Fintech’s might be scalable but are they defensible?

Scaling a business is a challenging endeavour for a fintech provider up against the big old boys of banking. Unlike an incumbent, in the early days many are single product shops, and often lack a decent loss leader. This can prove challenging on the pricing front, especially when you’re trying to get a foot in the door of a price-sensitive small business. Banks on the other hand have a number of cards up their sleeves – from bank accounts to payments – that can in essence be given away, priming them for a future up-selling opportunity.

In the early days of a fintech’s lifecycle, the mono-product strategy is often an advantage. A highly specialised provider can not only catch a bank on the back foot technology wise, but can often turn a dime in a market where margins are still relatively high across the board, thanks to a lack of competition. Winning customers with a technically superior product plus a marginal cost saving is the ultimate sweet spot for supercharged acquisition. ‘Wow’, says the prospective customer, ‘not only is this better than what I have, but it will save me $X per month. Sign me up!’

As the banking sleeping giants wake up, the easiest weapon at their disposal is price. Suddenly the fintech has to shift their sales pitch to a much more value orientated style of messaging. The deals will still be won, however the sales team will have to work harder for them. By continuing to innovate on the product front, then this attack is defensible using this strategy

But what next, after the purchasing decision is made? It is unlikely the customer ever stops fully comparing what they are using verses what the market has to offer. The purchasing state can be triggered at any time. And banks know this.

This is where it  becomes super important to work out how to continuously show the return on investment your fintech product is delivering verses your competitors. Most banks are terrible at this. However many fintechs are yet to work out how to fully exploit this to their advantage. This is where customer data and behavioural analytics can be mined in order to pre-empt the customers desire to shop around.

Show me the return

I’ve seen this in action in a few places. As part of our research at Tyro into the current account market we’ve noticed ING employing this type of ‘continuous ROI’ tactic. As part of their Australian cashback campaign, each month they’d let their customers know how much they’d earned.

But imagine if, for the very same account, how much more powerful this would be if you could state, with some degree of certainty, to what lengths you’d helped customers avoid paying late fees, dishonour fees and admin fees. You could even get customers, when they onboarded, to input these charges at the beginning of their contract, from their previous provider, so your assumptions were calculated using a personalised baseline.

Any fintech could then generate a continuous ROI measurement on their product and deliver this on a regular basis. The unfortunate reality is in startup land, many only see value in implementing these sorts of tactics once churn becomes a problem. When marketing and communication tools were seen as a cost centre only there was some rationale behind not expending unnecessary resources here. This is not the case anymore. In my opinion, increasing the sale-ability of your product is equally important as increasing the defensibility of your product. Most companies are catching up on the sale-ability front with online forms and lightening fast on boarding. These companies include banks – see Goldman Sachs Group’s latest announcement. On the defensibility front however, I think there’s plenty of opportunity.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

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