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Fintech A.M.: 11-1-2018

A recent flurry of new-style financials solutions have come to market which have been well received. Mainly utilizing only advanced analytics, financial products could be better tailored to the wishes of clients. With several large players currently employing new solutions, competition is bound to force incumbents to follow suit.

These innovations showcase two things which we’ve written about on numerous occasions: Primarily,  many startups building these solutions will want to work together with banks and other financial service providers for lack of their own client base, industry knowledge and regulatory know-how. Secondly, improving financial services can be done with already available technology by those who are willing.

Examples such as Monzo and MYbank operate on these new business models. They utilize widely available analytics solutions to provide more meaningful solutions to their clients. Monzo analyses its customers’ spending patterns and searches for ways to provide them with meaningful methods to save on their daily expenditures. Their business model then relies on providing financial solutions that help with this goal. MYbank on the other hand provides very small working capital loans for SMEs for very short periods of time, often just several days.

As these new applications become available to more clients, both private and business, competition on the basis of technical capabilities is the next step. This trend is already suggested in the accountancy industry by a report from Xero, which found that the vast majority (87%) of SMEs in South Africa prefer to work with tech-savvy accountants.

Incumbents are to follow suit

Incumbents will have to react in order to protect their market share. Several banks and other financial institutions are upgrading their platforms or cooperating with fintech startups for new solutions. TD Bank, Canada’s second bank in term of assets, has just acquired Layer 6, an AI company which utilizes AI technology to improve back-end and front-end processes. Use cases from Layer 6 include product recommendations, next best action, personalized pricing and prediction of complaints and attrition. The acquisition of Layer 6 is one of the typical examples of incumbents to buy companies in order to improve their technical capabilities.

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