Smart Bundling and Adjacencies
The initial phase of the fintech era saw the emergence of many digital start-ups specializing in just one aspect of financial services (such as lending, international payments, investment advice). This was referred to as the “un-bundling” of the traditional banking model whereby banks provided a very wide range — in some cases hundreds — of different products. Inevitably some of the banks’ product lines would not be market-leading and could therefore be vulnerable to cherry-picking by new entrants.
There are numerous recent examples of banks joining with specialist fintech providers to enhance their consumer propositions. In some cases, this “re-bundling” enables propositions to move beyond the traditional, narrow banking domain to adjacent areas like investment, insurance (and even parking) so banks can play a bigger role in their customers’ ever-expanding digital lives. This move into adjacencies has been a key successful strategy for Chinese Tech Giants like Alipay and WeChat. WeChat famously started out as a social messaging network, but then added a payments capability. It is now one of the world’s most powerful payment brands.
Some major fintechs, such as Revolut, are even starting to add traditional core banking services as an adjacency to their initial specialist areas of focus. This approach is explicitly on the roadmap of other disruptors such as Marcus (Goldman Sachs’ fintech subsidiary).
From a bank’s point-of-view, smart bundling of Third Party capabilities for both traditional banking products and adjacencies, allows them to remain as the customer’s primary interface, and to offer better product features than they could deliver in-house. This approach is therefore more likely to attract and retain customers.
Even some fintechs that initially set about developing direct-to-consumer brands that compete with banks, such as TransferWise (cross-border payments), have recognised the hard work involved. For them it makes sense to partner with banks, tapping into their established brand and consumer bases.