Customers increasingly expect flexible, personalized services. They expect them at times and in places of their choice and to have products specifically tailored to their needs. And they want full services on their mobile phones.
FinTech firms make this kind of relevancy their take-off point. Many are focused on the consumer space, where technology has enabled them to reach and acquire customers more easily. Some of the greatest inroads from new competitors have come in retail consumer banking.
The $100 trillion payments market has long been dominated by major banks, credit card companies, and other financial firms. But new entrants are emerging, offering cheaper and more flexible ways of processing payments, and they now have most of the online market, as an article in The Banker, “Chinese Banks’ Big Tech Threat” shows. Some challenger banks now have over now have over 2 million customers, according to CB Insights’ The Challenger Bank Playbook: How 6 Digital Banking Startups Are Taking On Retail Banking.
The largest InsurTech companies have collectively raised nearly $1 billion, with total valuations approaching $9 billion.
Many of these FinTech firms are targeting younger customers—their average age is currently 34—and are marked by agility in organizational design as well as in deploying technology. The continued scaling up of these startups poses growing competitive threats to the incumbents.
“Product by product, if someone figures out how to do it cheaper, and better, it will crush the margins in each,” as one director observed at the summit.
Peer-to-peer and online lending represent a major market for growth outside of traditional incumbents. In 2016, online platforms provided approximately 15% of all SME loans in the United Kingdom. In the United States, FinTech companies account for about a third of this lending, up from less than 1% in 2010. New models are emerging as well, which could have a significant effect on financial services in the future. One new model is the “bank-as-a-marketplace,” which allows customers to easily move money into multiple providers.
“That’s the opportunity. It’s about finding a way to feed customers content and get time on their mobile device,” according to one participant at the summit. Innovative business models are also emerging from InsurTechs, creating innovation in response to changing customer needs, although few have reached the scale seen in banking.
“This is how insurance started: getting together to solve problems and reduce risks,” commented one director at the summit.
Incumbents face the additional threat of major entry into financial services by the large-scale technology platforms. It is easy for these huge service providers to offer banking and insurance across their networks, which comprise billions of consumers.