FinTech Zapping - 25th January

FinTech Whispers

??TransferWise reportedly appoints Goldman Sachs and Morgan Stanley to steer it through LSE float

Pioneer in cross border payments and giant of the space seems to be finally looking to go public and have decided to do so in the UK (initially there were some discussion on the best “floor” to go public). Transferwise a company that quietly has changed the industry to the extend that today the company process ~#48B worth of currency transfers in a year and as oppose to many FinTech has been profitable for 4th year in a row, is determined to go public. It’s yet to see what type of mechanism will be used to go to the markets, the trendy SPAC or perhaps it would through a more “traditional” route. Another important player to add to the list of possible IPOs for this year.

??A closer look to Chime's fee income

Building a company valued ~$14B and with over 4 million customers in just 7 years is hard, but if we add the extra pressure of wrapping up the whole idea on profitable driven strategy it might be almost impossible if your biggest catch-up for customers is the fact that your offering fee-free products. On one of my weekly FinTech Reflections we covered the importance of building robust profit driven strategies (LINK) non depend in this case on interchange fees from card usages, as we have seen the many problems this situation can drive difficulties into obtaining a positive ration between customer acquisition and LTV.

??Why neobanks have refocused from skyrocketing growth to reaching profitability

Since the prior article is not exhaustive, here you can find a more in-depth view on the path that have taken many neobanks to build profitable structures in the short term to stay afloat. I have emphasized several times the rapid change that the industry has gone through, since the pandemic has challenged their main revenue sources (interchange fee from card usage) driving players to act on it sooner than expected.

?? Figure Lending lands $100M funding facility

It seems that players along the mortgage value chain are attracting interest from investors, as we have seen from recent activity (Molo raising $350M or Better mortgage raising $300M). It is true there is a different here since the above-mentioned fund raising were equity as an opposite to Figure raising cash through debt financing to fund its operations. Still the fact that investors are eyeing the mortgage space it’s an indication on the high hopes for the disruption of the market.

??Plaid launches incubator aimed at early-stage underrepresented fintech founders

Plaid is moving forward and is launching their own incubator to host early stage players that are underrepresented in the ecosystem. If you ask me I would say this a pretty smart move that comes in just the right moment, after a complicated year for early stage players – global FinTech activity has been hit hard on this segment, as we have seen investors are looking to more established players lowering their interest in small companies with a lot to prove. Plaid mission to democratize access to FI products and services has now taken another shape, in the form of a platform that would help entrepreneurs to grow their ideas.

FinTech Reflection – Ecosystems through the FI space

The emergence and consolidation of FinTech throughout the FS landscape have inevitably pushed the transformation of the industry, forcing traditional institutions to move up digital to the top of their agendas soon becoming the center of all efforts. What seem to be competition, evolved into cooperation or partnership and now we can describe it as an ecosystem. Also, we must not forget that incumbents and FinTechs are not the only actors serving the FI space anymore, thanks to the rapid evolution of technology (most pushed by Open Banking) players from other industries (tech, telco, airlines, energy…) have pivoted on their technology and existing value proposition to launch their own Banking offering.

If we mix all these players in a shaker, besides from getting an exciting and competitive years ahead of us, we will find a combination of different solutions that sometimes complement each other, and some other times could be redundant. Either of them can fit into the idea of developing FI ecosystems, large network of players that come together for different purposes with the common objective of reaching the final customers through as many platforms/channels as possible. From my point of view, we can classify the different ecosystems upon the role of its participants into Orchestrator, Partner and Contributor. Each of these options entitle a different purpose and of course a distinct level of complexity which is directly correlated with the time to impact for the institution and the ecosystem

Orchestrator

The most complex one but at the same time the role that offers the player the greatest control over what is happening in terms of the products offered, volume flows and capacity to steer the course of the relationship with the rest of players across the ecosystem. High level of tech involvement and deep alignment within the organization is needed for a successful orchestrator experience. Many ecosystems fail due to miss conceptions at the time of launch such as not enough value proposition for problem solving, weak launch strategy, erroneous interaction format etc. It’s the orchestrator’s primary objective to ensure that there’s a well-defined roadmap to ensure a successful roll out, as I would say that design failures account for around 80-85% of reasons why ecosystems fails.

Proven ecosystems functioning can be Open Banking platforms (e.g. API market, BaaS offering), enhanced apps or also known as Superapps (e.g. banking is one of the many services offered through the app) or marketplace/platforms connecting the various stakeholders in an ecosystem (e.g. marketplace enabling third party products)

Partner

Second and probably if we look at the ratio complexity-return the most effective one, as it does not require the same level of involvement as the prior one, yet an active role and engagement is essential. Even though the pressure and responsibility for the success of the ecosystem is shared among the different participants, I find extremely important to build synergies and a connection between the members to enable the steering the ecosystem in the right direction. We must not forget that the drivers for ecosystem failures are the same regardless the role taken.

There are many examples of ecosystem partnership, for example a marketplace for car/home buying (e.g. dealerships, property search engines, insurance, and banking players), consortiums to explore and launch products leveraging on innovative tech (e.g. DLT) or a simple two way partnership with a another players to complement or extend existing offering (e.g. partner with alternative lender and refer customers that don’t meet banking credit underwriting).

Contributor

The easiest one in terms of complexity and involvement, as in this case the player plays a passive role where it does offer its products/services but that’s about it. Low time to market and a potential to reach large customer base is what drives players to choose this role. On this segment we will find the bulk of players that play the role on the other side of the orchestrator, companies participating through marketplaces, offering their services in open platforms etc. The objective here is to be present through as many channels as possible, in other words work on the omnichannel offering for users.

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Digital ecosystems bring a number of benefits to the banking business (e.g. direct revenues, cross selling, data access...). However, regardless the role, for an ecosystem to be successful is fundamental to deeply study its design and launch strategy to engage with the different actors across the ecosystem.