As the FinTech industry matures, it is becoming increasingly apparent that more and more new FinTech companies are enablers, rather than disruptors. Where we once saw traditional financial institutions and ambitious start-ups locking horns and competing over the same customers, we now see new and old businesses working together.
Rather than directly challenging established institutions, these enablers offer solutions that enhance and improve the offering of existing businesses, collaborating rather than competing.
A study produced by Accenture found that investment into FinTech businesses classed as enablers grew by 138% in 2015 (the most recent data available), representing 44% of total FinTech investment.
In comparison, the investment in disruptors grew by just 14%.
So, is the time for disruption drawing to a close? And what’s changed to put the emphasis on enablers?
How disruptors paved the way
The 2008 financial crisis exposed holes in a financial system that was ripe for disruption. Mismanagement, lack of innovation, and rising consumer distrust combined to offer newer, more agile, businesses a chance to reshape the status quo, and the latest advances in technology gave them the means to achieve it.
Post-crash, a FinTech revolution was underway, fuelled by start-ups with a new vision for financial services and payments. Companies such as Stripe, which disrupted online payments by offering easy onboarding and integration, directly challenged established methods.
Other examples include AngelList, which connects institutions and investors with early-stage startups; Square, which enables retailers to take mobile payments through any Android or iOS device; and Kreditech, which uses big data to more accurately assess the risk of lending to an individual.
These businesses might be successful, but there are many others who have fallen short and been forgotten. Cast your mind back to the dot-com boom: between 1995 and 2002 more than 450 disruptors – including new digital currencies, wallets, and networks –attempted to challenge the financial institutions.
How many of those dot-com disruptors survive today as stand-alone businesses? McKinsey puts the number at “fewer than 5” – so that’s four then.
Banks have realised that to avoid losing more customers they have to start improving the digital experience they offer. Historically, this has not been their strong suit; they don’t have the culture, agility, or innovation required – that’s where the FinTech firms come in. Banks can partner with these companies to reduce their operational costs, ditch legacy systems for the latest technology, and to target new customers.
But what’s in it for the FinTech startups?
As the dot-com example showed, competing with established financial institutions is hard. Successes like those achieved by PayPal during that period are the exception, rather than the rule.
To succeed as disruptors, businesses must battle to achieve brand awareness, investing heavily in marketing. Understanding and navigating regulatory challenges is another significant barrier to entry.Simply put: banks and FinTech need each other.
They are opposite sides of the same coin, offering complimentary services that together can achieve high profitability.
Does that mean we’re seeing the end of disruption? Don’t count on it.
As long as there is innovation and technology, we will see disruption. One possible future is that AI personal assistants, like Siri, will make banking apps and websites obsolete.
Our assistant will track our finances, automatically managing our money as efficiently as possible. In this scenario, the companies we see as disruptors today will themselves be disrupted.
Thankfully, one thing will remain the same: as technology improves and companies compete, it is the customer who benefits.