Consulting firm Capgemini and international banking association Efma have released a new World FinTech Report 2021. The authors note that over the last 13 years - since the crisis of 2008 - neobanks and fintech startups have turned from novices into experienced players, who must now focus on generating profits.

While the pandemic has hit the global banking system hard, some fintech startups have managed to grow. At the same time, many of them had to cut their earnings forecasts. The biggest challenge for fintech during the pandemic was the need to address storage challenges, growing disruptions, and staff recruitment. The crisis has had a negative impact on the value of fintech companies and made it difficult to attract investment. For fintech, the traditional risks remain – external risks associated with cybersecurity and liquidity, as well as currency risks.

Frank Media reports that experts consider the transition to profitability a key task for fintech startups in these conditions. They have defined four stages that fintech companies must go through in order to grow in the long term. Industry leaders, interviewed as part of the report, have agreed with the proposed stages, experts note.

Diversifying products and services. Experts cite the example of the South Korean KakaoBank and the Russian Tinkoff, which initially focused on several products that solved pressing consumer needs (for example, payments, credit cards and account servicing) and then expanded their line. Tinkoff added more than 15 new products to its lineup between 2007 and 2017, including credit cards, cash loans, debit cards, deposits, insurance, mortgages, etc. This approach allows generating additional income from the existing customer base. Analysts note that fintechs can offer new B2C products and services as well as B2B products through cooperation with financial institutions, incubators or accelerators.

Creating an ecosystem and adding partners to it. Experts are confident that the future belongs to fintech companies that will work in partnership with other market players. They cite as examples the universal superapps that are being pursued and developed, for example, by the Chinese WeBank, KakaoBank, and Tinkoff. The ecosystem approach allows offering customers integrated banking and non-banking products and services, as well as building up a customer base through network effects. It enables fintechs to transform from a “regular” banking application into a system that determines the lifestyle of its clients.

Monetizing everything you can. For this purpose, fintech startups need to leverage the power of ecosystems to diversify their revenue sources. Experts cite the example of the Chinese WeBank, which earns through interests, commission fees, commissions on the marketplace, and other products. The main task of the startups is to increase income from each client.

https://banks.am/en/news/fintech/20606

Scaling and entering new markets. As the revenue from each customer grows, fintech companies must expand. At this stage, they need to take into account the specifics of each new market, including regulatory requirements, cultural characteristics, and dynamics of costs in the market. The products and services that fintech companies offer to customers in the “home” market may not necessarily resonate with customers in the new one.
Experts emphasize that the success of applying these approaches depends directly on constant interaction with customers – that is what allows retaining them and increasing loyalty. Fintech startups need to grow their daily active user base (DAU). This indicator should be at least at 20%, preferably at 50% or more of the monthly active users (MAU). WeChat’s DAU is at about 92%, while of Alipay (also Chinese) has its DAU at about 50%.

If fintech startups manage to implement these approaches, they can both decrease the cost of attracting customers in the future and reduce their churn. They will find out new ways to monetize and gain new customer data to accelerate innovation and shorten the time it takes to put new products and services on the market.

What else can fintech startups do? The Capgemini survey of bank customers has showed that only a quarter of them (25%) are ready to apply to fintech companies and IT giants for banking products. 70% of them cite the speed of service provision and problem solving, customization and availability of services at any time as key when choosing new players.

What can traditional banks do? The survey has found that 68% of respondents would rather use fintech products from their main traditional bank. According to experts, traditional banks should pay attention to this tendency and use their strengths (customer trust) and overcome their weaknesses (customer experience) in order to maintain market share. More than half of the surveyed top managers (55%) agree with this recommendation. According to them, a digital-only subsidiary of a traditional bank can improve customer experience and speed up the launch of new products.

To compile the report, the researchers have surveyed 8,599 clients and more than 120 top bank executives in 33 markets around the world.

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