There was a time when being a challenger bank was enough to win customers. The early-2010s saw the emergence, and proliferation, of (now household) names such as Monzo, N26 and Revolut. These challenger banks shared a simple goal; to make finance accessible for all, through quick and convenient platforms. It was less about offering a complete suite of products or customisation and more concentrated on levelling the playing field regarding financial security; entry to banking was the main draw rather than any bells and whistles.
Changing Consumer Demands
Fast forward to 2022, and we see a completely different landscape. The original challenger banks are now being challenged by neo-challenger banks. Built on hyper-personalisation and driven by changing consumer demands, these neo-challenger banks offer tailored services that suit the specific needs of specific target customers. Examples include Daylight, which caters to the LGBTQ+ community, and BankMD in the US, which is built for doctors and physicians, even offering loans for those looking to start their own practice.
Although they are the new kids on the block, the neo-challenger banks still face their own challenges. Competition for customers is more fierce than ever, and so every Fintech leader must look to innovate and offer their users the most immersive, and complete, banking experience possible. It is no longer good enough to just be a challenger bank; founders need to be able to issue bank accounts, banking cards and more. In the world of APIs, there is no excuse not to be able to offer your customers exactly what they need when they need it.
Build or Buy?
Of course, this inevitably presents a decision that almost every Fintech founder must ask at least once in their lifetime. Is it easier to build a solution in-house, or buy a third-party solution?
Many neo-challenger banks may be inclined to build in-house, as it offers more control over the entire process, and allows full customisation of the banking tools they are creating for customers. However, there can be a real cost of both resources and time when doing this. As there is no set project fee, costs will inevitably overrun, and the initial outlay for recruiting the talent needed to execute digital transformation such as this can be sizable. Time is another potential pitfall too; internally managing and executing projects can be a very slow process, and in the race to innovate, this isn’t good enough. There’s no point rolling out the latest banking tools to customers six months after everyone else has them.
It’s also worth noting that most of this hiring will be specific to building this solution, so there are real long-term considerations to bear in mind when you effectively have a redundant excess workforce once the job is complete.
The buy option presents its own challenges; a Fintech business can become dependent on a third-party vendor and may feel like innovation actually lies outside the company. There are ways to mitigate such dependencies. For example, fintechs should partner with infrastructure providers who can offer redundancy and are agnostic to ensure business continuity. Communication needs to be effective and there needs to be a relationship of trust if the buy option is to work. This extends to security and compliance too; a Fintech needs to trust that any third-party applications have the correct level of security, and are in line with mandatory financial industry regulations.
The buy solution can offer a number of benefits to a Fintech business. Buy solutions offer exposure to more innovative technologies at faster speeds; implementation cycles have become significantly shorter than building the same functionality in-house. This means that ROI is better; any stakeholders in the business should see investment lead to innovation, and, in the case of challenger banks, better customer retention.
A Globalised API-Driven Solution
Whether the next generation of neo-banks choose to build or buy, they must go further than just building a carbon copy of other financial products. Solving smaller problems for a large number of people, and building just for speed and convenience has been done many times over. Instead, the next iteration of innovation in neo-banking should focus on building a bank for specific market segments.
For example, automating bank statements for visa applications, or enabling individuals to financially support their loved ones in any territory. Real-world problem-solving in untapped and underserved market segments. Globalisation has already happened with online e-Commerce, and transactions can be made from anywhere in the world, so why can’t it be the same for bank accounts? In fact, API-first Fintech infrastructure technology is making fintechs of any size global by default, through a single point of access to multiple, cross-border banking providers in an agnostic manner.
So, why not take globalisation to the next level and be the next level in neo-banking? Global account issuance is the future. However, it can only be maximised if Fintech founders are able to focus their time on identifying areas of differentiation, instead of draining both time and resources when trying to cobble together their own solution using multiple technology integrations.
By Alistair Cotton, the CEO and Co-Founder of Integrated Finance
