Fintech Startups – Coopetition or Competition? Business Models Are Shifting.

I spend a fair bit of time analyzing and following the fintech startup scene. I’ve met and interacted with numerous startups over the years, as well as through industry events like  Finovate and Innotribe. I frequently get very excited by their potential, and what they can bring to the industry. I admire the founders of these firms as they attempt to make their mark in an age old, highly regulated industry, that is slowly but surely adapting to the popularity of digital channels. Is there a killer fintech startup business model? Here are a handful of models out there that I invite you to weigh in on:
  1. Should startups go after consumers/businesses directly? This is the most popular model, with most firms taking this type of approach. Examples include Square, Simple, PayPal, etc. It’s also one of the hardest models as it’s quite difficult for a newly minted organization to establish a brand and build critical mass on its own.
  2. Can startups be successful at enabling others in addition to going after their core market? This is becoming an increasingly popular model as startups seek out new streams of revenue. It’s particularly popular in the payment space as it allows for a potentially increasing stream of transactional revenue. This is done by offering something like an SDK that others can build on. Examples include card.io, Stripe, etc.
  3. Is the name of the game to simply use financial institutions as a distribution channel?  Some startups take this route right out of the gate (e.g. MineralTree, Cardlytics, etc.), while others pivot to this model (e.g. Social Money, Bill.com, etc.). Finally there are startups that simply fall back on this model once they realize that they have been unsuccessful in models 1 or 2. While it sounds great to use a bank as a distribution channel, it can be a frustrating experience given the very long sales cycles typically encountered with financial institutions. Burning cash while attempting to close a deal with a bank can be a tough pill to swallow.
  4. Can a startup have it all by tackling all three of of the models ? It’s possible but it can also spread a business, particularly a newer one, dangerously thin
Finally, what does all of this mean for financial institutions? How do they get involved in industry disruption? Celent firmly believes that banks should dedicate efforts towards not only innovation, but disruption. It’s a necessary part of competing, and has to be led and sponsored by senior management. Most banks need at least a handful of projects that  are disruptive – that’s no easy task since managing technology and culture change is never a quick fix. What do you think? How should startups approach the market? How can banks play a meaningful role in the digital world?  

2012 Celent Banking Innovation & Insight Day Roundup

Last Wednesday, Celent hosted its fifth annual Banking Innovation & Insight Day. We had a full house of energetic attendees, and a solid crew of dynamic panelists and presenters. After a brief welcome address we launched right into the agenda with a panel session on tablet banking. We did things a little differently this year, with each of the panelists (from USAA, CIBC, and Stellar One Bank) giving brief demos of their iPad apps. The demos were followed by a stimulating discussion on tablets and how they are changing the digital banking landscape. The mobile theme continued right into the next session – a panel discussion on the future of mobile banking and payments. Panelists from Wells Fargo, SunTrust, and Standard Chartered prognosticated on future mobile innovations and the potential of mobile payments. Right after lunch we were extremely honoured to present awards to the banks selected for our 2012 Model Bank initiative. The audience was also given the privilege of hearing from two of the model bank award winners – Redstone Federal Credit Union and Bank of America Merrill Lynch. Stay tuned for a blog entry on the model bank awards from Bob Meara. In the afternoon session we introduced the topic of industry disruption and invited a bank speaker (from Citi) and a start-up speaker (from Social Money / SmartyPig) to talk about disruptive initiatives in banking. One of the highlights of the day was definitely the energetic and thought provoking presentation given by Yobie Benjamin, CTO of Citi Transaction Services and Citi Enterprise Payments. There were quite a number of tweeters in the room providing an event play by play. We invite you to review what folks had to say about the event on Twitter . Bank Systems and Technology published a couple of articles regarding the event: If you would like to see a few photos from the event please visit our Flickr photostream. All presentations from the event are available for Celent clients to download on our web site. We look forward to seeing you at our next event!