment on an e-commerce platform. This type of service is known as BaaS, or Banking as a Service.
In Conscious Banking there are opportunities in the personalization of products, and the search for collaboration between banks to generate their own ecosystems. This strategy seeks to change the traditional face of banking and generate a new, closer and more transparent relationship with its customers. In this case, the bank's objective is 100% transparent communication with the client, where financial services are reinvented in a more open ecosystem, with the aim of supporting people in achieving their life goals. The vision behind this is that financial services are a means to achieve personal goals. This is known as BaaP, or banking as a platform. In this case, opportunities go hand in hand with the development of data-driven technologies, such as AI and Big Data, and the generation of user experiences, as tools to improve omnichannel services.
So, what are we left with?
In a general overview, it can be concluded that although the business models are "not so new" there are still areas that remain to be developed, and all these opportunities have one factor in common - the construction of digital platforms that integrate multiple services as a result of the collaboration of the financial ecosystem. That is why any business model or technology that strengthens the skeleton of these highly integrated ecosystems, or manages to generate value from the interactions within these systems, still has the opportunity for rapid growth.
By Miguel Musa (Co-Founder Rada Advisory | Academic | FinTech Expert) & Cristián Pavez Miranda, CFA (General Manager Antebo Group (FFOO) | Angel Investor)
