Fintech firms will transition from vertical specialists with direct client relationships to become ‘part of the plumbing’ in open finance as basic financial services become commoditized and a component of a larger ecosystem.
This is the scenario for the next decade, according to tech experts such as Nik Milanovic, a former TechCrunch writer who joined Google Pay at the beginning of the year. “Financial services in the next decade will be a feature of the platforms with which consumers already have a direct relationship, rather than a product for which consumers need to develop a relationship with a new provider to gain access,†he says.
Individuals and small businesses will conduct their financial transactions from a central hub — for example via smartphone for an individual or a version of QuickBooks for a small business.
The point is that concerning finance, it’s no longer a question of whether or which banks will survive but what role banks will play in these ecosystemsOpens a new window .
Opening up banking
Take QuickBooks, for instance. Fintech firm Tide announced in November that it would integrate its bank feed systemOpens a new window with QuickBooks Online so that bank information can be transferred seamlessly into the QuickBooks ecosystem instead of through a far more laborious manual procedure.
It’s an application of the open banking concept gaining ground in Europe after the European Union’s revised Payment Services Directive required banks to make account data available to external providers through an application programming interface when a customer grants permission. QuickBooks recently partnered with online bank Revolut to offer open banking services to small firms in the UK.
Experian and VoPay are also jumping onto the open banking bandwagonOpens a new window with B2B products such as small business loan applications, online accounting, bank account opening and alternatives to card payment processing.
Technology-enabled lending
One of the first effects for small business has been in lending, with technology enabling lenders to evaluate borrowers and approve loan applications much faster and more cheaply than traditional relationship managers.
Karen Mills, head of the Small Business AdministrationOpens a new window in the Obama administration and author of Small Business and the American Dream: How Technology is Transforming Lending and Shaping a New Era of Small Business Opportunity, says technology has made loans of $100,000 — hardly a microloan but hard to get from a bank — profitable for lenders and available to borrowers.
Despite the enthusiasm for this type of innovation, other observers remain cautious. AÂ study by the Dutch central bankOpens a new window notes that penetration of the payments market by Big Tech firms such as Apple and Google is less than 1% in the United States, although fintech lenders granted loans to 15.1% of US small businesses and 6.3% of those in the UK in 2018. The central bank concludes that risks for lending and deposit-taking remain much the same regardless of the technology.
Autonomous finance
>But that won’t necessarily slow down the development of open banking. Milanovic and other experts see the evolution to a central hub for finance as a welcome relief from interacting separately with multiple providers.
Andreessen Horowitz general partner Angela Strange, who calls this autonomous financeOpens a new window , compares it with Google Maps, which can plot out the best route taking account of traffic and rest stops. Similarly, autonomous finance can better distill people’s financial situation and make the best decisions for them. The ultimate phase of connecting all these verticals still lies in the future, she says, but it’s on the way.