FinTech Bubble about to Burst?
There is no doubt financial services were crying out for some variation. The existing bastions in the financial sector had been stuck in their ICT silos and long-term planning for quite some time. And so the only place where real innovation was going to come from was from outside …
We have since seen an avalanche of innovative developments, with FinTech being a real hype and just about every initiative launched under this banner immediately being swept up by hordes of venture capitalists and investors. Many FinTech start-ups comprise small teams of intelligent individuals developing ‘niche’ products and services and not primarily focused on the greater good of wanting to ‘improve financial services’. Their drive, instead, is to create market momentum so that they can be bought up and ‘cash in’ on their bright idea or semi-developed concept. Lots of money has been burned through this way. Indeed research shows that, worldwide, over €5 billion was invested in FinTech in the past six months alone! So it’s definitely a hot topic.
This push is certainly a good thing as it’s making banks, insurers and pension providers more receptive to innovation and change than ever before. Regulators, too, recognize and are increasingly willing to anticipate this by loosening their (often too tight) reins a bit. But there’s also a downside to this momentum. The multitude and diversity of developments are overwhelming the market. And this fragmentation is making it difficult for regulators to keep ‘control’ and for financial market authorities to continue protecting consumer and market party interests. The changes we’re seeing are also not just on a national level as more and more international providers are now besieging the market with their financial solutions. So who’s in charge? And who’s protecting consumers?
Many FinTech ‘solutions’ turn out meanwhile to be just ‘overlay’ products and services; in other words, apps and tools that are simply variations on the same theme or modifications of existing options. That’s certainly true in payment services, where many of the new structures work along lines almost identical to those already available in the market. The only difference is that they’re more flashy and dressed up more excitingly. Take the new start-up bank Bunq.nl, for example. These new structures attract existing bank consumers, who then put money onto these alternative accounts and pay for the additional services. And that means the market is becoming increasingly fragmented.
My prediction is that all these developments will at some point trigger a huge implosion. There’ll be rationalization and a shake-out, partly driven by regulations, but primarily by ‘wiser and sadder’ investors looking at their returns on investment. So the market will have done its work and rejuvenated the sector. What we’ll be left with will be the established providers of financial services, along with a limited number of newcomers offering state-of-the-art solutions.
As I see it, the real competition is not from FinTech, but from those parties able to manage consumer and business data and information and to do it better than the existing providers. These newcomers will be only too pleased to leave day-to-day transactional business to the usual banks and insurers. Where the real game is being played is in the field of (personal) information of and on clients, and the value that this has. And that’s exactly where Google and other players are moving into position.
Harry Smorenberg (firstname.lastname@example.org)
Harry Smorenberg is an independent positioning strategist in the international financial sector.