How have startups disrupted the financial services landscape?

As one of society’s more traditional sectors, the financial services industry has long been ripe for disruption. And as the pace of technological change has accelerated across the entire finance landscape, we’ve seen plenty of opportunities and challenges emerge for the financial services ecosystem. One of these has been the impact and influence of startups – namely fintech firms .

Whilst typically associated with the modern era, fintech’s history is expansive and includes transatlantic cables, credit cards, ATMs and crowdfunding. However, it wasn’t until the 2010s that the word ‘fintech’ became part of the common vernacular, when speed, precision and automation really took hold of the finance market . Now, when people talk about the finance industry they no longer think simply of banks and financial advisors; they are as likely to consider their online investment platform, pension app or open banking-driven money management tool. We’re taking a look at how successful fintech startups are disrupting and influencing the traditional financial services landscape.

Long regarded as being resistant to change, banks have been forced to upgrade and modernise their services in recent years thanks to increasing pressure from fintech companies and digital disruption. Big-name banks have traditionally had a stranglehold on the market, but in recent years we’ve seen agile, tech-driven start-ups challenge this model by taking advantage of consumers’ appetite for change, technological advances and industry regulations to usher in fresh competition. Startups have eschewed the need for fixed assets - such as branches - to be able to scale, running entirely virtual operations that serve customers directly. This has seen the ushering in of neobanks, such as Revolut and Monzo which operate without live customer-facing functions.

Facing increased competition from fearless, aggressive startups, many banks have incorporated digitalisation by partnering with the enemy. In fact, Finextra’s The Future of Payments 2019 report suggests that 81% of bank executives believe that collaborating through a partnership is the best digital transformation strategy, reflected in partnerships such as Lloyds Bank and machine learning-driven Xelix, as well as JPMorgan Chase and Plaid, which are working together to help customers control personal data.

Open banking shakes up consumer financial services

The impact of open banking on the UK’s financial services market has been significant. The second Payment Services Directive brought with it all new regulations in January 2018, providing a secure way for consumers to give third party providers access to their financial information and bank account data. This has paved the way for new products and services that help customers better understand and get more from their money. Some banks were quicker to embrace open banking than others – Starling and Monzo had been excited about its potential long before 2018, while five of the UK's CMA9 banks were issued with warnings after failing to implement open banking functionality by March 2019. Meanwhile, financial assistance apps have thrived, with the likes of Emma, Plum and Yolt providing consumers with new levels of financial insight and freedom.

The global blockchain technology market size is expected to be worth more than US$25 billion by 2025, representing the enormous potential for the financial services market. Blockchain can be used to create a decentralised electronic ledger that allows users to securely access a single source of information. As such, banks and financial service providers are using it for back-end functions such as money transfers and record keeping, and in particular for fraud reduction. Blockchain’s connected ecosystem means it is extremely secure and helps transactions become safer and more traceable.

Blockchain startups are focusing on everything from decentralised cloud storage (Storj Labs) and cross-border money transfers (GeoPay) to trade finance (dtledgers). Blockchain offers enormous levels of security and efficiency, and we can expect to see it being used increasingly within the financial services space.

The retirement planning industry has benefited from fintech disruption, with digital investment products offering low-cost solutions with easy onboarding, low fees and minimum investments, and user-friendly interfaces. Pension provision and management have long been thought of as confusing, something some fintech startups are tackling through new apps and services. Savings and investments platform Raisin has acknowledged the demand for clearer, more manageable pension programs, acquiring German pension startup Fairr in 2019 in a bid to enter the €12 trillion European pension and retirement savings market. By doing so, Raisin hopes to offer consumers an all-inclusive online marketplace to purchase savings, investments and pension products. Then there’s PensionBee, the app designed to bring multiple pension plans under one umbrella, which has more than 200,000 customers and more than £600m assets undermanagement.

If you’re looking to incorporate new technologies into your business – or simply want to upskill your team and keep one eye on the horizon, Hanover can help you find the best talent on the market. Whether it’s within the pensions , banking or fintech executive search space, our deep industry knowledge and existing relationships can help you to find the people you need. Contact us to find out how we can work together.