As surprising as this might sound, FinTech might be your best bet if you want to make the world a better place today. Lower barriers to entry brought about by the digitisation of the world are forcing the financial services beast to take a new shape – one that puts a higher premium on giving their customers what they truly need, how they truly need it.
The new ‘shape’ of the FinTech is a highly efficient model. While traditional banks used to build their own costly and inefficient infrastructure, FinTech is an ecosystem of startups which are connected to each other like LEGO blocks. As an example, Currency Cloud is a cross-currency platform which supports platforms such as Mango Pay, which is itself a marketplace platform supporting applications, such as Property Moose (a crowdfunding platform for property).
The design of this model is passing on efficiencies to customers, in the form of more options and lower charges for financial services which make lives better. TransferWise (based on Currency Cloud) uses this model to reduce the average bank cut on remittances from 8% down to 1%. To put this breakthrough in perspective, consider that global remittances are 3 times the size of the global aid budget. This means that if everyone used TransferWise instead of banks it would have a greater effect than every country giving 20% more global aid. Lending Club is using this platform model to grant affordable loans; Bux is using this model to help everyday people trade on the stock market.
But cheaper isn’t the only indication of better. As competitive advantage is less and less about regulatory, technological, or capital barriers to entry, we see that banks, tech giants and startups are now competing around user-centricity – who can best understand and fulfill customer needs. In the insurance industry, squeezed profit pools are kick-starting insurers to explore how to really add value to peoples’ lives. Of particular interest is that insurers are looking at how they can prevent risk, rather than just compensating after the fact. Jawbone UP, for example, is a wearable designed to share data amongst a group, encouraging people towards healthier lifestyles. Marmalade insurance is a company that helps young drivers to learn to drive safely.
What potentially will provide the most impact is that in many areas FinTech is cutting out the middle-man and connecting people directly. This will result in people having more control of their finances and, hopefully, making more ethical decisions. For instance, many people have money in savings accounts, or accounts where middle managers have made the decision on where the money should be invested. These might be places the customer doesn’t ethically approve of – but the degree of separation has made it easy for people to be less conscious of it. Now, FinTech startups like robo-traders (Zen Assets) and crowd investing and lending schemes (Seedrs, Crowdcube, Kiva) mean that we can make our investment decisions directly, more consciously and visibly. It will give people the opportunity to invest in the places they live and the things that are important to them.
At Claro we’ve been making sense of both the big business and user shifts in financial services. Through our consortium and partnering with banks, technology companies and startups in financial services, we’ve been exploring how best to design strategy, products and services which keep the customer at the center. Will this prove to be a formula that changes the world and makes it a better place? It certainly seems to have the potential to go well beyond the financial services industry of old.
If you’re interested in hearing more about our approach, Aldo de Jong will be presenting; ‘How to re-think banking for an Always in Beta World’ at Next Bank, Barcelona on September 22nd.