Fintech investors should look for value beyond re-bundling enablers

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

On the one-hour train ride to Zurich for the annual SICTIC Fintech event that will be held at Trust square, with only the speakers physically present, I focused on reflecting on the Swiss Fintech landscape.

Swisscom maps the startups on a monthly basis and reported in early November 375 startups with 5 new additions. Map source

Investment management and banking infrastructure are the largest clusters with 37+% and 30% respectively. In this phase of the Fintech evolution, I don’t think so much about the focus area like payments, investing, lending, etc. but rather I prefer to look at a different way of clustering.  My filtering is based on the following criteria

  1. Which Fintechs are enabling integrations via APIs at scale, effectively being the go-to marketplace to grow platforms?
  2. Which Fintechs are building their offerings on open-source technologies?

As we are in the re-bundling phase in financial services and with the embedded Finance trend accelerating, criterion (a) is vital. Fintechs with a laser focus on developing integration enablers can be working with other Fintechs, with incumbents of all sizes, and with tech companies embedding financial offerings. From plain vanilla aggregators to Fintechs with real-time streaming APIs of various metrics.

Canopy is a simple example of a Swiss-based Fintech that has gone international with a presence in Singapore. Canopy offers a secure way to aggregate investment accounts across providers and show analytics. It caters to HNW, financial advisors and banks. All assets, all formats, analytics, visualization, reports.

As the competition in financial services is relentless and with ample capital to fund later-stage Fintechs, the million-dollar question remains `How to build & scale a sustainable business without a huge budget`. One way is to build on open-source technologies that not only has no cost but also allows for eventually, licensing the Saas technology that the Fintech develops. This magic sauce has been used very successfully in the East in consumer banking. I was listening to the Webank story on the Banking transformed podcast over the weekend, with Jim Marous talking with Henry Ma, the CIO of Webank. The cost of serving a customer at Webank is as low as 50 cents! This is accomplished by using open-source technology and innovating relentlessly with a fast-piloting time frame. Henry Ma explained that they have mastered the way they bring to market new services. Because of their agile tech architecture, they can test a new service in a small group of customers, and then offer it live to all within 11days!

Fintechs that meet my (b) criterion overlap often with criterion (a) as they operate internally only via APIs and in later stages may choose to open up their APIs to external providers.

In Switzerland, an example of this kind of Fintech is Ariadne. This is the Swiss Ariadne not the Greek one that helped Theseus to defeat the Minotaur. Ariadne is built on the open-source technology of Actus that has created a global standard for the consistent representation of any kind of financial instrument (existing or novel). ACTUS stands for

A – Algorithmic

CT – Contract Types

US – Unified Standards

Ariande, is a for-profit Fintech, that offers modular regtech solutions (e.g.AML and reporting) AnalytX.  SolitX is Ariadne`s genuinely innovative core-banking system that can be customized and enable traditional banking offerings (loans etc) and blockchain-enabled offerings. Ariadne`s offering core banking offering offers an agile core banking system to manage liquidity, automate reporting, accounting and financial planning.

I will be looking more closely into the Swiss Fintech landscape to uncover, other Fintechs that go beyond API banking or API offerings for banking. Henry Ma`s insights have resonated with me, as I believe in what he has emphasized

` We believe that open innovation and open collaboration is really the next level of forum openness for open banking`. Source

Banks have traditionally had no R&D departments, except on Wall Street where a lot of proprietary modeling & analytics was taking place (up until the 2008 crisis). Now, financial service providers have started to recognize the importance and impact of open-source technology in financial inclusion and in scaling, but are invited to realize that internal – proprietary R&D (wherever it takes place) is short-sighted. Open collaboration in financial services is the concept that Harvard Business School Professor Henry Chesbrough has pioneered and calls for leveraging internal and external sources of ideas and taking them to market through multiple paths. This requires innovative business modes and intellectual property management.

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