The end of universal banking: why success in fintech relies on specialists

Fintechs are realising that the key to longevity is being a specialist - solving specific problems in a way no one else can. But, to create the best and most specialised solutions fintechs must work with the most specialised partners.

Luc Gueriane, Moorwand CCO

For a long time, universal banking dominated the financial services sector—a handful of banks, enabled by a handful of monolith technology providers, offered a plethora of services to all. The lack of competition in the market resulted in a lack of innovation—an absence which continues to plague legacy banks.

David Brear, CEO at 11:FS, puts it best, “incumbents have to deal with ever-increasing operating costs through legacy technology, resources and real estate…Billions spent just to keep the lights on.”

The introduction of fintech ended universal banking. In a perfect storm of the financial crash and technological advancement, fintech introduced competition and colour to a previously monopolised and grey industry by unbundling and, in some cases re-bundling, the concept of a bank. Taking aim at the inefficient or backwards parts of banking—payments, loans, credit etc.—the fintech industry placed value upon specialisms, born out of the belief that they could provide a better, customer-centric, banking experience.

Following the arrival of fintech after the financial crash, mistrust of banks spread through the public and concerns around how they control economies intensified. Regulators then began driving the growth of fintech. Open Banking is a case in point. Lawmakers created this policy to boost competition and innovation and stop so much resting with so few.

As the market continues to grow, so does the demand for technology. The rise of Banking-as-a-Service is testament to this. To offer financial services today, fintechs no longer need to “own” the technology—a necessary gear change that will accelerate the embedded finance era.  With competition increasing and new business models being introduced, fintechs are realising that the key to longevity is being a specialist—solving a specific problem in a way no one else can. But, to create the best and most specialised solutions fintechs must work with the best and most specialised partners.

Why? Resilience, differentiation and scale.

Building resilience

The events of 2019 and 2020 saw services that served millions of consumers go down, sending shock waves through the industry. As the fintech community moves forward, it’s important to acknowledge how the ecosystem supported one another. For those companies that were unfortunate collateral damage, and had their accounts frozen overnight, reliance on specialist partners was critical. In-depth knowledge and expertise of the technological and regulatory implications enabled partners to migrate services across quickly and effectively, causing minimal impact to customer experience, reputation and revenue.

For fintechs starting to realise their propositions, these events highlight the importance of bolstering resilience through creating a support network. While there are providers which offer all-in-one fintech services, businesses must understand the cost involved in relying on these short-cuts. There’s not only the monetary cost to consider, but the difficulty of migrating a whole programme when all the separate payment services—from issuing to BIN Sponsorship to payment scheme access and beyond—are entwined into one package. In fact, HMRC Treasury is further investigating the risks of reliance upon sole providers as part of its work to ensure operational resilience.

Standing out from the crowd

The fintech revolution introduced competition which ran deeper than just cost. Fintechs are now competing, and therefore innovating, on more fronts than ever before. Cutting through the noise is no mean feat, but the key is doubling down on what makes a proposition different—how is this product or service alleviating a pain point in a new way? Or even solving an untouched issue? From here, fintechs can begin to specialise.

Yet becoming a specialist isn’t a siloed journey and reliance upon the fintech ecosystem is essential. Creating a proposition that will achieve longevity requires working with experts to advise and provide highly tailored solutions, enabling fintechs to solve new problems in new ways.

While off the shelf all-in-one service providers offer a level of simplicity, relying on generic services will likely result in generic offerings which struggle to stand out.

Scaling on demand

The fintech landscape is evolving at such a rate that innovating quicker than the pace of change is critical. Otherwise fintechs risk losing relevance before they’ve even entered the market. But the rapid rate of evolution also means it’s essential for early-stage fintechs to pivot and re-align strategies consistent with technological, regulatory and market developments.

Off the shelf propositions have limited flexibility as they enable fintechs to deliver similar services. And when fintechs start to scale specific parts of their proposition these ‘flat-pack’ services can limit growth opportunities. In contrast, specialised partners have seen it all, giving them the experience and know-how to journey alongside a fintech, advising on what parts of a proposition to dial-up and then providing the technology, access and licences to do so. Working with a partner also means accessing their network, and in many cases, the wider fintech ecosystem

Collaboration is key

As the fintech industry matures and takes stock of how it has disrupted the banking industry for good, it’s critical we continue placing value on specialisms to create a better, customer centric, banking experience for all. Early-stage fintechs are hurdling different barriers to the ones of their predecessors. A long-term vision and a support network of experts has never been more important to those starting out today.

Discover more insights from Moorwand by reading our other articles.

To find out more about Moorwand’s Issuing (Bin Sponsorship), Digital Banking and Acquiring – head to our solutions page or get in touch.

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