How FinTechs are Unbundling and Enhancing Financial Services

A lot is set to change in the financial landscape in the next few years. As the world continues to become even more connected, it is apparent that the financial world is lagging behind other industries when it comes to innovation. While the term FinTech has become more prominent recently, financial technology is nothing particularly new. However, advances in technology coupled with the demand for a better way of banking has resulted in a huge buzz being generated as new entrants set to disrupt the market. Areas which have seen the most disruption include payments, lending, FX, current accounts, and remittance.

[easy-tweet tweet=”With new regulations set to roll out in the next few years, collaboration will be key.” hashtags=”fintech, tech”]

By unbundling financial services, FinTech disruptors have been able to capitalise on the fact that a number of major banks arrived late to the digital party. In addition to this, in the wake of the financial collapse in 2008, FinTechs with e-money licenses were able to provide pared down banking solutions such as prepaid cards linked to e-wallets instead of traditional current accounts, and alternative lenders – which unfortunately includes payday loan companies – have seen exponential growth. For better or worse, the financially excluded were able to access alternative solutions that the banks were not willing, or not able to offer them.

Disruptors become collaborators

It’s not simply a case of the Davids against the Goliaths though: a new breed of FinTech companies have emerged that are breaking down barriers – offering innovative solutions that optimise legacy processes and infrastructure rather than disrupting them completely. By providing banks with the option to collaborate to enhance their existing offering, or to outsource non-core banking services, FinTechs have been able to carve out a niche by focusing on a very small part of an incumbent’s business, and improving it. Collaboration benefits both parties and their customers, and smart FinTechs have already realised that the future will be rife with opportunities for further innovation – aided in part by overwhelming support from major regulatory bodies and governments.

The Financial Conduct Authority (FCA) has provided startups with a regulatory sandbox, which allows them to test their propositions in a safe environment. The UK Government and Bank of England have announced support for the FinTech industry, and the UK Payment Systems Regulator (PSR) announced at the start of the year that it would be opening payment infrastructure that has been monopolised by major banks for years. In Europe, the Payment Service Directive II (PSD2), an EU legislation that focuses on payments, is set to shake up the payments ecosystem across SEPA (Single Euro Payments Area), with banks having to provide access to third party payment providers.

With new regulations set to roll out in the next few years, collaboration will be key. Not just for banks partnering with FinTechs and vice versa, but also for more established FinTechs and new entrants. Areas of financial services could even end up being micro-optimised in each niche – further unbundling and enhancing the product dependant on the end user.  While there will always be noisy disruptors that shake up the status quo every once in awhile, those who give themselves the greatest chance of success will be the ones who aren’t too precious to do things quietly and efficiently by forging partnerships as well.

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