Fintechs scale up to take on incumbents

By David Beach | 1 October 2018

The great unbundling of the financial services industry continues in earnest as new market participants enter with increasing frequency.

Their stated goal is to solve the problems that incumbent services are either too lethargic to handle or simply unable to provide.

But it might be too easy to jump to the battle between big, slow bank versus small, agile fintech. The real battle for the fintech community is scale, an issue which put to a panel at today’s AWS FS insights event.

“Before 2008, the banks were reasonably good at keeping up with technological change,” said Megan Caywood, chief platform officer of challenger, Starling bank, “but in the aftermath of the regulations brought about by the crisis, innovation dropped to the bottom of the priority list.”

While the 2008 crisis halted internal innovation within financial services, the technology sector was flourishing, widening the gap and leaving the financial services technological capabilities trailing in the dust. The launch of the iPhone and innovative platforms like Airbnb, Uber and Whatsapp have all gone some way to raising the bar in terms of customer expectation.

“Since 2008 a gap has emerged” said Caywood, “Starling has been filling that gap.”

As the financial services slowly played catch up in the decade to follow the crisis, Starling and a cohort of challengers have been offering a tech first approach to products, often based on past difficulties experienced as a consumer and with the forethought of how technology can improve.

“With a background in financial services, I thought I’d know what to do when buying a house, that wasn’t the case,” said Dan Hegarty, CEO and founder of online mortgage broker Habito, outlining how he identified the problem. “The complete absence of any data in the market, down to the product level and the pretty horrendous complexity of regulations made the system difficult.”

Hegarty recounted how two very simple and needless systemic errors had delayed and led to rejected applications: “My first application was rejected by the bank because the application was under my name, my wife’s name and my wife’s name again. That wasted 3 weeks of the mortgage process. We rectified the problem only to hear back 2 weeks later that my name had in fact been removed, leaving the application in the name of my wife and my wife.”

With this frustration, Hegarty spent six months building a platform, and quickly fell into the trap that all startups of creating a “long laundry list of problems to solve”.

To guide them through the tumultuous early days, ClearScore, a challenger in the credit scoring market, adopted a fairly regimented approach to rollout.

“Having identified how painful accessing credit was, we drew up a new experience of a ‘financial CV’ in a four phase journey,” said Klaus Thorup, CTO and co-founder of ClearScore.

ClearScore, powered by Blenheim Chalcot’s tech stack, the fintech specialist VC, achieved inception to product launch inside six months.

From there, ClearScore reached one million customers in early 2016, and now stand at seven million across South Africa and India. This rollout happened in four stages across two years: market testing, bridging the platform to a hybrid cloud, user retention and migrating to AWS.

Taking companies to market is clearly a triumph in itself, but ensuring their success is an altogether more complex task.

“As we began scaling internationally and increasing our microservices,” said Barry Laffoy, DevOps engineer at ClearScore, “we needed a much more flexible and reliable platform and so migrated to 100% cloud on the nomad platform.”

For Caywood and Starling, sustainable growth revolves around continuing to differentiate themselves with their contemporaries.

“We’ve launched savings goals and joint accounts but we’ve also built a marketplace to integrate and make the most of the best in class culture that we’re seeing with the UK’s fintechs,” said Caywood, reiterating collaboration over competition with a Starling standard plug-in for fintech services.

“In this era of APIs, we have high level data exchanges that improve the customer experience,” said Caywood, “for instance, with our partnership with Habito, we can use the customer’s Starling details to expedite onboarding to Habito’s platform, and in return Habito provides data from their platform, so that the Starling current account becomes the only current account you need.”

Ultimately, for Caywood, scale through technology doesn’t just change the way you deliver to market, but the entire business model.

“In the banking space, a lot of banks believe they’ve ‘done’ digital just by launching a mobile app,” he said. “Now with open APIs and consumer control over their data, in order to compete, you need to model your business around the technology.”

Hegarty considers scale with the regards to core focus so that a company never loses sight of its raison d’etre.

“To do that I needed to reconnect with the sheer rage I felt sitting at my kitchen table when I had the best understanding of the customer,” he said.

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