In our prior post, we presented 2 of the 5 biggest challenges to fintech revenue growth over the last 10 years:
- Capital Markets
- Vendor-Vendor Partnering
They are each still the leading challenges. This post covers the last 3.
3. Ecosystem Partnering
Great Promise, Poor Execution
A “lead vendor” establishes the ecosystem of vendors. The vendors promise “flexibility”: buyers can deploy anything by accessing only the vendor features they need. For functions the lead vendor doesn’t offer, the ecosystem makes other vendors’ functions available. The orchestration of the vendors’ solutions is via API’s exposed to the FI buyer.
Highly flexible solutions provide value. However, API-first, partnership-centric solutions are under-performing for FI buyers. Cornerstone Advisors reports that less than 40% of community FI’s received a benefit greater than 5%. 9 of the 11 challenges named by the FI’s were related to partnerships, integration, and API’s.
The root cause: great “flexibility” yields too much “complexity”. The FI buyers need a better balance of flexibility and simplicity in buying, implementing, and maintaining an ecosystem-centric solution. For the buyer, particular challenges include partner selection from the ecosystem, integration / orchestration, vendor management, and solution support, to name a few.
4. Buyer Intimacy
Without It, Fintechs Guess
One of two root causes of frustration with fintech growth is trying to execute without detailed understanding of buyer needs. Strategy formulation exercises miss the mark, delivering either too-little buyer detail (“buyer care-abouts”) or too-much detail (“buyer personas” of those in the buying group).
When the vendor designs a solution, it must make hundreds of detailed decisions, like:
- Should I offer feature A or feature B?
- Is a bundled pricing strategy an option?
- With whom should I partner?
The fundamental answer to such questions is “it depends on who is buying the solution, and why”. The vendor must know the buyers’ detailed needs, or it guesses. The solution becomes bloated; features and options “might be needed”.
5. Whole-Product Design
It’s Not the Software
The second root cause of frustrations with fintech growth is focusing too much on the software part of the solution. Fintechs believe that most of the value of their solution comes from the software. But buyers value the entire vendor business model that touches them, including considerations like:
- How the FI buyer will be onboarded
- With whom the product is pre-integrated
- The innovation strategy
By analogy, when we, as consumers, buy a car, we care about more than the car. We also care about financing, servicing, trade-in value, and more.
We’ve customized for fintechs Regis McKenna’s concept of “whole-product” which distinguishes it from the “software product”. The fintech’s Whole-Product design must be for a market-full of buyers, based on an intimate understanding of buyers’ needs in any market segment (see #4).
Without Whole-Product thinking, the vendor will drift into an execution strategy of “let’s go sell a few, and figure out the rest later”. Buyers are underwhelmed by the lack of fintech forethought, and some vendors end up with a business model that has custom components for each buyer.
Across these two blog posts, we’ve covered the top 5 challenges to fintech vendor revenue growth over the 10 years of KGA’s service to fintechs.
- Capital Markets: Immediate Shift to “Growth with Scale”
- Vendor-Vendor Partnering: Easy to Establish, Hard to Get Right
- Ecosystem Partnering: Great Promise, Poor Execution
- Buyer Intimacy: Without It, Fintechs Guess
- Whole-Product Design: It’s Not the Software
I look forward to the next 10 years!