First we unbundled. Now, we’re rebundling. The latest evolution of banking is here and fintechs are ensuring it’s a better solution for businesses and consumers.
When fintech unbundled the banking industry in the 2010’s it signalled the start of change the likes of which the industry had arguably never seen. Rather than rely on the entrenched relationships they had with traditional incumbents, customers suddenly had a choice. A choice of products and ultimately, better value.
Like any major change in an industry, however, it became apparent that there were shortfalls in what this new way of banking could deliver. Unbundling meant customer service was disjointed and opportunities for brand loyalty for almost non-existent.
It was time for the next phase for fintech. A new phase that built on lessons learnt from unbundling that delivered its benefits, overcame the downsides and more.
Enter: rebundling.
In the past, success as a fintech meant being a master of a single solution. A solution to a financial challenge that was better and cheaper than the solutions offered by a bank.
“Unbundling: the shift from department stores to boutiques.”
International Banker
By unbundling traditional bank services, fintechs could specialise in singular areas: savings or mobile payments, for instance. It was the very opposite of the jack of all trades approach that banks had been operating under. Retail analogies abounded:
“For decades, the bank has been a ‘supermarket’ for our financial needs. The bank pays once to acquire you as a customer but can cross-sell multiple products over the course of your relationship. The hub of it all was the ‘free’ current account – one of the great customer acquisition tools of all time. Of the above services, the bank can give you one to three for ‘free’ and seek to make revenue from doing the other jobs. Because you spend a lot of time engaging with your bank, when you need something else related, they are the natural starting point.”
Deloitte
Unbundling allowed users to rethink this natural starting point. A proliferation of ‘compare’ websites helped, offering an easy way to look outside the traditional bank box and at fintech-driven options. While this had benefits for customers – and the fintechs taking advantage of the changes – it also had significant downsides.
Huge competition meant the market was dispersed. The result was poor value proposition and an often disjointed customer experience. The convenience of a one-stop-shop was lost as was the opportunity for brands to develop a deep understanding of their customers and offer products and services accordingly.
Banks and fintechs were at war. Collaboration was a dirty word.
Now, thanks to an evolved and highly competitive market, fintechs are rebundling it all back up again and cooperation is back on the menu. This isn’t a movement back towards the original banking model, though. It’s a complete rethinking.
Unbundling may have had some downsides but overall it meant a realisation that change was possible. That better banking was possible, and that fintechs were the most likely vehicle for driving this change.
“[Fintechs] have grown from a sideshow to the elephant in the room for banks. By engaging customers in their daily lives to solve specific financial needs with a distinctive experience while delivering back useful customer insights with advanced analytics, these digital companies have gained customers by the millions and a rapt audience of investors attracted to their compelling growth story.”
S&P Global Research
And true to their entrepreneurial roots, fintechs are now leading the rebundling of the industry.
Instead of challenging singular verticals, fintechs have rebundled and are focussed on offering products and services that offer value as well as a seamless user experience and the benefits of brand loyalty.
Shopping for a whole product suite (and more – we’ll delve into that later) in supermarket-style was originally popular for a reason. Convenience and one source of trust are powerful aspects of the decision-making process. There’s a strong case for this style of banking – but we now know that this doesn’t have to be in the form of a traditional bank. Evolved fintechs can offer all of this while still offering the type of innovation and value that drove the unbundling phase in the first place.
The benefits don’t just lie with customers though.
Being a single source for multiple points of products and service means new evolved fintechs can build a wealth of customer data. Data that they and the brands they partner with can use to gain insight into the financial behaviour of their customers and make decisions accordingly.
The most competitive fintechs in the future will be those that offer the elements of a bank – loans, savings accounts etc. – as well as additional and complementary products and services. We’re entering a time in which users might sign up for a credit card through the same brand that might shop for energy deals, secure insurance or receive bespoke offers.
Traditional banking is still on the rebundling journey, thanks to cooperation with startups as they optimise internal processes and customer journey, launch joint products, and create an ecosystem of financial services around the bank.
A study by Cornerstone Advisors found that nearly two-thirds of banks and credit unions had partnered with at least one fintech in the past three years. Of those who hadn’t, 37% planned to partner with a fintech in 2022.
Many agree though that the horse already has bolted. That the incumbents have been too slow to change and that the gap is now too wide for them to close. That naturally agile fintechs will outpace banking in this new phase of rebundling, a position that will be emphasised as digital-native generations like Gen Z reach decision-making age.
One thing is for sure: it’s good news for customers.
“The overriding driver in all of this innovation is how the experience can be improved (securely) for the customer.”
The Payments Association
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