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finance & strategy
Fintechs Are from Mars, Banks Are from Venus
JD: Banks have the relationships and consumer trust, giving them the pole position in this race.
Take regulation. It challenges banks, but the ip side is regula- tors have raised the bar so high that regulation actually consoli- dates and supports the position of banks. Frankly, regulators, in their own self-interest, won’t allow ntechs to put banks out of busi- ness. There will be successful ntech disruptors, but they’ll be few and far between.
Where ntech has a real role to play is providing components
of services to banks. Using the automotive industry as an analogy, a car company uses hundreds of vendors to manufacture thousands of parts. Then, it takes those parts and assembles automobiles that compete for customers with other car companies that also assemble thousands of parts—many from the same vendors. In this analogy, banks are car companies and ntechs are parts vendors. The winning banks will be those that most e ectively source and select vendors and components to assemble and deliver portfolios
of nancial services that meet their markets’ needs. The winning ntechs will be those that synthe- size what banks need into their value propositions, creating the best “parts” for those banks.
Anecdotally, some large banks are doing this—that is, quickly assess- ing potential ntech solutions and integrating them into their product mixes. They aren’t afraid to piece
together components as building blocks to create solutions that ac- crue value. This is harder for smaller banks because they may be stuck with whatever their processors provide. For them, acquiring tech from outside their processors may be distracting and hard to justify.
GF: Case in point, I called recently on a prospect who said that to deliver mobile functionality similar to what I was pitching from her core processor, consumers need to install four separate apps—creat- ing a horrible customer experience and guaranteeing failure. But she’s locked into her processor, so everyone su ers, except, maybe
in the short term, the processor.
Paybefore: How do ntechs address buyers’ requirements— knowing full well that, as startups, their products have gaps?
GF: OK, rst, ntechs typically depend on investors for startup funding, which lasts only so long—
so there’s pressure to get to mar- ket quickly, which means it’s almost impossible to launch with a fully formed product. The goal is to nd clients that can accept the gaps while you complete the build out. As gaps are lled, the product be- comes acceptable to more pros- pects. This is how ntechs buy time, so they can survive long enough to reach the broader market.
Paybefore: So how do you address this with prospects?
GF: For me, there’s only one way: Know your gaps and be realistic with banks about how those gaps a ect their requirements. Larger banks may see the strategic value and work with you in spite of gaps. For smaller banks, the bar is higher because they lack resources to overcome your shortcomings. You may have to walk away because they just can’t work with you in your current state.
JD: Let me add, as a potential buyer in this situation, trust is all
fintechs banks