Fintech Firms have “Massive Opportunity” to Leverage Credibility of Incumbents to Develop Innovative Products on Top of Them, Industry Exec Argues

UK-based Fintech Payhawk, a corporate expense management solution provider that secured €3 million in seed funding in March 2020, notes that “the ticket to ride the rollercoaster of hype in any emerging technology is expensive.”

Hristo Borisov, the co-founder and CEO at Payhawk who’s focused on building “the paperless” Visa at the Fintech firm, says that he regularly speaks to experienced investors, industry analysts, and reporters. Borisov also mentions that he finds it “fascinating” to hear people say that the current market for payments is ”already solved” or addressed by neobanks or all-digital banking platforms.

Borisov writes in a blog post that for the Fintech sector, payments is a $178 billion market “to be exact.”

During the past 5 years, investors have invested in over 17,000 firms in “the search for the next Fintech unicorns” or businesses valued at $1 billion or more (according to Crunchbase data).  Borisov argues that one of “the strongest waves” was the emergence of neo-banking platforms.

He reveals:

“New digital-first, simple, intuitive, free banking service serving through a mobile app without the hassle of visiting and dealing with old-school banking. Today, there are more than 250+ Neobanks, 16 of which have unicorn status.”

He adds:

“According to Gartner, every emerging market starts with a technology trigger enabling innovation across a market. For banking, that was the ability to open a bank account from a mobile app in 2015. Then it’s followed by big bets from venture capital investors that propel the market upwards. It reaches a peak with eye-popping valuations, massive inflation of expectations, cult-like slogans, and poster-child founders conquering the world.” 

Borisov further notes that when it comes to neo-banking platforms, we’ve seen that Chime is among one of the leaders in the US markets with a recent valuation of $14.5 billion. European challengers such as N26 have reached a valuation of $3.5 billion, Revolut ($5.5 billion), and Monzo ($1.6 billion). Meanwhile, Nubank from South America is valued at about $10 billion.

Borisov adds that after the hype phase of a new development hits its peak, the market begins to realize that there will still be “a day after tomorrow.” Then the hype begins to fade away, and from there it “climbs a slope of enlightenment until it reaches a plateau of productivity,” Borisov notes.

He goes on to explain that there might come a stage or time when most practical innovations reach mainstream adoption and incumbent players “start to go out of business.” He claims that the Fintech sector and the neobank space has only started climbing now or is just getting started. He would like to see what the productivity phase holds for the industry in the coming years.

He recommends:

“There is a massive opportunity to use the trust and credibility of traditional banks to build innovative solutions on top of them. The revised Payment Services Direct (PSD2) has exactly that aim: to modernize Europe’s payment infrastructure for the benefits of consumers and businesses. It empowers software companies to build products that extend the capabilities of traditional bank accounts, and creates a level-playing field for fintechs to compete.” 

He goes on to cite a recent study conducted by Next Digital Finance (ndgit) which reveals that  more than 80% of survey respondents including global banks said they’ve seen “a willingness amongst their customers to use bank-independent financial service providers.”

He concludes:

“There is a new wave of Fintech companies with sustainability on their mind. I only hope that the stars of today won’t transform into shooting stars. Because banking and dealing with money is all about trust. And another WeWork story in the banking sector might disrupt innovation and scare consumers for a really long time.”

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