Part 3 — How Are Fintechs Winning?
Over the past six years in the US, as the head of fintech sales for IDEMIA, I have had the chance to work with all market leaders including Square, Stripe, Robinhood, Marqeta, SoFi, Galileo, Varo and more than fifty others. Now back to Europe, I want to share in this series of posts my experience living the birth of this wonderful fintech industry.
In the previous posts, we saw that the fintech revolution was well underway and already a reality in the United States. Today we will see how we got there with a focus on the fintech culture in terms of their offers and the reasons for their success.
Working daily in this sector, the first striking trait is perfectionism: a product or service must be perfect in terms of design and of course, Apple is the model here. Teams will spend entire days iterating until they achieve the desired goal. No surprise then that design teams are so powerful within fintechs
The measure of their success is the unboxing experience. Because their customers, mainly millennials or Gen Z, of course are sensitive to this perfection. As soon as a new offer is launched, customers will post photos or videos on social media with their comments on the product, and of course it is this new type of word of mouth that will make the launch a success.
Obviously the app is central to the entire user experience and most fintechs have simply skipped other channels rejecting websites in the trash of history… All takes place within an app with a neat design and optimal ergonomics. My experience is that opening an account with a fintech always takes less than five minutes, often around two minutes only!
Thanks to the network effect, it costs Square’s Cash App $5 to acquire a new customer, about one-hundredth of what it costs a traditional bank!
Design is the basis of success, but real added value comes later. I think there are four main reasons for the success of fintechs:
- Their ability to use innovation to offer better services at a lower cost. For example, a well-designed artificial intelligence will give better investment advice than a traditional bank advisor, fintech credit scoring algorithms will be more relevant than those of traditional credit bureaus, etc.
- Their capacity to grow rapidly: where a traditional bank took fifty years to expand, a fintech will do so in just one year. I’ve always been fascinated by these hallways leading to mini offices, they looked like phone booths, which were actually interview rooms for new recruits (before COVID of course). More importantly, their cloud architecture allows them to keep up with this exponential growth. This did not of course go without a few high-profile hiccups when major fintechs had resounding outages…
- Their ability to optimize the network effect and cross selling. The network effect is well known in social media: if my friend is on Facebook, I will go to Facebook as well. Thus dragging my other friends, etc. Fintechs have replicated this model wonderfully: there is a reason why one of the most successful fintechs is called Social Finance (SoFi)! One of Square’s top executives recently reported [1] that the cost of acquiring a new customer was just $5 thanks to this network effect, which is about one-hundredth of what it costs a traditional bank!
- Their freedom from any legacy infrastructure: no old COBOL system to maintain, no old heterogeneous systems due to a long history of mergers to migrate: fintechs use recent software on systems at the cutting edge of technology. Also the weakness for traditional banks of their gigantic branch networks, mostly empty, that they must continue to manage at prohibitive costs and to which the COVID crisis could well deal a coup de grace…
And this works, because customers love their fintechs. N26 in Europe, for example, is the preferred bank in Italy and Austria and ranks second in France and Spain ahead of all their traditional bank competitors [2] while Monzo ranked first in the UK for their overall service quality [3].
The success of fintechs is therefore based on an original and innovative product / service culture. We will see in the next post that this is made possible by an internal culture that is no less disruptive.
— All opinions shared in these posts are my own —
- [1] Brian Grassadonia, EVP and GM of Cash App, Credit Suisse 24th Annual Technology Conference, Dec. 1, 2020
- [2] The World’s Best Banks, Forbes, Jun. 2020
- [3] Personal banking service quality, Great Britain, Independent service quality survey results, Ipsos MORI, Feb. 15, 2021
