Find my update to this post from May 2017 here.
I know that there are so many experts out there in #Fintech and #Insurtech right now. I respect them all: founders, investors, analysts and journalist. All of them bet on new players, new models, new ways of banking and new ways on providing insurances. But I have a different view and we all can only see so far into the future.
So here is my simple view on the ecosystem and I will update the picture over time. I start today to share my view just to have a discussion moving on in this interesting space.
While a lot of experts coming from a technology and disruptive perspective I take the view of a consumer of the financial services industry. This might be new and surprising for a lot of the readers, but I still believe user’s demand will drive the way forward.
Main Areas of this ecosystems
Users will start from documents in my model. It could be contracts, invoices, recipes, offers, etc. Those documents in their digital format will reside in a cloud storage which is either a pure storage provider (Dropbox, onedrive, google drive, etc.) or, for most of the users, the unlimited email inbox (gmail, outlook.com, in Germany gmx/web.de, Telekom Email, etc.). From my perspective there will be no other location where users will store their documents outside their homes. That is why vertical storage providers (Evernote, doo, organize.me, others) have or will fail in the midterm. Online Storage is already free of charge, is part of a larger offering and its included with general consumer services. Similar to premium email services, which became free of charge with gmail in 2004.
The main partners for users regarding financial transactions today are banks and insurance companies. Currently a lot of interactions are triggered by transactions (money transfers, damage claims, etc.) and comparing offers (Check24, Aboalarm, etc.). So there is a ‘love & hate’ – relationship between banks/insurances and those comparing sites. They need them to get new customers in an overall saturated market while those websites are the main reasons for churn on the other hand. This is the same in other industries like telecommunication, travel and others. For sure those comparing sites will stay in the ecosystem for good.
Since 2014 supporting players have entered the ecosystem supplying services to all players based on APIs and technology platforms (Gini, Stripes, figo, etc.). They offer their platform services to all players, making no difference if they are a traditional institution or a startup company in this ecosystem.
At the receiving end we will see the regulated institutions of banks and insurances. While a lot of new fintech and insurtech startups aiming to enter this markets most of them will not reach this area due to high costs and regulatory demands. But please try hard to do so just don’t tell afterwards nobody told you it is a huge challenge — including raising tons of money during the period of setting up such an institution.
Outlook and prediction
- I don’t believe in vertical players in storage. No niche player with a focus on productivity, security or finance etc. will prevail. Users love their storage provider and will stick with them.
There will be one amendment to this when insurances and banks will open up their legacy systems (e.g. Online Banking Portals) to allow users to upload and store their documents in there. Most likely this is an option for users to either get online access to existing documents from the legacy systems of those institutions or saving their documents during the transaction process.
- Banks and Insurances as institutions ruled by regulators will stay for the long run. Governments want to control money flow, fight money laundering and criminal activities. Everybody needs to play by the rules however we will see a broader space when wholesale models in the financial industry will become available — think about telecommunication and retailers without a network ownership.
- Comparison of contracts, offers, terms and living off from commission fees will be a valid business for longer. It works for all areas in the financial industry and it will be supported by scale. Entering the space against the established player will be a good way to find an exit to one of them later on.
- I don’t believe feature-focused players in ‘banking’ or ‘insurancing’ will win either. Scaling the user base is key. In those areas it will be very hard to scale and acquire users. If one player achieved this goal it is a matter of a bigger fish to eat up the next smaller one. Unfortunately the biggest fish will have the highest demand on funding — an Uber and a Didi in both segments will lead the way however from an investors perspective it is uncertain if their investments will pay out in an IPO later.
- Most of the feature-focused players will face lower exit valuations in a sale to peers, another bunch will fail. On this way to avoid running out of cash some of those will move into the “API / Supporting” – segment (down) or into the “Comparison” segment (up). Currently I would suspect players like Transferwise moving into the API segment (see the latest announcement with Number26) and Apps like Outbank into the Comparison segment.
Less Funding — more Pivots — a bunch of small exits
In case my assumptions are correct we will see:
- Less funding going into the space in 2016 for new deals. Some late comers will fund Seed deals but will recognize the trend rather sooner than later.
- More deals will happen to focus on pushing the existing ones but carefully selecting winners — those who are ahead of the rest and already show good traction although this traction might not be in the important areas for KPIs.
- When fundraising in B rounds will be tough we will see a lot of pivots by those companies. Investors and founders have learned not to wait for this funding to happen after they got too many declines from investors. They will react in due time to adapt their models. Number of user profiles and strong technology will be a good base for a successful pivot.
- Before losing their investments and without enough resources for a promising pivot most of them will decide on a small exit to seek a save harbor for their personal and financial investments.