Over the last couple of weeks all the cool fintech folks have been sharing and speaking about the McKinsey article: Bracing for seven critical changes as fintech matures. McKinsey talk about the key trends influencing financial-technology firms and incumbent financial institutions in a increasingly diverse and rapidly changing world. For all the juicy statistics and examples please read the full article. This post summarises the notes i made as i read through it, highlighting the 7 changes happening in the fintech space:
1 – Expanding Scope:
The number of products and services made available by fintech companies are increasing. McKinsey suggest that fintech companies initially honed in on a particular product or service – for example payments, lending and money transfers. But now fintech products and services are growing, extending into over 30 different areas. The picture that many have seen on social media is of the 30 or so different areas that fintech is extending into:
2 – Increasing Diversity:
The fintech sector is becoming increasingly diverse. What McKinsey are highlighting here is that fintech companies originate from different start-points, have different objectives and evolve in different ways. McKinsey share a couple of examples from Stripe (a venture capitalist backed start up) to AliPay (a technology company that moved into financial services) to PayPal (who started up as a payment solution for online purchases).
3 – Improving Collaboration:
McKinsey stress the importance of fintechs (who are able to offer an improved customer experience but need to grow) collaborating with incumbent financial institutions (who often have established themselves in particular business sectors but lack digital and technological expertise).
4 – Imminent Consolidation:
Already we are aware of the diversity in the fintech sector, with mature and well established fintech companies alongside some relatively fresh newcomers. McKinsey explain how the larger fintech companies will probably start acquiring and merging with other fintech companies as they look to grow.
5 – Normalising Valuations:
McKinsey reveal how the initially crazy fintech valuations are now settling down as investors are becoming more vigilant and looking for fintechs with a proven track record.
6 – Changing Regulations:
McKinsey emphasise the important but delicate balance that regulators are trying to strike. On the one hand seeking to minimise any risks to the financial sector and customers, and on the other hand trying to encourage innovation. The result is that fintech companies will need to work within a fast changing and contrasting regulatory environment.
7 – Emerging Ecosystems:
Here McKinsey describe how digitisation across multiple industries is resulting in a growing and interconnected network of companies that span across different industries forming a far reaching digital network. Within this ecosystem fintech companies will play a part. McKinsey propose that these ecosystems will not be based on historical and traditional industry “norms”, but will instead be based on customer demands. And information or data about the customer, which will reveal insights about the customer, will help to elevate the leaders in the ecosystem.