Is rebundling still the answer for FinTechs

FinTech started by unbundling services, but the next stage is for them to rebundle and add more services to their offerings, according to Edison Partners managing partner Chris Sugden in a research interview with FinTech Global.

The early days of FinTech saw companies unbundle banking services, so instead of offering a range of different solutions, they offered a single service. This is in stark contrast to traditional banks which provide a supermarket approach enabling consumers to access all their solutions in a single location. However, FinTechs are now looking to capitalise on the lack of digital adoption by traditional banks and give a more wholistic platform.

“What’s happened in the last year and a half is we’ve had a rebundling, which I think will be an interesting trend for the next three or five years, Sugden told FinTech Global. Frankly, as a consumer on your phone there’s only so many apps you want to use to do financial service related things.”

Having too many accounts and apps can be annoying and brings up the argument of if consumers will want to continue using four separate applications for payments, another four for current accounts and so on. It is a lot more convenient to provide consumers with a single location where they can access all of their services.

“What we’re seeing now is, ‘do I really want an alternative loan by a firm that doesn’t also have banking services, or do I just want that in one place?’ There will always be a room for specific, highly-focused offerings which might only be a one or two trick pony. But I think what is happening now is the consumer wants things back in one place, from an ease of use and as a consolidated view of their financial picture. But you have to have a mobile aspect as well.”

Initiatives such as open banking could be a way to help the financial services industry evolve. Predominantly it can offer FinTech solutions which want to stay as one solution platform can expand while keeping to just their specialty. On the other end, financial institutions can use the initiative to provide their customers with the latest technology without having to spend millions in resources trying to replicate them.

However, its not just the traditional banks that are using the open banking to broaden their offerings, as UK challenger banks Starling and Monzo have both been very active forming partnerships with fellow FinTechs. Over the past month, both of the companies have established partnerships with personal finance chatbot Plum and personal finance app Money Dashboard. These deals see the personal finance solutions integrated with the banks’ own services, demonstrating the rise of rebundling.

Financial institutions have been a major driver for the concept of rebundling the financial services for FinTechs. A number of these traditional banking giants have been able to use their brands and size to offer a wider selection of services which FinTechs offering just one solution type cannot keep up. The development also just comes as common sense. If you already have existing clients, it’s a natural thought process to try and offer them more products.

Edison Partners’ own portfolio company MoneyLion is a prime example of a FinTech looking to diverge away from its single solution approach. The company initially launched as a consumer-oriented lender, and has now broadened its product suite to offer a checking account, robo-advisor, wealth management account, credit monitoring and personal finance management, through one solution. Earlier in the year, Edison led the $42m Series B round of MoneyLion and came on the back off of the company surpassing 1.5 million users.

Sugden said, “In some level, just like the FinTech early days by offering one product and capability and being the best at it was a big advantage. Now as banks begin to upgrade those single products, not having more than one product becomes a disadvantage.”

It’s not just the FinTechs and financial institutions which are looking to the rebundling of financial services, with a number of e-commerce giants looking to explore new solutions which complement their main platform.

Amazon Pay is the online payments processing solution for the e-commerce platform and give consumers the ability to use their Amazon account to pay for services on third-party websites, apps or through Alexa. While this service was launched in the US, its was only launched into other countries last year and the company has been making big efforts to push its adoption. It was reported in the media that Amazon recently acquired India-based mobile app aggregator company Tapzo to bolster its presence in the market.

How could rebundling impact FinTechs?

One of the benefits and advantages FinTechs were able to offer when they launched were cheaper services. As they were only building one offering, it meant they could delve deeper and provide a more enhanced, focused solution. However, if company’s start to offer more solutions then they may lose some of this advantage. Sugden agrees that there will be some companies that succeed with one offering, but the vast majority need to have more than one offering to survive in the market.

While FinTechs need to offer a variety of solutions to keep pace with the evolving market, new entrants will still need to focus on doing one or two. Its not possible to do too many things at once and if there are too many spinning plates at the start, then things will not go well. Sugden believes that the traction in rebundling will take off when the big players and unicorns in the FinTech space start to scale through adding new types of solutions to their offerings.

Alongside the rebundling of FinTechs, traditional financial institutions will continue their efforts in digitising their services and making them mobile friendly. One of the key aspects for them to keep up with the market is trying to capture the younger, more tech-savvy and dependent consumers.

“You already see the banks doing this, whether its JP Morgan, Citi, Wells Fargo. They’ve always offered more of a supermarket approach, but what they didn’t do until now was make sure all their solutions were tech-enabled, and younger generation-friendly with either a gaming aspect or educational.”

Edison Partners is currently wrapping up the funding of its ninth investment fund, and is expected to close in the mid $300m range. While there is no hard ratio for the vehicle, Edison is looking to invest at least a third of the capital to FinTech startups, but this percentage could increase.

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