The early growth of the FinTech sector following the financial crisis in 2008 has been driven by customer-facing services. Successful ventures such as Peer-to-Peer (P2P) foreign exchange and digital wallets have proven increasingly popular with consumers, cutting banks and their high fees out of the equation. Further these niche ventures are proving far more popular with customers than banks, with P2P claiming that they are savings clients up to 90% on international transfer fees. Digital wallets refer to electronic devices that allow customers to make commerce transactions, for instance using smartphone apps such as Google wallet, loyalty cards and computer transactions. These methods have only excelled in the last few years and continue to grow as the “cash is out” debate continues. As the market has developed and matured, new services are appearing, which are tailored towards the B2B market. They are followed by large investments from both organizations and individuals, keen to grab a bit of action.
B2B FinTech requires a change of focus B2C FinTech success relies on three key factors – a high level of service, low costs and on demand access. The B2B FinTech space is driven by slightly different requirements – transparency, accountability and API access – because corporate users have a responsibility to their stakeholders, regulators and customers. B2B service users need to learn one lesson from their B2C counterparts however – the importance of focusing efforts on customer needs before their own. John Hammond’s (Currencycloud’s Chief Commercial Officer) article offers an interesting perspective on this topic.
In most cases, B2B FinTech will continue to operate in the background, providing a platform or backroom infrastructure that corporate account holders can hook into, and build on. Invisible and not so appealing, these B2B platforms will be essential to building and deploying new services and products for customers. They will then be able to compete with the more established services on the basis of lower costs, improved control, capital and compliance.
B2B FinTech will be built on partnerships In addition to further venture capital investment, analysts expect to see increased mergers and acquisitions in the FinTech sector. However, the B2B sector demands maturity and stability – two factors that are often lacking in early stage companies. That said, change is coming. The Fintech ecosystem is seeing an influx of senior executives from traditional financial service institutions and banks bringing with them a wealth of experience. Twinned with this, Fintech companies are becoming more attractive to new talent, with many candidates opting to take the path of Fintech.
To help speed this process up, and to gain access to more customers, FinTech providers are choosing to partner with established banks. This lends them credibility and opportunities to tap into their partner’s customer base. At the same time, banks can leverage the flexibility and low cost of the FinTech platform to improve their own operations and services. Furthermore, where the B2C FinTech sector is relatively unburdened by regulation, their B2B counterparts will need to prove compliance with relevant legislation and industry standards. Rather than develop their own systems, partnerships allow FinTech start-ups to benefit from the frameworks already used by their established counterparts. The future of B2B FinTech lies in collaboration, not competition. Partnerships will see some banks having to sacrifice some of their own services in favour of those provided by their partner network and deliver an improved service to their customers. In addition, these partnerships will help to avoid the challenges that threaten company existence faced by the B2C companies.
The B2B FinTech sector is building on B2C success Various reports have suggested that the London FinTech industry already employs over 44,000 workers, which is more than four time the size of the Silicon Valley. With $1.6 billion worth of investment flooding into the market during 2015, the B2B FinTech sector is clearly on the rise and it’s quite possible that the B2B sector will outpace the B2C sector in the coming years.