Why having no customers could be the best thing for your fintech startup


In Malcolm Gladwell’s book “David and Goliath: Underdogs, Misfits, and the Art of Battling Giants”, Gladwell asks his readers to reframe the classic biblical battle of David and Goliath. Rather than say David won despite his disadvantages in height and size, he argues David’s disadvantages should rather be seen as direct advantages, they’re just not as obvious. He argues there is a fundamental psychological difference to viewing the world in this way that as humans and entrepreneurs, we shouldn’t ignore.

The ultimate purpose of Gladwell’s book is to parallel David and Goliath’s battle with that of entrepreneurship in the face of incumbents. No more so is this evident than in the realm of challenger banking.

So, taking Gladwell’s approach, if you were to start a challenger bank from scratch, what is one classic disadvantage that could be reframed into an advantage that in fact gave you more than a fighting chance?

An obvious one is that banks have customers while challenger banks and fintech startups have none

Many fintech startups consider partnering with banks as the swiftest route to market, mainly because of the existing customer base that can be tapped into. Given the option to become a bank or not themselves, this can be a big consideration to weigh up.

Of course there are plenty of other concerns, like compliance overheads and capital requirements – and these are not trivial by any means. But from a strategic go to market perspective, the opportunity to co-market and have your products pushed to new customers by a bank’s marketing and sales teams looks like a great deal – on paper.

To challenge this obvious advantage, my suggestion is to consider the following:

  • How energised and engaged is a banks customer base today and do they really trust the messenger?
  • Are banks effective at distributing the products they already have? And if not, what makes you think your product will fare better?
  • How many people, from how many different banking divisions are going to have to get into a room to agree on a distribution strategy for your product? And, if it eats away at their business line’s margin, how will you prevent them from sabotaging it?

Executive buy-in into fintech partnerships is one thing, mobilising a bank’s troops around a common goal is another. We’ve already seen this flounder massively in the push for banks to become more accountable through business lines when it comes to acting in a customer’s best interests from an ethical standpoint. Intent versus execution has been a gap you could drive a truck through. Wells Fargo is the latest to spring to mind.

Flipping this around as a challenger bank, it’s interesting to throw around how you could use your perceived disadvantage of not having customers to your advantage.

  • You can create energy and enthusiasm around your products and vision, rather than spend marketing efforts trying to re-energise a jaded customer base
  • Not having customers allows you to only choose profitable customers you want on your books, not those you don’t
  • You can have complete creative control over your distribution strategy, rather than be locked into some archaic commissions driven hierarchy within a bloated, unproductive sales team
  • If something isn’t working, you can move fast. I challenge any non-challenger bank to deliver on that one in a fintech partnership

There are stories of fintech startups who tried the challenger banking route and quasi-failed, like Tungsten in the UK. And these lessons should be learned from – Bernard covers some of them here in this post from 2015.

Having the ability to look through a disadvantage to see its possible advantage cuts across all aspects of building a successful fintech business. This includes product design, pricing, sales and marketing.

As Jack Ma, founder of Alibaba famously said when he decided to take on online shopping behemoth eBay, “eBay is a shark in the ocean. We are a crocodile in the Yangtze. If we fight in the ocean, we will lose. But if we fight in the river, we will win.”

And if Alibaba’s estimated market cap of $237 billion is anything to go by, let that be a lesson.

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.

One comment

  1. This is a good post that reaches right to the heart of fintech innovation. Incumbents cannot transform to customer centric without disrupting their profit mandates and shedding holders of personal fiefdoms.

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