The unbundling and rebundling of financial services
The conference kicked off with a short keynote from Shachar Bialick, founder and CEO of Curve – who are looking to redefine customers’ relationship with their money. Outward VC was an early backer. His theme was how the technologically driven process of unbundling services and then re-bundling them might transform financial services.
There’s ample precedent for such transformation. Bialick referenced the music industry, once dominated by major labels that controlled every stage of the process from finding new acts to handing sales of physical media. The advent of new digital platforms upended the distribution model – and then the actual publishing process itself, with new channels allowing creators using democratised technology to reach markets directly with new content formats.
The same process has been playing out in personal finance. Banks historically owned the whole value chain for their customers, he said, but fintech broke their stranglehold. Not only could new players step in to offer niche products and services via digital channels, their absence of technical debt and legacy branding offered a substantial boost.
What’s happened in music in the past five years, though? As Bialick pointed out, the dominant brands are now universal platforms like Spotify, which re-aggregate the processes of artist discovery, promotion and distribution in a package that’s more convenient for consumers – and which allows for a more disciplined concentration and allocation of value for the different players in the ecosystem.
“Technology and regulatory changes mean the incumbent banks and challengers who own the customer relationships in personal finance can connect their customers to new services,” he explained. “But without that single ‘operating system’ platform, they’re missing out on the network effects that benefit the whole ecosystem.”
Shachar’s vision is to rebundle personal finance offerings under a single point of contact for the user. “It’s not about being a better bank,” Bialick stressed. “Banks do a great job of keeping your money safe. We need to be a platform where would can see everywhere your money is. We are a data company, using customer data to create network effects.”
The result? It becomes easy for customers to make smarter decisions – from spending choices to selecting the optimum ways of managing credit – in every aspect of their lives.
The Panel: change is coming, but the revolution is unfinished
So what does the incumbent banking industry make of this shift towards ‘rebundlers’ – leaving them as trusted custodians of cash, but arguably not much else? Kicking off the panel debate, Raman Bhatia, Head of Digital Bank UK for HSBC, argued that the big banks have a big window of opportunity to provide enhanced digital services to customers.
“Our legacy technology challenges can be overcome,” he told delegates. “We have the balance sheet to pay for it and we can head upstream to compete with the new platforms. We already have 300,000 people on our own digital platform – and with what we know about customer inertia, if we get it even 70% right, that’s probably enough.”
Investec’s Global Head of Digital, Lyndon Subroyen, made his own pitch for ‘incumbent’ banking’s digital savvy, but pointed out the difference with HSBC. “We’ve never tried to be all things to all people, so we have fewer legacy issues to overcome,” he said. “The new tech helps us do what we’re already really good at even better, and partnering with fintechs allows us to tailor the offering to clients.”
Technology doesn’t solve everyone’s issues with personal finance, however. Diane Burridge is CEO of Moneyline, a not-for-profit business that caters to millions of low income households who need financial services but are traditionally only served by high cost payday lenders or remain underbanked. For these households, conventional financial services do not meet their needs and are anxiety inducing.
“And there are millions of people who have accounts, but aren’t using them in conventional ways,” she said. “They’re often managing money day-to-day to make ends meet and a huge amount of the ‘data’ on their spending is non-standard transactions. Aggregating that kind of data into these models is critical.”
That’s particularly true if Open Banking is going to deliver for the widest possible population. The other problem it faces is guiding customers through the maze of choice and opportunity it creates even for the more well-heeled customer.
“We’re seeing a deterioration in understanding,” warned Bud co-founder Ed Maslaveckas. “Finding the right product at the right time for the right customer is still the goal. But that leads us to a more compelling conclusion about the nature of competition in personal finance today: in fact this is all about who can solve problems in the best way, not who offers the best or most products.”
The final panelist, Ola Nordbye, is a VC investor with listed Swedish investment firm, Kinnevik, and for him the investable businesses in personal finance will be those that understand this customer centricity and develop hybrid solutions that allow for an efficient tailoring of services. “Can the big banks respond and evolve in this way?” he asked. “Their problem is that the fintechs aren’t yet touching their bottom line. And many of the decision-makers in those big banks are closer to retirement than their banks are to obsolescence.”
Open Banking remains a key vector for change, alongside new approaches to analysing the wealth of data that personal technology is generating for personal finance businesses of all kinds. Banks are investing – by buying, building or partnering with fintechs – although, as Lyndon Subroyen pointed out, if they’re just looking for smarter tech they’re going to miss out on the real dividend: mindset change.
And what did the panel predict for the future? Panel chair Sanchit Dhote, Investment Manager at Outward VC, asked the experts for their five-year forecast.
Burridge sees a data-dominated, cashless system that further threatens a large section of society and the challenge is to ensure no one is left behind.
Maslaveckas predicts seamless integration of finances across different life experiences.
Subroyen reckons banks will shift from being a safe store of money to being the guarantors and guardians of personal identity.
Nordbye sees a blurring of the lines between tech and non-tech firms – although who blurs those distinctions is still up for grabs; and a revolution in SME finance comparable to personal finance change underway now.
And Bhatia? He’s sure money will still be boring in 2024. Incumbent banks will remain important and gaps in customer experience will be filled by consolidating fintech players.