Just working on strategic digitalisation projects in the traditional banking and insurance industry in Switzerland, I was wondering why everybody talks about fintech disruptions in these traditional industries. This article is about what fintech start-ups might change in industries different to the above mentioned and what effect this would have on these industries in the mid-term.
I am absolutely interested in getting an idea about the next disruptions, not because I want to know who will be the next Uber (I am working on it, no kidding), but more in regards to what effects this will have on traditional industries. As everybody is talking about fintech right now and there are lots of interesting business models that are coming up, I was asking myself why nearly all of this business models of start-ups are focussing on the front-end or better to say on the very low hanging fruits. To me it looks like every fintech start-up tries to avoid having a banking license and, much more relevant, tries to keep out of the very capital-intensive part of the fintech business.
The last days I read the 2nd issue of the McKinsey quarterly (you can subscribe and get it for free here) and found interesting articles (page 52 onwards), it partly answered some of my questions with the graph on page 51, mentioning that digital attackers disintermediate profitable customer-facing businesses and avoid capital-intensive areas. So I was at least right with my assessment on the avoidance of the capital intensive part of business, but it didn't deliver a satisfying answer to me.
Furthermore, McKinsey explained in a different graph (shown below in parts, see the full graph in the above linked McKinsey issue on page 41) where the disruption to traditional companies might come from in a modest way, e.g. in bundling small supplies like beds (=airbnb) or in an extreme way by changing the cost structure within the markets, e.g. by digitalising the whole processes from the production to the delivery.
How does this fit together with my question in the headline? Extremely well. Right now we see lots of potential disruptions made by fintech start-ups that are focussing only on the banking and insurance industry. This is absolutely clear as it is a very close target and there are easy ways to found a company, set-up a cool business model user love a lot and then sell your start-up to one of the traditional companies in that area.
From my perspective banking, insurance and monetary transactions are playing a much bigger role in completely different industries, just think about buying and financing of capital-intensive goods in the B2B sector, cars or even real estate transaction. In all of these transaction there are cost structures which are not optimised by digitalisation yet. There are very few new competitors arising that are focussing on the information site or creating network effect as this would mean not only to invest lots of money into digitalisation, but also to have access to capital in a much broader sense in order to do the financing parts too.
Summing that up the question will be if business models of start-ups will grow in a way where these companies are not only attacking the smaller markets as an interface between potential consumers and the monetary institutions behind. But also as the bigger institution (the 'backbone') of transaction that can build up new networks in industries where they can then play a major role by delivering not only the digital infrastructure at the front-end, but the whole transaction platform and monetary resources behind that. This would then disrupt whole industries - even B2B - where start-ups are currently rarely seen as they do not have deep pockets with debt capital. In the mid-term a new kind of company could deliver the platform and financial resources for the pharmaceutical, investment goods or car leasing industry as well. And as money is very cheap and not a scarce resource right now, the time might be right to have the next big wave in disruption in more industrialised global markets.