Creating new business models through FinTech
Singapore, February 21, 2017
FinTech has been described variously as “an industry” comprising companies that use new technology and innovation to compete in the delivery of financial services (Wikipedia); and as “the evolving intersection between financial services and technology” (PwC).
The key thing about the FinTech phenomenon, however, is that “it is not just about the technology”, said Kenneth Wong, Practice Director, Strategic Domains Consulting, Financial Services Industry, NCS. “It is about digital services that lead to the creation of new business models, drive customer intimacy and help achieve operational excellence for the business.”
One area which is ripe for disruption is the lending and payments space. Wong cited the example of Lending Club, a US FinTech with a peer-to-peer (P2P) model that provides an alternative channel for the borrowing and lending of money.
Explaining how it works, he said, “If you go to a bank, it is expensive to borrow a sum of money if you don’t have the credentials. On the other hand, those who want to lend money may not have an avenue to do so, unless they go through the bank in the form of a deposit placement.”
This is where Lending Club addresses the needs of individuals, both borrowers and lenders, to create a new market place. “With Lending Club, it is the community that lends and borrows the money. This helps drive down the cost of borrowing, and individuals also have an alternative channel to invest their money.”
Closer to home, similar FinTech startups such as MoolahSense have emerged in Singapore, adopting the P2P lending model and adapting it to the local context.
Another area where FinTechs are having an impact is wealth management. Traditionally, banks provide a platform for wealthy individuals to manage their investment portfolios. Similar services are now being provided by FinTechs such as Dragon Wealth, which helps to assess individuals’ portfolios through advanced analytics and match their investment needs with products offered by banks and financial advisors. These FinTechs act as brokers and leverage deep analytics to bring potential investors as well as banks together. In doing so, they provide individuals with an alternative platform for wealth management whilst enabling banks to extend their reach to a larger pool of prospective clients.
Investment advisory and financial management services
Some FinTechs are also making a strong play as landing sites for investment advisory and financial management services, drawing traffic away from the websites of banks and other traditional financial service providers. An example is MoneySmart, a portal where end-customers can search for information such as the best credit card that meets their needs, the best fixed deposit deal amongst the banks, and the best place to borrow money. “MoneySmart capitalises on the mindset of the end-customers. What do these customers want? They want comparisons, and it provides that service,” said Wong.
The implication of this is that portals like MoneySmart draw traffic away from the banks’ websites to their own. For banks to capture these eyeballs, they would have to acquire them from the MoneySmart portal. But this is a win-win situation for both parties, as it would be too costly for banks to acquire these smaller customers on their own.
Going forward, Wong believes that the financial services industry will get to hear more about other emerging FinTech segments such as the rise of InsureTech, which is the extension of FinTech to focus on insurance; and RegTech, the application of digital technology into the area of regulatory compliance. “FinTech will become very specialised and focus on different vertical domains within the financial services sector,” he said.
More significantly, it will not be confined to the financial services industry itself. In Wong’s view, the term “FinTech” can also be applied to companies such as Uber, Grab, Spotify and Netflix. “They are from non-financial sectors, but are also using disruptive technology to enable payments, transactions and create new marketplaces,” he said. “FinTech can be applied to any business and have an impact on different industries. It is about coming up with ideas to transform businesses and break down boundaries, not about the technology.”
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