Is the rebundling of fintech inevitable?

In the early 2010's fintechs were focused on unbundling specific services, but has the time come when companies are now rebundling to create a suite of complimentary services and solutions?

The unbundling and rebundling of businesses is not a new phenomenon. Oil, steel, telecoms, internet browsers and more have all been disrupted—some by regulation, others by innovation, while some by a combination of both. As for rebundling, this again is not new. Asian corporations in particular have a much wider set of interests than you may think—Toyota’s sewing machines and Nintendo’s playing cards highlight that these companies do way more than what they are most famous for.

So why is fintech seen as a special case? This difference in this story is one of speed. In the early 2010’s fintechs were focused on unbundling specific services like payments, loans and wealth management which were ripe for digital disruption. And in less than a decade, these specialist fintechs that unbundled the services that big financial institutions were offering have begun to rebundle and offer a wider range of services. 

With so much investment and hype in the sector, this was almost inevitable. Investors – many spooked by the pandemic – now want to see a faster return on their investment. A slow and steady growth isn’t going to cut it, and the big focus is now on profitability. With the cost of customer acquisition so high, it makes sense to increase revenues by selling new services to those customers that were so hard-fought for. Rebundling to create a suite of complementary services just makes sense when the focus is on profitability. 

The question is, after this rebundling, what will this new remix of banking and payments sound like—will it be something fresh and effective, or just a tired cover version of something we’ve all heard before? And how can it be created without burdening quick and nimble fintechs with bigger and bigger technology stacks and a higher cost base that eats into profitability? 

Rebundling is inevitable… for some

It’s tough to create a successful business in the financial services market. It’s even tougher to create a profitable one. Some businesses are inevitably going to find it easier to stand alongside others. This doesn’t necessarily mean complete rebundling—it could mean collaboration, or even better access through APIs to create more cohesive services.

Inevitably, scale will be an issue for any business, no matter how good its offering. The UK government has even recognised this, introducing a new “scale box” to supplement its regulatory sandbox, so it can support fintechs beyond launch. The question for any business will be whether it can scale up enough on its own or using this kind of support, or if it will need to work with others to get there. The answer is likely yes: whether through marketplaces, accelerators, or partnership—collaboration is the new disruptive force. 

Rebundling without the legacy

No-one wants to deal with multiple service providers to get the one thing that they want—and they’re not too concerned if these services are bundled together by collaboration or thanks to API integrations (for example). They just want it to work, to be cost-effective, and to get their business where it needs to go.

For these services, it’s not so much whether rebundling happens, but who is doing it. Fintechs will want to take a disposable attitude to these services, willing to swap out what doesn’t work for them and experiment - quickly. To that end they will want to work with providers with the same attitude. While there may be a drive to recreate larger providers through rebundling and collaboration, there is zero desire to recreate yesterday’s legacy technology issues. This means a new business model is needed. 

Rebundling is part of creating Fintech 3.0

To be sustainable, fintech is shifting away from paid customer acquisition, ‘moon shot’ ideas and unfocused diversification. Where the future will resemble the past is in creating services, bundled or not, that can drive profitability. Growth is no longer enough, and investors will be looking at numbers such as profitability, average revenue per user, and price-to-earnings ratio.

There is, however, no return to the status quo. Rebundling needs to avoid the big mistake of the past, which was to integrate technology that became obsolete but couldn’t be extricated, creating a legacy nightmare. Fintechs need to retain their agility, even if bundled; making it possible for their customers to add, remove, and amend their services as they need.

We may talk of “Fintech 3.0”, or rebundling, or some other name, but what we’re really seeing is the consequences of fintech disruption—the long-term realignment of the financial services sector as fintech becomes not the disruptor, but the norm.

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