From how Covid has affected the Fintech industry, to the annual results of Monzo, Starling and Revolut, it’s certainly not short of news and views.
We wanted to take a deeper look at the sector and understand exactly how startups and scaleups in the UK are contributing to this new economy.
So we spoke with two renowned experts in the field, David Agar and Alpesh Doshi, to find out more.
Challenging Times for Fintech Scaleups
If you’re currently balancing the challenges of scaling a growing Fintech company, then you might want to heed the advice of the experts.
According to David, one of the biggest challenges in this sector is liquidity, especially at the moment when VCs are in a position of strength and can offer lower valuations. To succeed in such a market, differentiation is key – and to come out on top, you have to establish your USP and maintain it.
For Alpesh, another differentiator lies with data. If you haven’t built some form of data layer into the foundations of your business from Day 0, then you’re on the wrong path.
Coupled with a truly agile business model – in the sense of business operations, not just product development – then, according to Alpesh, you’ll be set up for success.
One valuable resource for Startups and Scaleups alike is the thinking behind a concept coined by Brain Balfour and Andrew Chen – Growth Loops.
Growth Loops provide a more sustainable path to growth and help you organise your teams in a different way. And we all know that team is everything!
Who are the Fintechs to Watch?
So behind the headlines, who are the Fintechs to watch at the moment and what do they represent for the industry as a whole?
For David, the one to watch is Tractable. They’ve just raised £45m in investment and are working with some of the world’s largest insurers to disrupt the slow and inaccurate insurance process.
Alpesh has quite a few on his radar! There’s MoneeMint, Thought Machine, Clear Bank… it’s certainly a sector to watch and the challenger brands are yet to show their full prowess
Perhaps one of the most interesting companies right now though is Decimal Factor – a Fintech blazing a trail in the new world of marketplaces. According to Alpesh, this is most definitely a space to watch in the future.
And what of the Challenger Banks – Where Have They Gone Wrong?
It’s certainly been a bumpy ride for the challenger banks – and, of course, these are the most well-known stories given they are ‘high-street’ and consumer-facing.
- For David, Starling Bank appears to have the most sustainable revenue model and has been acquiring customers at a consistently high rate.
- On the flip side, Revolut has been going for longer but at an all-out cost. Is now the time for them to address their margins for growth?
- Then of course, there’s Monzo, who find themselves in an even more challenging position.
Certainly from a VC perspective, their loan book looks a bit too risky to take on.
Interestingly, Monzo’s growth strategy is now focused at an international level.
Something that Alpesh doesn’t necessarily believe is a good one. His advice for anyone looking to follow in Monzo’s shoes is to get your home market right and ensure the product is working. Scaling internationally isn’t something that Fintech companies can easily replicate from the worlds of software or consumer products – and this is because of the local regulations in place.
Another avenue for growth that the challenger banks aren’t yet capitalising on is the B2B market and, more specifically, SMBs.
For both Alpesh and David, this area seems ripe for disruption, especially if you can crack the user experience and onboarding process.
RIP The Big Banks… or Maybe Not?
Barclays Bank – you wouldn’t think it would be a hot topic of debate!
But it was for David and Alpesh.
David believed that Barclays have shown real innovation in recent years – from their innovator labs such as Rise to their digital accessibility programme, they’re keen to overcome their legacy systems and culture, albeit with baby steps that won’t happen overnight.
For Alpesh, the situation is somewhat different and he remains sceptical about corporate-led innovation.
To his eye, the big banks are still scared of the challenger ones, particularly on the consumer side. And they very often default to partnering with startup banks – take Barclays and the recently rebranded MarketFinance. This sort of partnership and integration-led approach will be the way that big banks maintain their dominance.
So Where Does the Opportunity Lie?
Is it perhaps with big tech and the likes of Amazon, Google and even Facebook?
Should we expect to see another Libra anytime soon?
Where big tech does lead the way, in David’s opinion, is understanding the customer and gathering the data that leads to this deep understanding.
But that doesn’t mean we’ll be seeing the likes of Amazon building a bank anytime soon.
According to Alpesh, the tech giants are more likely to use this data in order to provide a more holistic service to their customers – like Amazon is already doing with their customer credit cards.
So back to true Fintech, where is the opportunity? Are fraud and compliance still the sectors to watch?
David makes a great example of Hooyu, a company he personally came across recently when reconfirming his identity on his Natwest business account. The process was quick, simple and fairly painless! Not words you’d usually associate with banking.
And here lies the gold – in improving the customer experience and focusing on a specific part of the process rather than trying to take on the giant world of banking in its entirety.
It’s something that Alpesh feels very strongly about too, pointing to a little-known company who are really making waves – Klarna.
In fact, Klarna has done what many other aspiring Fintech founders should be doing too.
Rather than build a bank, think about embedding a better process within the overall journey – whether that’s improving payments or speeding up specific transactions.
It’s a model that even the likes of WeChat are capitalising on in the Asian market – that of building a different business model to tackle the problems, rather than building banks in just another way.
So there you have it.
The expert take on Fintech and where it’s going.
Whether you’re a scaling founder or a Fintech investor, David and Alpesh’s insights into where the industry is going next are sure to get the cogs turning.
If you’d like to discuss the world of Fintech further with either David or Alpesh, then drop us a note on [email protected].