Today’s banks are essentially self-contained markets with a market maker — and are quite inefficient at that.
A Fintech bank is a marketplace with a banking license, a core platform, KYC, CRM, an API and a few core products. The products directly offered by the Fintech bank may be limited to funds holding, bank accounts, cards and a wallet for payments.
All other services will be provided by third parties. Partners will come from both Fintech companies and established players: the Lending Clubs, TransferWises, Wealthfronts, etc. of today.
To work with a marketplace, they should work in a B2B2C model instead of the direct retail they have today. This change will come with its own pros and cons for them:
· lower customer acquisition costs (vs customers that could leave just as easily),
· access to a large customer base (and more constrained channels of promotion to them)
Products and participants
Fintech banks will open opportunities to traditional players used to getting customers via 3rd party channels: insurance companies, fund managers, etc. all hungry to get distribution.
Source: Big Ideas in Financial Technology presentation by Charles Moldow, Foundation Capital
But this is only the retail element. Let’s not forget about the wholesale products — marketplaces serve sellers as well as buyers. This is an area with real opportunities for innovation — services for sellers could include:
· Customer service ‘as a service’ — the basic offering of the Fintech bank
· Market data and aggregation — Bloomberg for the marketplace, the closest is Orchard
· Secondary markets and derivatives: hedge against market risks, partner risk, etc.
Where will it come from?
Marketplace lenders already have momentum, customers and funding to start a wider marketplace. To avoid being ‘just another bank’, with its inherent problems of complexity and lower margins, the marketplace model for them could be ideal.