In the world of money, the big, old monoliths are making way for nimble, smart, more focused challengers. Fintech is part of it, but in our definition of ‘money’ (the means by which society exchanges and allocates resources and risk) the whole system of exchange and value storage is included. There are intricacies, but one big theme that is running through the revolution is personalisation. How well any startup masters personalisation will count in large part to its success.
We can tell this story in three steps: fragmentation; simplification and finally personalisation.
The money industry, historically dominated by The City of London, has been big, slow and stiffly regulated. But over the last decade or so, a series of hammer blows has shattered the global financial opportunity into shards. Instead of one bank you now have a hundred companies each perfecting a fragment of the big bank’s expertise. The giants still exist, but they’re trading at deep discounts compared to the highs of their oligopolist days.
The fragmentation has been catalysed in part through new regulation, but other forces have been at work including technology advancements, breakdowns in perceived trust and huge shake-ups in customer expectations.
The move to open banking, fuelled by legislation such as PSD2, is cracking open the big banks’ hold on our money. The efficiencies of technology, turbocharged by venture investment, have resulted in the creation of hundreds of companies, a dozen or so of which have now joined the billion dollar club. The opportunity is highlighted by the fact that there are more fintech companies in the UK billion dollar club than in any other segment. Our portfolio company Token, a provider of open banking API services, is one example of the opportunities created through this regulatory shift.
Alongside these technical changes has been a deeper, cultural shift in customer trust and expectations. The 2008 crisis shattered the already shaky public perception of the big, traditional institutions. Things were patched up structurally, but the perceptual damage was done and the path was cleared for something new and fresh. Ease, transparency and personality became the new norm and anything less now leaves customers disappointed.
Interestingly, the big institutions still act as enablers for many of the newer market entrants. They have the balance sheets required to support the startups’ customer-facing innovations. It’s a fascinating symbiosis that at times resembles the crocodile that allows the birds to pick morsels from its open jaws. Quite how and when the teeth will snap shut – and who is the crocodile and who is the bird – is not entirely clear. But for now, in many cases, the old and the new need each other.
Money is ultimately an abstract concept and can quickly get complicated. Traditionally, the average person has had to rely on human advice to select the right insurance, pension, mortgage or savings product. Not any more. Three of our deals in the last 12 months illustrate the macro trend towards simplification. DeadHappy is bringing not just simplicity, but colour and personality to the morbid area of life insurance; By Miles makes pay-by-mile car insurance frictionless; and Bought By Many (a follow on investment for us) helps ensure your loved pets are well covered if they fall ill, through better pet insurance. These and many like them, are bringing simple, smooth customer experiences to previously complicated, laborious areas. They’re plain speaking, so the interpreters are no longer needed. These companies are able to show Net Promoter Scores (NPS) in the 70s and sometimes 80s, a level that traditional incumbents could only dream of.
Technology has enabled this simplification. But entrepreneurs’ determination to demystify money for their customers, ironing out their pain points, has also been driving their success. Multiply, another investment of ours, is an example of this. Its cutting-edge AI (Artificial Intelligence) engine is bringing financial planning advice to those who up until now have been underserved by the status quo, delivering them advice in an automated way. Making the complicated simple is Multiply’s secret sauce.
This brings us to the sharp end: personalisation. The Fintech startups’ strength is the customer experience they deliver. The days of “Dear Sir/Madam” are over. Personality, flow, ease, transparency… these are the qualities common to the successful new companies out there. The customer not only desires, but expects, to be treated as a distinct individual, on their terms. The trust that used to be accorded to the big, old financial companies without a murmur is now hard-earned and maintained by intelligent, humanised, sometimes irreverent (in the case of DeadHappy) brand relationships.
The giants try to do it but it’s hard for them to shake off the odour of the past: just take a sniff at Goldman’s Marcus. Challenger bank Monzo, by contrast, was until recently able to milk the demand for its product by making an asset of its ‘waiting list’. Existing members could bump their friends up the queue with a special Golden Ticket. This approach has been widely adopted by new customer facing applications to garner demand ahead of launch or significant scaling. The idea of customers clamouring for entry to a bank, like the VIP area of a nightclub, is some achievement and it’s down to simplification and personalisation done very, very well.
This is mainly on the B2C side of things of course, but B2B is beginning to catch on too. We recently invested in Mosaic Smart Data which allows banks to make the power of their vast data reserves available to traders in OTC (Over The Counter) markets. Despite its hard business context, the user experience is smooth, beautiful and personal. Bankers, it turns out, are humans after all. Founders who recognise this are winning.
Personalisation builds trust. The new Fintechs are doing it with flair and innovation. The generic, faceless corporations are fading into the background of the public consciousness, despite still packing the capital muscle. But what about a future where trust is no longer part of the equation? Blockchain could create a monetary system that just ‘happens’, without trust being a consideration. This could have a major effect on the persuasive power of brands and customers’ behaviour. Perhaps, for example, consumers will migrate their custom as easily as a flock of starlings, flowing friction-free from provider to provider on a daily, even hourly, basis? In this case, personalisation will no longer be the crucial differentiator. A flight of fancy perhaps, but time will tell. In the meantime, it’s personal.