Crypto and decentralization in 2022; Banks and Neobanks vs Super apps; Ecosystems as a future of banking;
Perspective for today:
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The beginning of true innovation in Fintech
I believe a true innovation in fintech is getting started. Why?
So far most of the startups were building products that transitioned traditional financial and banking services to the digital environment but the core element remained the same.
A simple example before you had to visit a bank branch to transfer funds and identify yourself but now you can do it all digitally on your smartphone. I think the core element hasn't changed your transfer funds through channels that were developed long ago.
But things are starting to change and the most innovation I believe has started to happen in the last 5-7 years.
Let’s look at how the fintech ecosystem became what it is today. There are diverging views as to when fintech really kicked off, but most agree that the advent of e-commerce in the early 2000s ushered in a wave of online payment services, exemplified by PayPal, the OG fintech company reports Accel.
Alongside shifting consumer behavior, smartphones and the cloud-enabled new fintechs to rapidly innovate and unbundle the banks, piece-by-piece. On the back-end, the infrastructure layer was being rebuilt, with monolithic tech stacks being replaced by plug and play tooling.
Pay attention it is the moment when we started to shift to digital experience but with the same products and services. And exactly 5-7 years ago we started the shift and innovating on products and services themselves not simply offering the same product digitally but truly changing them.
Companies like Solarisbank AG and Mambu led the way in providing out-of-the-box infrastructure and freeing up engineering talent to focus on innovation. On the front-end, new fintechs revolutionized the customer experience and reinvented centuries-old services, including P2P transfers, remittances, lending, and more. A generation of exciting consumer fintechs like Klarna, Revolut, Monzo Bank, and WorldRemit (now Zepz) were born.
Today, we’re seeing a new generation of fintechs emerging. These companies are able to launch and scale faster than ever before, standing on the shoulders of previous generations. Both fintechs and non-fintechs can leverage modular tech stacks and regulatory-driven data sharing (with the advent of PSD2 in Europe), allowing them to launch new products rapidly and effectively.
Web3 is also creating a programmable and transparent foundation upon which new business models and use cases can be built. The chance to rebuild the financial apps we know and love on Web3 rails could be a once-in-a-lifetime opportunity.?
I am expecting a huge leap in fintech particularly in the use of blockchain, DeFi, and Web3.
What type of new products and innovations are you expecting?
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Cash gifts on Facebook Messenger
Now you can send cash gifts on Facebook messenger. Doesn't it look familiar perhaps monetary gifts on WeChat?
Chinese companies are often blamed for copying global brands and their features but obviously, things have changed at least in fintech.
Customers can now send a cash gift with new holiday-themed backgrounds and gift wrap on Messenger using Facebook Pay on Android devices.
To send a holiday cash gift, tap the $ icon in the Messenger composer, enter a dollar amount, write a personalized message, and select a holiday-themed background or a gift wrap. With fast transfers to bank accounts and no fees, it’s a great last-minute gift.?
This feature reminds me of WeChat's red envelope. The WeChat red envelope was developed by the Chinese investment company Tencent and launched in January 2014.
WeChat Red Packets originates from one of Tencent’s company customs and broader Cantonese tradition that every manager in the company gives each employee a red envelope with a small cash gift on the first workday after the Chinese New Year holiday.
As the company expanded, it became exhausting for some managers to give out so many Red Packets so they asked for technical solutions to solve the issue – they had no idea that the result would become the prototype of WeChat Red Packet.
Users can give others virtual credits which can then be used to purchase goods online or withdrawn. Since then the digital version of the cash gift has become increasingly popular with tech giant Baidu, Inc. and the online shopping conglomerate, Alibaba Group offering their own.
Since launching the project, the market value of WeChat Pay, WeChat’s financial services division has more than doubled.
Copy is a common practice in the startup world and copies are often improved versions of the initial products.
Facebook's this move is obviously another step on its journey to becoming a true super app and increasing its presence in the financial services market.
What other fintech services are you expecting next?
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Banks and Neobanks vs Super apps
The market has changed until recently banks were competing against neobanks now it is banks and neobanks vs super apps.
I have come across an article by Kirill Bychkov that almost 100% shares my vision on super apps and their role.
The rivalry between traditional banks and neobanks has ceased to be one of the most acute topics in the financial market - due to the fact that the border between these types of financial institutions is becoming more and more ephemeral.
On the one hand, in an effort to follow trends, traditional banks are gradually shifting to digital. On the other hand, since their inception, neobanks themselves have not made much progress in development and have not come up with fundamentally new solutions - in fact, they provide the same services as competitors.
Yes, they made their products a little more convenient, accessible and understandable - but their solutions are not much ahead of the offer of classical banks. As a result, many digital banks have reached a ceiling in their development, which also affects financial performance. To understand this read my post on the lack of diversification in the fintech and banking link in the comments.
The services offered by banks - both traditional and digital - have stopped responding to market needs. To win back a significant share of the industry, you need to change the essence of the product and the approach - and the future will be with those who can do it.
The rise of the super apps is inevitable.
In the context of the stagnation of the banking market, digital ecosystems have become a new competitor to existing players. Unlike banking products, their value to customers has less to do with the money itself, but with how it is used. Instead of many disparate services, the user receives a single tool with which he can make purchases in an online store, activate roaming, pay taxes and call a taxi.
The market lacks such universal services, so the audience is forced to use a whole set of different applications. For Generation Z and young millennials, the norm is to have two, three, or even five bank cards: to accumulate miles, for coffee discounts, for trips abroad.
By combining the solutions of all these problems into one super app, you occupy an increasing share in the client's head - and, accordingly, in his wallet. This is the path that Chinese giants are developing - for example, Tencent, which constantly finds new "pain points" of consumers and turns them into points of growth.
We all heard the phrase "the data is the new oil".
Another advantage of a fintech project that has grown into a super app over mono services is the presence of a large array of audience data. Such data contain information about its composition, needs, and problems - and this allows you to launch a product that will meet the needs of customers as much as possible, and therefore be in high demand.
Who will win?
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SoFi or Decentralized Social Media could be the social media of the future.
The idea seemed unrealizable to me but when I started reading the article by Lawrence Wintermeyer I started to understand the potential of SoFi and how it change social media as we know it.
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It’s becoming more and more evident that the social media model is broken. Successive scandals continue to underline that social media platforms put shareholder profits and advertiser interests above consumer protection and security. You do this in banking you're threatened with a jail sentence or at minimum a whopping fine and censure from the regulator.
It is evident that the established social media companies have a Goliath-sized edge on new entrants when it comes to user numbers. The same will have been said about banking before challenger banks, bitcoin, and DeFi arrived, where big fintechs are overtaking banking and the rise the ￡2 trillion cryptocurrency market has been created by the people, without the traditional financial system and governments - all of this in the last decade.
Facebook and Twitter have vast, ready-made audiences, on which to test new features and integrations, however, user sentiment isn’t necessarily on their side. It’s become apparent recently that Facebook, in particular, is struggling to attract younger users.
Moreover, decentralized platforms have an edge that could prove to be a killer – financial incentives. Blockchain’s peer-to-peer payments, combined with DeFi and gamification, offer endless opportunities for users to generate income for their content while also earning for other activities like watching ads. Could this be the incentive that attracts people away from traditional social media platforms??
This is the question I also would like to get an answer to. New things always scare us, therefore, we don't want to change things we already know and use.
However, I think SoFi could work. Let me explain how.
As a professional who works in fintech and part-time content creator, I would promote SoFi! Why? Because it would enable me to monetize my work and in turn for my audience, it is the way to motivate me to keep creating. Peer-to-peer payments and DeFi elements of SoFi would help me to get my payment instantly without a middleman.
Financial incentives, ownership of your personal data, and control over your content in the Web 3.0 metaverse makes a compelling SoFi proposition and a darn good start. If all of this is free and it's easy to access a fulfilling experience, it is a killer app.
At this point in the evolution of Web 2.0 and social media, it would be difficult to find many people who would argue that the current social media model is sustainable. The big question is whether the vast global user base of existing users can be persuaded away from their established accounts in favor of a different way of interacting online.
Would you switch to SoFi? What could be some of the risks of SoFi?
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Ecosystems as a future of banking;
If today’s FinTech activity is a barometer, the future of banking won’t include universal entities offering everything to everyone. It will likely feature firms operating in partnership with multiple suppliers to provide integrated products and services. Orchestration is turning new-age banking players (e.g., Tinkoff, ????? Kakaobank, and WeBank) into one-stop-shop super apps offering banking and beyond-banking services.
Ecosystem banking thrives on creating and cultivating network effects, in which a large customer base attracts suppliers, and more suppliers attract more customers and vice versa. Within an ecosystem, FinTechs can leverage various collaborative synergies to:
Ecosystems help FinTechs transition from just-another- banking-app status to becoming a hub central to customer lifestyles. Starling Bank, which started with payment services and cards in 2016, soon collaborated with several FinTechs to orchestrate an ecosystem offering various B2C and B2B financial products and services.
While not all FinTechs have the resources and capabilities to orchestrate an ecosystem, all require economies of scale to drive favorable unit economics. These FinTechs often elect to join multiple ecosystems to achieve a profitable scale.
CreditLadder, a UK rent reporting service that helps tenants strengthen their credit history, integrated into the Revolut marketplace, and became active within ecosystems built by UK firms TSB, Halifax, Metro Bank, and open platform API specialist Bud.
Ecosystem success is contingent upon consistent customer engagement that converts to high loyalty and retention. As FinTechs evolve into ecosystems, they work to boost their daily active users (DAU) volume as a percentage of monthly active users (MAU), preferably higher than 20% and as close as possible to 50% or beyond. The popular China-based app WeChat maintains an impressive 92% DAU that makes it a sought-after ecosystem player (WeBank). China-based Alipay also sustains an active user base with a DAU of 50%.
Do you think DAU and MAU should be applied to fintechs, too?
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Shared bank branches in the UK
UK banks opening up shared bank branches. Is it an alternative of a financial super app but offline?
A slew of major banks in the UK have agreed to use shared branches in 2022, as part of a broader initiative to arrest a cash-access squeeze. The initial participants include Lloyds Banking Group, HSBC, NatWest, Barclays, Nationwide, Santander UK, Danske Bank, and TSB Bank.
Shared branches will be run in five areas, adding to branches opened earlier in three areas through a pilot program.
? The initiative also relies on ATM provider Link, which will be tasked with assessing the cash needs of communities facing closures of branches or ATMs. Link, which has already assessed most affected communities, will then determine if impacted places need assistance.
? The shared branches will also be coupled with the 2022 rollout of free-to-use ATMs in 11 communities, plus help from the UK's Post Office to roll out "new and improved, dedicated cash services in up to 30 branches."
The broader program was initiated by the Access to Cash Action Group (CAG), which includes representatives from several big banks. UK Finance, a trade group for banks, announced the update.
The banks are banding together as the UK faces an ongoing wave of branch closures. According to Which? a consumer-advocacy publication:
Meanwhile, UK Finance states that cash usage is 35% lower than it was before the pandemic—but millions of people still use it.
In a statement, CAG Chair Natalie Ceeney said that cash "continues to play a vital part in the lives of at least 5 million people in the UK – including some of the most vulnerable in society."
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Crypto and decentralization in 2022
It seems crypto and decentralization will be in almost every aspect of our life in 2022.
Crypto infuses all financial services
Twenty years ago, “is it an internet company?” was a common question. Today, (almost) every company is an internet company. Ten years ago, “is it a mobile company” was a common but now obsolete question. Similarly, we will soon stop asking “Is it a crypto company?” because most companies – starting with the broader financial services industry – will have a crypto component.
As crypto takes up more and more mindshare of consumers, financial apps are adding crypto products to gain further wallet share. For instance, Robinhood started with stock trading and now facilitates some crypto trading; some neobanks allow customers to earn higher yields through DeFi (decentralized finance), and larger banks are in the early days of experimenting with crypto offerings.
In 2022, we’ll see more crypto infrastructure built for transfers, wallets, and yield as a service, custody, and more, so consumers can continue to integrate and manage both their fiat and crypto financial lives. We’ll also see a new wave of fintech companies that are powered by crypto infrastructure in the back-end, and what others are calling DeFi mullets (fintech in the front, DeFi in the back).
The web3 community will emerge as a major political constituency in the U.S. midterm elections. Web3 or I would say strive for decentralization and empowering communities are part of the politics now.
The web3 constituency is young and diverse: 79% of millennial voters, 73% of Hispanic voters, and 79% of Black voters are more likely to vote for a candidate that supports expanding web3.?
They seek a meaningful alternative to the current financial system — one that gives them direct control over their money and provides investment options for parts of society underrepresented by traditional financial institutions.
So what do these voters care about? By a wide margin, they want policymakers to focus on regulations that crackdown on bad actors and illegal activity while being careful that regulations don’t stymie economic opportunity for average Americans. They want policymakers to lean in and participate in our national technology strategy.
They overwhelmingly believe that web3 can give consumers more control over their data. They believe that web3 can bolster U.S. technology leadership on the global stage. And they want government to play an active role in supporting community-owned web3 platforms.
Community-first social investing platforms.
What do the GameStop saga and ConstitutionDAO have in common (besides Citadel’s Ken Griffin)? They both illustrate the desire for internet community participants to collectively direct their money towards a greater goal – whether that goal be running a distributed hedge fund or buying a copy of the Constitution.
What are your expectations from the crypto world in 2022?
CDO | Digital Transformation Leader | Iqbal’s management consulting, digital tech & corporate venturing expertise enables him to build and restructure organizations for success in the current climate
2 年Sam Boboev the banks and superApps article is a very interesting perspective, it would have been great if Krill’s article was available in English!
Payments | Embedded Finance | Wallets | Fintech
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