Joseph Cuschieri
FinTech keeps gaining momentum as it becomes a disruptive driving force in the transformation of the global financial services industry through high quality customer experiences, technology and innovation. FinTechs are not only affecting the growth and the efficiency of banking services and the financial services sector in general, but they are also widening the scope of services, enabling financial inclusion for the un-bankable and under-served groups such as retail customers, SMEs, startups and micro businesses.
The global FinTech market is estimated to be in the region of $132bn and is set to reach $400bn by 2027. It is growing at a CAGR of 25% with approximately 26,000 start-ups launched in 2021. It is estimated that a total of 8.5 trillion digital payments will be executed in 2022.
So what does it take to be successful in the FinTech industry and what are the critical components which will shape a viable business model slated for success and growth? I have identified five critical components which will make a FinTech business successful and sustainable in the long-run: regulation, talent, technology, customer experience and funding.
- Regulatory environment: Financial services is a highly regulated industry and while regulators are attempting to embrace and encourage innovation, technology and investment, there is still the element of a “one-size fits all approach” which burdens FinTechs with heavy regulation (similar to legacy banks). It is crucial that financial regulation becomes more harmonised and efficient to allow the FinTech industry to innovate while regulators should realign their supervisory approach as customer behaviours evolve. Regulators are going to have to change faster than banks to remain relevant,
- Technology is transforming the way we bank and pay irretrievably. High-end technology is becoming increasingly about instant gratification, seamless interactions, personalisation, frictionless customer engagement and margins based on size and scale. This technological revolution in FinTech is leading us to a situation where financial services become frictionless and the burdens of KYC, customer on-boarding, risk management and compliance will become algorithms and data management challenges and not processes,
- Funding: FinTechs tend to become profitable in the long-run and would need different rounds of investment in order to build the necessary critical mass, customer base and shareholder value. They are characterised by high-up front investments but lower variable costs compared to traditional banks. It is crucial that FinTechs operate in an environment (market) where the necessary funding can be secured from different sources.
- Customer experience: High quality technology and innovation is not the end game in the FinTech business – it’s all about the experience. As a FinTech, you need to be integrated with the customers’ needs by providing the service where and when they need it most (with agility). Customer centricity and touch-point excellence will be the key differentiator in the payments & banking industry. The concept of the “Super App” should be at the core of the product development strategy of FinTechs.
- Talent: The mentality needed in the FinTech space cannot be that of legacy banks or traditional financial institutions. The thinking and approach has to be closer to a technology (or software) company than to that of a bank or financial institution. The composition of the team should be a mix of finance, data analysts and computer scientists. You would need innovative talent who understands technologies such as blockchain, cloud solutions, machine learning and chatbots. I am not saying that you don’t need financial services specialists (e.g. bankers) but the focus should be on operations and execution capability. There needs to be a relentless focus on simplifying processes and make the customer experience as frictionless as possible.
One final point: to succeed in the FinTech industry its not just about the technology. The quality and composition of the team, efficient management of data and continuous innovation, are crucial in ensuring long-term success. You need to be good in delivering the technology, operations and the experience which meets the customers’ needs in a meaningful way. A FinTech’s ability to make life simple for its customers through the above five critical success factors will manage to remain in the game for the long-run.
