Fintech should improve as well as disrupt

By James Codling on Thursday 16 March 2017

OpinionSavings and Investment

James Codling, Co-Founder & MD VentureFounders explains why enhancer companies will be the FinTechs that succeed.  

Crowdfunding, cryptocurrency and contactless. 10 years ago these words would have meant nothing, or something very different to the way we use them today. Fintech has come on leaps and bounds in the last few years, especially with many major players such as  Stripe and TransferWise launching in 2011 and the market growing year on year, as many new startups enter the space.

The first group of FinTech companies were described as “innovators”, pioneering new ways of harnessing technology. Then moved in the “disruptors”, shaking up the industry to directly compete with established players. Now I’m seeing a new trend in fintech: the “enhancers”.

The FinTech market is only a small part of the total finance and banking ecosystem, but a very crowded segment. It can be incredibly difficult to succeed in this industry as a) there’s a lot of competition from traditional finance sectors e.g. lots of different ways for consumers to pay and for those payments to be processed; b) there’s competition within your own field e.g. mobile payment providers; and c) people are inherently wary about financial fraud, so a lot of hard work has to be put in on the marketing and sales side to gain credibility in the marketplace.

The rise of the enhancer

That’s why to truly succeed, FinTechs need to add value and improve the way people do things, not re-invent the wheel. Take my field for example, which is equity investments. When a lot of FinTech companies in this space emerged in the rewards-based and crowdfunding spaces, it disrupted the industry by offering businesses which may not have been able to get financing from the bank the opportunity to access the funding they needed to start building their business.

Since then, the market has evolved to have offerings from platforms that allow investors to back businesses alongside VCs and Angels, platforms specialising in specific industries and those that offer services such as managed portfolios. And I believe it is these “enhancer”companies, which build upon and improve a model that already exists, who will be the real winners.

Cooperation over challenging

Looking at the first issue for Fintechs – having to compete with established finance models –  it’s interesting to see just how far the market has come. Where traditional finance models may have seen FinTech businesses as “disruptors” and competition when they first came on the scene, they soon realised that directly competitng model-to-model wasn’t beneficial for them or the customers they were both servicing. As FinTechs started to gain market share, traditional finance companies began looking at how to incorporate them into their offerings, rather than trying to stamp out the perceived threat posed by these new businesses.

The enhancer also does well when facing the second issue – cutting through the noise of all the other new businesses trying to do a very similar thing. By partnering with established players, they are instantly opening themselves up to a much wider audience, increasing their market share and customer awareness, which also addresses the issue of credibility. Having a well-known and trusted partner makes it easier for a new FinTech company to gain credibility in the market and get buy-in from new customers.

Better for all

Not only do “enhancer” FinTechs improve their chances of breaking through in the market, they also create a more joined-up financal ecosystem that makes life easier for businesses and consumers. It’s an exciting time to be involved in the FinTech revolution, which the UK is a leader in. Hopefully in 10 years time we’ll be talking about the “enhancers” that helped evolve the market into the next phase of its growth. 

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