Four Opportunities in Fintech and Disruptive Finance

Four Opportunities in Fintech and Disruptive Finance

25-Apr-2014 by Startupbootcamp

Four Opportunities in Fintech and Disruptive Finance

You found the Fintech idea that will revolutionize Finance ? You have gathered the best team ? And now you are working on your business plan –and let’s not forget the elevator pitch !

I can certainly relate to this exciting and intense period when the project is coming together, and it’s getting closer for the big jump – I was myself an entrepreneur.

Since then, for more than 10 years, I have been in Finance – now a Managing Director at Citi – where I have a good view on how banks use technology, but also how investors make their decisions.

Most entrepreneurs present their business as the new “Airbnb of payments”, or the “Amazon of p2p lending”. It is clearly very useful to position your startup so that people immediately grasp the concept. Because Fintech and Disruptive Finance are such a wide topic, I find it useful to think in terms of 4 big categories. Each category would tend to have different characteristics.

Before I go into more details, keep in mind the following caveats:
– The list is of course not comprehensive. I’ll be more than happy to receive your feedback on other important areas
– This is a personal article. It does not represent Citi’s view, or my views as an employee of Citi.

1) The Incumbents and the Enablers

Incumbents – e.g. banks, brokers, fund managers – have clearly added a digital channel to their offering, which allows for example their clients to access their accounts online, or transact on their mobile phone.

This is a trend that started 10 years ago and is now standard as evidenced by the data from Pew Research below – two thirds of Internet users use online banking. Together with this growth in digital channels, companies that enable this digitalisation process have therefore grown strongly.

It is therefore not a surprise that in the Fintech 100 of American Banker, 8 of the Top 10 Fintech companies are involved in IT Services.

Growth of online banking – With kind authorisation from Pew Research Center

Many banks have identified the new opportunities brought by technology and are transforming their business accordingly. They clearly need enablers, technologies and services to help them build the bank of the future.

What is important for an Enabler? Industry expertise, IT development, project management.

2) The New Entrants

By definition, incumbents need to build from an existing model, whereas new entrants – pure players – can start from scratch with a different value chain. Low Cost Carriers in the airline industry represent a good example of an industry that was revolutionized – with European LCCs taking more than a third of market share in less than 10 years.

Market share from Low Cost Carriers in Europe – With kind authorisation from Airline Leader

I would argue that we haven’t seen such disruption from new entrants in Finance yet, but that some tentative disruption is emerging. For example:?

Simple (acquired by BBVA) or Moven as a no frills Internet banks – a smarter version of the LCC applied to banking?
Kabbage and Ondeck as data-driven SME banks – the vision of a bank with real-time credit analysis?
Wealthfront and Betterment as no frills investment platform?– Etc..

All these companies were started not that long ago, and I am pretty sure that we will see a few of these models amongst the 2014 class of StartupBootCamp.

What is important for a New Entrant? Product design, IT development, pricing expertise

3) The Real Disrupters

In this category, we would have the Amazons of Finance, the revolutionary business models that do not exist yet. The graph below shows the very interesting dynamic between a Disrupter and an incumbent, in that case Amazon vs. BestBuy. Note that in 1998 BestBuy had revenues of $10bn when Amazon started at zero. Amazon grew very fast, but BestBuy also continued to grow – until BestBuy came to a sudden stop in 2009, with Amazon still growing. The latest figures of 2013 show BestBuy now much lower (around $40bn) vs. Amazon at $75bn – almost double !

This is the main characteristic of real disrupters – they start from a very low level, grow quickly, but are still considered as too small to be a threat, until they really cannibalize demand from incumbents.

From Bloomberg

Today, we would have in this category different companies such as 😕
Lending Club, Prosper, Zopa, Funding Circle, etc. : p2p finance as a way to disintermediate incumbents?
Bitcoin, Litecoin, etc. : digital currencies to replace the current monetary system?
Square, Dwolla, and let’s not forget Paypal : digital payments?
– Etc…

I am clearly looking forward to seeing some real disrupters this year again!

What is important for a Real Disrupter? Inventiveness, Marketing expertise, product design

4) The Outsiders

Do you remember Nokia ? In 2007, Nokia had a 40% market share. Together, Nokia, Samsung, Motorola, Sony Ericsson and LG had a market share of 85%. In 2007, Apple launched the first iPhone. Apple was clearly not a small company, but had by definition 0% market share in mobile phones. Fast forward 6 years, Apple captures more than 50% of all the profits in the mobile phone industry – and everybody else except Samsung loses money in that sector !

Who will be the outsiders ? For as long as I remember, Telecom operators were seen as a threat to banks and payment systems. It is fair to say that it hasn’t happened yet. More generally, all companies with a very large customer base could pretend to disrupt financial services. For example 😕
Telecom operators : although it hasn’t happened yet, Vodafone shows how it can be done with M-Pesa having more users than all local banks combined in Kenya. And this is arriving in (Eastern) Europe…?
Portals and e-commerce sites : Alibaba launched a competing offer to savings accounts, and got 80m new clients and $80bn new money in 9 months…?
– Etc…

As a startup, it might be more difficult to be positioned in that category – this is more a business for large established companies. But like Incumbents, they will certainly be looking for Enablers, such as infrastructure or services.


Disruption is happening in Finance NOW. Because Incumbents will adapt, Enablers will thrive. New Entrants will also emerge. At the same time Real Disrupters are being created and some Outsiders will grab a slice of this new market.

I summarized a few of the features that are necessary for each category, but it goes without saying that you also need to be good at convincing investors and clients, execute on your plan, be nimble and adjust, in other words achieve the impossible!

I wish you the best of luck for your new venture and am looking forward to discovering fascinating projects at StartupBootCamp.

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