Fintech start-ups continue to disrupt the established order

Fintech start-ups are developing innovative new solutions to shake-up the financial services sector; established banks are having to decide whether to collaborate or compete

Much of the discussion concerns how banks can compete with innovative start-ups; incumbent institutions have increased efforts to innovate in response to this threat
Much of the discussion concerns how banks can compete with innovative start-ups; incumbent institutions have increased efforts to innovate in response to this threat 

Banks have been the dominant force in the financial sector for decades, but it is very possible that this is about to change. Emerging financial technology start-ups are challenging this authority, demonstrating levels of commitment to innovation and agility that long-established financial institutions cannot compete with.

According to a recent report by PwC, more than 80 percent of existing fintech firms believe they are losing revenue to more innovative rivals. Much of the fintech-related discussion concerns how banks can compete with the new kids on the block, and it is true that incumbent financial institutions have increased internal efforts to innovate in response to this threat. However, there may be another way for banks to navigate the rapid changes being experienced in the finance industry.

Established financial institutions are beginning to realise that partnering with new industry players could prove mutually beneficial

Established financial institutions are beginning to realise that partnering with new industry players could prove mutually beneficial. Instead of concentrating on the ways that fintech start-ups are able to eat into their market share, banks are exploring what resources they have to offer the financial newcomers.

At Mash, we understand the importance of partnerships, whether we are signing local agreements with retail partners or negotiating a deal with a global investment firm. As in many other industries, the financial sector is starting to learn that collaboration may turn out to be a more successful approach than competition.

Standing out

There are 4,200 fintech start-ups in Europe alone. This has created a rich source of talent for companies to draw from, but it has also resulted in a fiercely competitive business environment. As a business operating in the financial sector today, it is more important than ever to have a unique offering – something distinct that allows you to stand out in a crowded market.

One of the ways that Mash is distinguishing itself from other fintech companies is by enabling consumers to make purchases, either online or in store, and pay for them later by invoice or monthly instalment. This gives shoppers much greater flexibility than they would receive when using traditional payment methods. In addition, it has also helped foster the development of innovative new business models. Through our work with Finnish manufacturer Finlayson, for instance, we have helped create the first circular economy solution for home textiles.

Our distribution is another key differentiator for us at Mash. We were the first company in Europe to offer a scalable ‘pay-later’ solution at point of sale. Furthermore, we remain one of only two solutions in Europe that can help merchants with both an online and in-store presence. Through our pay-later solution, consumers input their identity number into the Mash terminal, which will instantly check their credit score as part of the onboarding process, before receiving the option of paying by invoice. The merchant gets paid instantly and then 14 days later the customer receives an invoice, which can either be paid in full or converted into a finance plan across 12, 24 or 36 months.

The partnerships that we’ve been developing with our clients – whether they are a car dealership or a furniture retailer – are a great example of how collaboration boosts results for everyone involved. With added flexibility, merchants are witnessing an increase in customer spending, while Mash benefits from the publicity we receive at the point of sale.

Mash also boasts a unique mix of experience and innovation. Ours is not the story of a brand new fintech company feeling its way into the industry. Mash has been serving customers for 10 years and, during that time, has created a solid technological foundation as a result of multiple rounds of iteration. We’ve received large-scale financial backing from our pioneering deal with Fortress – the largest of its kind for an unlisted company in Finland. We are young enough to innovate, but old enough to know the market.

Fresh ideas

With banks previously facing little in the way of genuine competition, the finance industry had become stagnant and was devoid of original ideas. In other words, it was ripe for disruption. Fintech companies are now ripping up the rulebook, delivering innovative solutions that benefit customers and other businesses alike. For instance: blockchain applications are bringing greater efficiency, security and transparency to financial transactions; cryptocurrencies are providing businesses with a new way of raising investment; and payment systems, like Mash, are giving consumers more flexibility at the point of sale. Although banks are exploring ways they can innovate, they face a set of difficult challenges that must be overcome first. Many financial institutions are held back by legacy infrastructure that would prove difficult and costly to change. They can also suffer from a risk-averse culture, partially as a result of stringent regulatory constraints. Banks traditionally focus on keeping existing services running as smoothly as possible, rather than looking for new ways of working.

As fintech companies came to be seen as the true innovators in the financial services space, it became more difficult for traditional banks to attract talented personnel. This, in turn, meant banks struggled to introduce new ideas, trapping them in a vicious cycle. Attempts by multinational tech firms, like Facebook and Google, to enter the finance industry have made the recruitment process even more competitive.

From a personal point of view, the innovation being explored by fintech firms played a significant role in convincing me to move from Morgan Stanley to Mash. I wanted to have a hands-on role in building a business and delivering better services to customers. We achieve this, not only through our technological solutions, but also through our team of committed employees.

We employ more than 100 members of staff representing 19 different nationalities. Our staff come from different backgrounds and bring unique ideas to the company, but they are united by one common trait: a commitment to disruptive innovation. We also foster a close and equal working community, where the CEO sits in the same space as everyone else. We cultivate an agile environment where ideas can be shared freely, tested quickly and promoted widely.

The right model

With all the talk about the challenge being posed by fintech firms, it is important to remember that banks still have something to offer. Whether it’s in terms of reach, capital or expertise, these long-established financial institutions have a number of advantages over new fintech organisations. With the start-up success rate languishing around 0.2 percent and corporate success standing between 12 and 20 percent, it’s clear that fintech businesses are sometimes in need of assistance.

Given that banks and finance start-ups both have distinct advantages, it makes sense that many of them are forming partnerships.  However, there are multiple different collaborative models that banks and their fintech partners must choose from, each with their particular strengths and weaknesses.

The first collaboration model simply involves the bank acquiring a fintech start-up. This gives banks access to a start-up’s technology and employees, creating a fast route to market. This type of collaboration, however, also requires the greatest level of investment. On the other hand, the ‘investment collaboration’ model involves banks providing financial support without committing to a full acquisition, in exchange for the power to influence emerging technologies.

The ‘partnership collaborative’ model sees banks and fintech firms sharing costs and other resources to co-develop new solutions. The ‘pollinate and co-create’ model occurs when banks take on the role of a fintech incubator or accelerator. This lets banks shape a company’s roadmap to address specific problems and allows employees prototype new services themselves.

The final collaboration model, and the one that requires the least investment, is the ‘scout and share’ model. This is where banks explore any developing technology trends in the finance sector before deciding to meet with innovative companies to discuss future opportunities. Knowledge share sessions with venture capitalists and other investors will also help determine what innovations are worth pursuing. This can be a great way of ensuring that banks are using the best technologies, regardless of whether they are developed in-house or by external firms. Essentially, it means that they can make better-informed architectural decisions.

Choosing the right collaboration model is hugely important, not only for banks, but for fintech start-ups too. While banks will have to decide how much investment they are willing to commit to the collaborative process and how much control they need, fintech firms will need to consider how much investment they require and how much control they are willing to surrender.

At Mash, we want to be true partners and solve shared problems. We are not interested in simply being a service provider – it is much more compelling to sit with a senior leadership team and talk through the ‘ugly truths’ that a partner needs to solve and then develop a shared plan that creates accretive value for both parties. This approach has seen us continue to win industry-defining partnerships that help us to shake up the finance sector and deliver better services for our customers.