The Finterview - Fintech Exposed episode 17.
The fast-paced world of fintech is continually evolving, rapidly accelerated with the spread of digital tools.
One firm which is navigating these waters successfully with their clients is PSE Consulting, led by their experienced Managing Director, Chris Jones. With two decades of expertise, Chris and his team have addressed intricate issues within Fintech, helping top-tier brands navigate their path to success.
In this article, we'll explore a range of topics discussed during Chris’ interview with Daniel Cronin on the Finterview Podcast - Fintech Exposed. From the impact of shifting trends on traditional banks and fintechs to the strategic role of “beneficial friction” in user experience.
Chris highlights the critical aspects of vendor selection and strategies for fintechs seeking large customers. He also shares strategies for targeting large clients and how to balance risk when choosing vendors. Each insight provides a clearer understanding of how the fintech sector works.
Keep reading for the key takeaways from the episode or 🎧 listen to the full podcast here.
Facing challenges and seizing opportunities
Chris Jones identifies two main factors at play. Firstly, traditional funding sources, such as private equity and venture capital firms, are turning their gaze towards new areas such as artificial intelligence. Secondly, even key market players such as Google and Apple are facing growth challenges.
Fintechs are feeling these changes acutely. Larger companies are slowing down their procurement cycles, creating an added strain. Investor pressure is another concern as they look for faster returns. These hurdles may seem daunting, but they also offer an opportunity.
According to Chris, the best companies find ways to overcome adversity. They often come out stronger and more prepared for success. Some seize the chance to buy assets at significant discounts and others are stepping into niches left vacant by others less fortunate. However, this is not just a period of survival. Innovation continues even in challenging times - the balance between introducing new products and improving existing ones shifts.
So, what's the secret to success in these tricky times? Chris believes the answer lies in adaptability. Firms that can tap into new markets and make the most of what they have will fare better. Start-ups offering solutions to save money and the potential for entering new markets have an edge in these uncertain times.
Traditional banks vs. emerging fintechs: who has the upper hand?
Giants such as Monzo and Starling are reshaping the banking world. Such firms pose a risk to traditional banks but also offer a unique selling point. They provide a secure place for your money, which they do not have the current licensing to lend forward. This fundamental difference might appeal to cautious customers. However, entrusting their funds to a possibly short-lived and “risky” businesses concerns others.
Younger customers find the enhanced services of fintech appealing. As this group ages, their loyalty might not shift to traditional banks, posing a long-term threat to these institutions. These neobanks could also step into areas such as loans, insurance and savings: further denting traditional banking profits.
As time progresses, one question Chris believes will be critical is how fintechs brand themselves. Will they stick to their unique identities or mimic the traditional look and feel of banks? He also poses that their success in risk management, particularly in lending, will decide their future. Businesses might adopt risk averse policies similar to traditional banks, hinting at a possible future blending of these banking models.
Banking convenience and its influence on customer loyalty
The impact of convenience on customer loyalty in banking is worth noting. Chris points out customers often stick with their childhood banks, valuing ease over change. Online payments serve as a similar case, where familiar methods trump better options. Older methods such as wire transfers still rule in countries such as Poland, despite newer, more efficient alternatives - showing the stickiness of human laziness to change.
This brings us to a critical question: does such ease devalue customer loyalty? With endless choices, the customer's attachment to a specific service may dwindle. This isn't just a banking issue; sectors such as music streaming face the same challenge.
Chris has an interesting take, suggesting that friction in services can be useful. Extreme ease sometimes creates insecurity among customers, who expect some control and checks - especially with their finances. An overly seamless experience might mean a lack of controls and erosion of customer trust.
The right level of friction can enhance a service. Knowing where it adds value to the customer is the key. Offering the right service at the right time, minus unnecessary features, could help retain loyalty. Finding this balance becomes crucial amidst the rise of easy-to-use services.
Friction in user experience: a barrier or a value point?
Often, we view friction in user experience as an obstacle. But Chris prompts us to reconsider. Take Apple, for instance. The process of unboxing their products isn't quick but slow and purposeful. This time-consuming yet unique experience instils an impression of superior quality.
In the gaming world, load screens are infamous. However, some innovative companies utilise these moments to offer valuable tips or captivating animations, thus transforming a potential irritant into an unexpected benefit.
In the retail sphere, luxury brands such as Gucci don't offer self-checkout. Why? Because the richness of the service and understanding of the product is key. Conversely, a quick, hassle-free payment process enhances the experience of a supermarket visit.
Interestingly, despite its friction, even the authentication step in mobile payments can build a sense of security among customers. The secret lies in knowing how and when to introduce friction to extract value rather than inconvenience.
Therefore, even in areas such as payments, where smoothness is prized, a touch of friction might enhance the service and even create monetisation opportunities. Thus, it's worthwhile to delve deeper into harnessing these 'beneficial friction' elements.
Navigating risk assessment in vendor selection
Large companies need a more strategic approach to vendor selection. It is about balancing risk while meeting specific needs. Companies often look for partnerships which match their risk aversion. This, however, may not always cater to their intricate needs.
Chris suggests that companies look at the risk involved based on the nature of the product they are working on. When dealing with a product that affects all transactions, such as payment orchestration, it is necessary to implement a completely risk-proof solution. Conversely, introducing a new product, in a new market, is more about testing and learning from engaging customers and growing alongside a partner. Here, a more agile - although perhaps more risky - partner would do better to learn fast, innovate continuously and be willing to risk failure for customer acquisition and market growth.
A significant challenge arises from the tendency of procurement functions to treat all outcomes in the same light, causing misjudgments. This could lead to underestimating the risk for wide-ranging products and overestimating it for niche ones. A solution lies in nurturing a healthy partnership with innovative fintech providers - this enables growth alongside the partner, setting the stage for a more successful collaboration.
Adopting a more flexible and open-minded approach can pave the way for more innovative growth. Balancing risk and innovation is the key to successful vendor selection.
Strategies for businesses
On their side: fintechs face struggles when they are new to the market - as a lack of experience can make them seem highly risky to the aforementioned procurement departments of large companies.
When fintechs aim to attract big customers, it is crucial not to limit the focus to one segment. As Chris shares, it is wise to serve various types of customers with a mix of services. This way, your business spreads its risk and you maximise opportunities.
A suggested approach could be directing most effort (about 80% in Chris’ estimation) towards mid and small-sized customers and allocating 20% of your time towards the larger entities. This balance helps to optimise the mix of risk and potential reward.
At the heart of this strategy is your interaction with customers. You need to listen to them. Each engagement is a chance to learn and improve, regardless of the outcome. Remember, the feedback you gain can refine your product and your approach with future customers.
Chris’ advice is to intimately understand their perspective as this can shape your strategy as you engage with your customers - especially the larger firms. Be clear if your product fits their business needs wholly or is part of a bigger picture. Stick to your strengths, and be honest about what you can deliver.
A final crucial aspect is simplifying the sales process. Remember, large businesses usually prefer fewer, more straightforward supplier relationships as they are trying to manage complexity brought by their scale. Tying together multiple services makes buying from you easier, which is always good for business.
A guide for fintechs
In conclusion, the dynamic world of fintech presents both challenges and opportunities. As shared by Chris, firms that display adaptability, innovative thinking, and sound risk management often thrive.
The industry is experiencing shifts in traditional funding, and major players such as Google and Apple are encountering growth issues. However, these situations can become opportunities for those firms that can innovate, adapt, and penetrate new markets.
The rivalry between traditional banks and emerging fintech start-ups may eventually blur the distinction between the two models. Success hinges on effective risk management. Moreover, the delicate equilibrium between user convenience and a dash of friction could be crucial in retaining customer loyalty.
Regarding vendor selection for large corporations, it's about balancing risk and specific needs. Risk and reward management is crucial for start-ups aiming to attract big clients. This can be achieved by diversifying services across different customer segments. Taking note of customer feedback, understanding their needs, and streamlining the sales process is pivotal in appealing to larger firms.
In essence, the future of the Fintech sector, irrespective of its size or focus area, will be shaped by flexibility, creativity, and strategic handling of risk. This mixture will help firms navigate the challenges and triumphs of this dynamic industry.
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