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Do large financial services companies and FinTech disruptors need to partner up to survive?

FinTech in the UK is booming. London is one of the world’s great financial centres – the availability of financial services, technical and ancillary expertise and infrastructure make it one of the best places in the world to start a FinTech company, and we don’t see this changing anytime soon.

Technology and regulation is transforming the way consumers interact with financial services

Technology available today can completely transform the customer experience when compared to traditional modes of interaction, and can be rapidly developed to meet emerging customer needs. FinTech start-ups are utilising this technology to launch a wave of disruptive products to businesses and consumers. These are being developed at such a pace that the banking and insurance services of the 2020s will be unrecognisable from what we see today. This is great for consumers; there has been a considerable, and growing, deficit in customer experience in financial services. For larger brands however, it presents both a risk and an opportunity.

Despite having a substantial pool of resources to draw on, many of the big companies have been slow to adapt to new technology. As a result, we’re seeing disaggregation of the market gathering pace as the traditional players struggle to address some fundamental challenges:

  • customer disengagement – customer brand loyalty isn’t as sticky as it used to be, with more customers moving around to find the provider that gives them the best experience- customers in the future won’t hang around if they’re not getting a reactive, personalised, digital service
  • commoditisation of customer financial data – new regulations such as Open Banking and the revised Payment Services Directive (PSD2) mean customers can readily share their data with alternative providers, opening up competition both on price and on valuable personalised and targeted services for many financial products
  • outdated infrastructure – a number of the big players are being held back by old, slow and expensive legacy systems that are hard to enhance and integrate with new products- this provides competitors with a perfect opportunity to compete on both cost and experience.

In the meantime, FinTech companies, unencumbered by corporate bureaucracy and restrictive technical architecture continue to disrupt the market by focussing on seamless, real-time, accessible, personalised, value-add and relevant services.  A stale market is being reenergised and providers are starting to address the long unanswered question: ‘why should I as a consumer engage with you and your offering?’  FinTechs are developing some very compelling answers to this question:

  • we will remove the stress of financial admin from your life – we’ll even make it enjoyable
  • we will make saving easy and stop you from wasting your money on overpriced services
  • we will make financial advice accessible for people on low incomes
  • we will make sure you get a good deal that works in your interests
  • we will make your savings and pensions work for you, focussing on your personalised goals and aims
  • we will put you in control of your finances without you having to make any changes to your lifestyle.

A handful of challenger banks have already built an offering that delivers on the customer experience-focussed objectives of the FinTech sector. Take Starling Bank and Monzo as two great examples – both are concentrating on creating a seamless banking experience for their users, integrating easy to use current accounts with other offerings in the market that benefit from a similarly customer-focussed, digitally-enabled approach. One such offering is a marketplace of mortgage products that leverages pre-completed  ‘know your customer’, anti-money laundering (AML), and transaction data to complete affordability checks and provide customers with a better product fit, increased price competition, and a frictionless experience. Anyone who has recently applied for a mortgage with a big bank will know just how painful this process can otherwise be.

For large FS companies to continue to thrive, they need to be successful at partnering with innovative challengers

The big players shouldn’t underplay their hand in this highly competitive market- they have the brand power, they have the data and they have the capital. FinTech start-ups have the lead on innovation but face an enormous uphill and expensive struggle to scale to be a credible force. 

There is a huge opportunity for financial services incumbents and FinTech start-ups alike to partner with other businesses, both within the finance industry and outside, to better reach consumers and deliver the more differentiated, customer-centric financial services they need.  According to the McKinsey Panorama FinTech database, FinTech start-ups have realised that a B2B offering (including B2B2C) is critical to their success – the number of FinTech start-ups offering a B2B product increased by 40% between 2015 and 2016. 

We see the future of financial services as a vibrant ecosystem of interconnected businesses providing consumers with a step change in experience, alongside higher quality, lower cost, more resilient services.

There are enormous benefits to be had for both start-ups and large financial services firms from forming a successful partnership, but many large financial services firms struggle to engage with relevant and exciting FinTech opportunities. Capita Scaling Partner offers a way for financial services companies to partner with innovative companies, but with the reassurance that they are supported by the operational capability and expertise of the UK’s largest business services company.

Capita Scaling Partner

Scaling up to become a successful, sustainable business requires more than just a passive financial investment.  At Capita, our proposition is different.  We enable our partner start-ups to think and act big at a very early stage in their development. Our dedicated corporate venturing unit, Capita Scaling Partner, has been created as a platform to secure tangible growth for start-ups by leveraging the wherewithal of Capita plc. It is made up of highly experienced professionals with skills across sales, marketing, strategy, commercial negotiations, investment, business architecture, IT and project management.

We provide start-ups with:

  • a dedicated business development team that works with them over 2-3 years to secure B2B deals from our established client base
  • direct access to our corporate contacts – the decision makers – through relationships that have been built up over 30 years
  • the ability to negotiate scale deals with clients on an equal footing
  • direct channels to UK and Ireland consumers
  • Capita’s proprietary consumer data, collected from handling over 45 million contacts every day
  • access to our low cost and #scalable shared services
  • access to our extensive investor network and relationships with investment banks.

We sit side by side with our partner start-ups, pitching their proposition to our own client base, allowing them to speak to decision makers immediately.  Our start-up partners are empowered to think big and act big, while retaining their own brand, culture, identity, agility and negotiating terms with clients and suppliers on an equal footing. 

We’d love to hear from innovative digital companies that are disrupting our core markets and need help to scale, early stage investors who want to maximise the value of their portfolio and buyers of SMEs. 

If you want to know more please get in touch with me on matt.bunn@capita.co.uk and check us out here

Photo of Matt Bunn

Matt Bunn

Partner and co founder, Capita Scaling Partner

Matt has over 10 years’ experience in investment banking and strategic business development across a variety of sectors such as private equity, banking, telecoms and local government. Before founding Capita Scaling Partner, Matt was a commercial director in Capita’s strategic deals team.

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