Fewer customers, more competition: Adapting to a changing FinTech market

If you’re an established fintech company, you have several years of growth behind you, a full book of business and customers completely invested in your service. Congratulations. However, your business environment is changing in at least two critical ways.

Venture capital (VC) investors are pouring money into new rivals. And your market is consolidating – fast. A couple quick data points make it clear.

In 2021 alone, VCs poured more than $130 billion into the fintech sector.¹ That more than doubled the previous year’s tally. New startups are entering the market in droves and bringing new tools to customers across the various sectors of the financial services industry.

This increased competition is happening at a unique time. While revenue in the financial services industry may be rising, the US Federal Reserve reports that the financial industry is consolidating around the globe. US merger and acquisition activity is happening at a “torrid pace” and other regions are close behind.²

The combination creates a daunting situation for established fintech players who pioneered the deployment of technology in the sector. They could face an environment populated by many more competitors, but fewer customers.

How do you adapt? Lumen prepared a white paper on the topic. Check it out here.

New IT architectures

Our analysis notes that the established fintech players grew up in a different IT environment. While many startups today are “born in the cloud,” these more mature fintech firms often operate a large national or international data center infrastructure. Depending on the business model, some even built proprietary networks to carry the data they supply. In many cases, this approach enabled numerous customizations for individual customers and highly integrated software code.

Despite good relations with their customers around the globe, consolidation creates some issues that will require staying nimble – which might be difficult to achieve with monolithic applications and in-house infrastructure. Customers are so dependent on the established players they cannot accept the potential disruption in services that could result from an aggressive effort to update IT approaches. It might benefit the vendor, but large financial institutions would only see the downside. They don’t want to risk a glitch because of the vendor’s competitive situation.

But, the reverse won’t be true for customers getting pitched on technologies and services by new entrants. Consolidation strategies such as acquiring a former competitor creates opportunities for customers to experiment with new IT approaches for the combined financial institution. As the customers merge, they’ll consolidate their own IT needs. This gives new niche entrants and their cloud-fueled flexibility an opportunity to gain a toehold in accounts. In some cases, they could be filling a gap that the established fintech player simply cannot expand into because they lack the flexibility to efficiently extend into new segments.

This situation does not have to mean a slow erosion in revenue for the fintech pioneers. There are ways of preserving the current level of customer service and establishing a platform for a more flexible future.

Check out our eBook for more insights. And then let’s talk.

¹Statista Research. https://www.statista.com/statistics/412642/value-of-global-vc-investment-in-fintech/
²US Federal Reserve. https://www.federalreserve.gov/pubs/feds/1998/199846/199846pap.pdf

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