CHRISTO DAVEL: Fintech is dead. Long live fintech

A paradigm shift is happening right now in the global financial system that will change the way people bank, transact and interact economically. It’s bigger and more life-altering than most of us realise. 

The shift is being fuelled by twin systemic changes- accelerated digitisation brought on by the Covid-19 era, and the trend towards the decentralisation of financial power around the world.

The next decade will see the next phase in the evolution of fintech — and, we might even say, the death of fintech as we know it. Fintech is now following the same path as the internet and cloud computing before it, which initially gave rise to new breeds of “internet companies” or “cloud businesses,” but later became so pervasive that almost every modern business is now online.

Fintech will also stop being a separate industry category, because every kind of business or brand you can think of will have fintech capabilities. This might include being able to process immediate or instalment payments, checking the digital identity of customers to prevent fraud, or offering tailored credit or insurance products to customers.

Brands that incorporate financial capabilities of all kinds into their offerings will become the norm. Fintech will become ubiquitous. We might even stop using the term fintech in a few years because it will just be an accepted reality. 

Around the time of the new millennium, when most people were worrying about Y2K, a few of us were looking beyond, at the ways technology would change how people access and experience financial services. The early 2000s were a stop-start ride, but those of us on the train dreamt of a world in which the financial ecosystem was opened up to give financial power to people and revolutionise customer service as we knew it. 

We had just started SA’s first pure and truly online bank, 20twenty. For a while we shook up the industry with our focus on customer experience and, proving there was appetite for tech in finance, quickly built amazing customer numbers and loyalty before our sponsor bank, Saambou, went into curatorship as an unintended casualty of SA’s second-tier banking crash in 2002.

Though our time was short and we were gutted by the abrupt halt to the industry-defying things we wanted to do, looking back it appears we contributed to a ripple effect that triggered other retail banks in the country to rethink their customer experience models. In the 1980s and '90s, big retail banks globally were far more driven by profits than purpose, and almost no-one spoke about “customer journey'' or “user experience design”. 

Little did we know that, in this country at least, we were experiencing the birth pains of what would later be defined as the “fintech” industry. Then the global banking crisis of 2008-2009 shook everyone’s faith in the status quo. All of this created the perfect conditions for a fintech boom. 

In the last 10 years a whole new segment of players have found multiple ways to connect the old world of finance with the new world of internet-powered technologies. Financial institutions started embracing digitisation and other big companies have embraced fintech innovation. 

We’re now at a point in time when the fintech capabilities of not only banks, but also brands and small and medium-sized enterprises (SMEs), are exploding. Things were exciting 20 years ago, but now the possibilities are electric. The next decade will be about the rapid democratisation of the financial services industry, made possible by embedded finance and open banking. 

Every fintech enterprise or company serious about its future in the post-Covid-19 world needs to learn about these concepts and how they are likely to revolutionise how payments will work and how we will all do business in the future.

Embedded finance is at its core about businesses being able to reinvent and customise their offerings by integrating financial services or technologies that solve problems for customers. Embedded finance is generating significant buzz and fast turning into an industry that analysts predict will skyrocket to a market value of over $7-trillion by 2030.

Companies that enable embedded finance are emerging like mushrooms after the rain and the scope of what they can offer is so vast that many of them, including Stripe from the US/Ireland, Mambu from Germany and Tink from Sweden, are able to raise hundreds of millions of dollars in funding from venture capitalists, who see a very long, bright future ahead for this industry.  

Open banking is the practice of providing third party financial service providers open access to consumer banking, transaction and other data from banks and financial institutions through the use of application programming interfaces. Open banking really took off over the last few years when banks and regulators started embracing it, but now that brands are entering the arena, the scope for innovation across all industries is infinite, especially where predictive customer data comes into play, because it allows for truly personalised customer experiences at scale. 

Open banking players offer lots of different solutions, but in my view, the real magic lies in being able to create truly joyful, simple and seamless customer experiences. This has been my obsession in every business I’ve ever built, but the possibilities have never been as great as they are now. I’ve never been more excited about creating a platform that is frictionless, programmable, affordable, scalable and even global, and at its core geared towards creating exceptional financial customer experiences. 

In addition to connecting customers with brands, open banking can also be a bridge between fintech companies, that focus on innovation but are still far from mainstream, and established financial institutions, that work in the mass adoption space to serve large populations on the one hand and regulators on the other. It benefits banks that want to operate more like fintechs, and fintechs that require experienced, licensed partners in the regulated finance system. 

My prediction is that banking services and how they relate to customer experience will be dramatically democratised over the next few years. Banking services will no longer just belong to the banks. The banks that realise this and partner with fintechs to enable a more open commercial ecosystem are the ones that will thrive in the new global financial future. 

Consider these two facts: the Covid-19 pandemic has led to a boom in online transactions globally. The global digital payment market is expected to grow at a compound annual growth rate of 19.4% from 2021 to 2028 to reach a value of about $240bn by 2028. In parallel to this, retailers and global organisations have reported a spike in online fraud over the past year.

These are seismic changes to the payments universe, and there is no indication that things will go back to how they were before. The horse has bolted from the stable and we need to adapt. Payment methods will open up. Banking services will become mainstream. Brands and SMEs will rely on intelligent data insights to better relate to their customers. SMEs will get tools they’ve needed for years.

Brands will integrate solutions that will completely change how we live in a new, more cashless, contactless, borderless world. We’ll find new ways for brands to adapt to risk in this new world, from how they combat identity fraud to how they manage customer credit. Customer acquisition and retention will become far easier. 

But perhaps most fundamentally, all companies can now become fintechs. Fintech is moving from being a business model unto itself to being an essential ingredient in all technology-powered businesses. The forward-thinking players know the only way we can build this new, open financial world is through collaborations that benefit the entire ecosystem. 

The financial services sector is entering the most exciting period of its existence as more power is transferred to financial consumers than ever before. People will finally get the treatment they deserve because it's easier than ever to put the customer first. Can you imagine the possibilities?  

• Davel, now chief commercial officer of Direct Transact, started Old Mutual Direct, 20twenty and 22seven.