Over the last 18 months, we have all had a level of digital training like never before. We’re all more confident when it comes to using digital-first services, whether it’s to work, do our banking, shopping and even regarding our health. This should be good news for fintech providers. It’s not just millennials and Gen-Z who are embracing their offerings - they’ve become much more mainstream. Perhaps the old guard is going to fall, you might think. The banking oligarchs will be superseded by their digital counterparts. Yet, as is so often the case, there are signs that things will not turn out entirely as predicted.
Fintech in the UK market
The Kalifa Review of UK Fintech, a government-sponsored independent report by Ron Kalifa OBE, recently showed some interesting statistics, providing helpful information for fintech businesses in or looking to operate in the UK.
For one, the UK is ahead of the curve as the place fintech companies choose to launch themselves into the market. Investment in the UK is higher than in the following five European markets, and most consumers in the UK have used a fintech provider at least once.
In short, the UK offers a more engaged market, attracts more talent and offers more investment opportunities than other locations. If it isn’t already considered a centre of excellence, it’s undoubtedly making moves to position itself that way as part of ‘brand UK’ in a post-Brexit world.
Mark Mullen, CEO of Atom bank, said:
“Atom is proud to contribute to the UK’s reputation as a global fintech centre of excellence. We’ve been on every journey that we imagined, all made possible because we believe that the UK is the best place to create banks.”
The fintech challenge
Where once upon a time, the Barclays and Natwests of the world looked as though they might disappear along with the high street to make way for the rapidly rising Monzo, Revolut, Starling and so forth, something different is beginning to happen: collaboration, acquisition and a realignment of expectations.
By their very nature, most fintech startups provide strong customer propositions but don’t always have such strong business propositions. The standing start upfront investment is substantial, requiring you to have everything in place on day one. You have to invest and then grow rather than invest as you grow. This places enormous pressure on the initial investment, and often these companies don’t make money for a substantial period. They might be volume-based or offer a free lead in product hoping to sell paid, profitable services further down the line.
Equally, trends show that consumers’ main usage of new fintech brands is secondary to other products in many cases. For example, you might use Monzo when you go on holiday, but you still do your day to day banking with Natwest.
The result is that the long-term sustainability of many fintech companies, even the well-known ones, is in question. Monzo is one of the first big names you think of in the sector, yet there is some debate about its future as a going concern. Many of the big fintech players were devastated by the pandemic, but even without it, they are widely thought to still be “fighting to prove to investors — and each other — that they have picked the best long-term approach.”
Realignment and collaboration
If there’s one thing that we have learned as individuals and communities courtesy of Covid, it’s the importance of working in partnership with one another. Pulling together, we can achieve great things. That could ring true for fintech as well.
Where fintech was originally positioned as a challenger to the old market, perhaps consolidation, partnerships and collaboration are the way forward. Take, for example, UK-based robo-advisor Nutmeg, which JP Morgan has recently bought. Launched 10 years ago the company has yet to profit but has amassed assets under management of around £3.5 billion and more than 140,000 clients. The FT reported that JP Morgan had purchased “a ready-made investment solution to complement its planned retail banking operation for the UK to be rolled out later this year.”
At the same time, other long-standing major players in financial services have also launched into the digital market alongside their traditional offerings. Goldman Sachs is a case in point. They launched Marcus, their online platform offering personal loans and savings accounts to retail clients, in 2016.
In January 2021, it was reported that Marcus:
“generated $347 million in revenue in Q4, a 52% increase over the same quarter year prior. For the year, Marcus generated $1.213 billion in revenue – a 40% increase versus 2019. Goldman expects Marcus to hold over $124 billion in deposits by 2024.”
If we were to speculate, it is reasonable to think that consumers will gravitate towards the reassurance of a well known, respected name whilst also seeking the innovation that newer brands bring to the market. Culturally, there is a heightened sense of anxiety - partly because of Covid itself and the rising volume of scams that an advance in digital-first platforms has spurred in the last year.
As traditional banks and investment firms seek to up their game and look for digital solutions to meet the needs of the modern market, is collaboration the way forward for fintech innovators? Joining forces to bring the people aspect of a financial heavyweight, with their advice and knowledge, alongside the tech aspect of a new generation of thinkers seems to meet the shortfall in business objectives for new brands as well as the service gap in traditional banks.
Technology is only one part of the consumer journey - confidence, comfort, trust, and expertise make up the other part, and that’s inevitably born from a well-established brand and experience.
To explore a marketing strategy for the long-term sustainability of your business, contact our team of Fractional CMOs.