Can fintechs that do not have a banking licence take banking business away from banks? That may be what happens. Certainly, the market places sky-high valuations on some potential disruptors. A recent US$14bn fundraising valued Ant Financial, the payments and financial services arm of China’s Alibaba, at over US$150bn – more than the market cap of HSBC.
Now, Alibaba is a market leader in a US$15tn payments field with only two main players, and it also runs the world’s large money market fund, which makes it quite different to most banks. However, how it uses online data to underpin its business may have lessons for financial services providers in every sector and every region.
When it comes to the UK, there are already a number of non-bank, fintech providers that are using data analytics and good customer service to compete with banks. At a recent event in London, for example, two members of a four-member panel of financial experts said they did not get their SME banking services from a bank because opening an SME account with an actual bank was far too painful and time-consuming. Both of them were customers of Tide – and both appeared to be speaking in a personal capacity. (If nothing else, the event was not about SME banking.)
Tide, which can offer credit via a partner, aims to relieve SMEs of the burden of financial admin. Wave is another company in that space. Tide is said to have 30,000 members in the UK and its ambitions are not small. The outgoing CEO, George Bevis, who founded the app in 2017, said it “aims to be the world’s best, and biggest, business banking service”.
Fintech admin advantage
There is no doubt that businesses – particularly micro-businesses – benefit from spending less time on admin and more on their actual products or service – but the support that fintechs offer via highly-automated online platforms is also to their benefit. Tide, for example, provides its customers with free online accounted software which, of course, gives it a real-time view of how each client company is faring. The more data that Tide collects on its clients, the better able it is to devise services they will need and pay for – and the less likely those clients are to switch providers.
There are also far larger tech companies that use data to inform decisions on lending to SMEs. PayPal offers a suite of “solutions” for small businesses, including PayPal Working Capital, which lends money to businesses that have a minimum of £9000 a year in sales on PayPal. PayPal not only knows what payments the company are receiving, it can collect what it is owed from the revenues that flow over its system.
Similarly, Amazon Lending supports businesses that operate on its marketplace. Again, it has detailed data on those SMEs. Further, it can impound stock held in its warehouses if they do not repay what they owe.
Ant Financial has a deeper and broader view of its clients than Tide, Wave, PayPal or even Amazon – because it is present on mobiles – so it knows almost every step they take – and because it runs social messaging and media sites that give it very granular information on every aspect of an individual’s life. Though it is unlikely that data protection and competition laws in Europe or the US would allow any one company to develop the market power and knowledge that Ant Financial has, there is clearly much that can be learnt from it. What it does and how it does it – particularly as it starts to expand further into non-Chinese markets – should give both banks and “traditional” tech firms pause for thought.