Evolving Fintech Positioning: A Matter of Survival

Positioning is a key part of every business strategy and is correlated with the type of competition reigning in each specific market (which varies depending on the amount and the size of the participants). Focusing on the financial industry, its idiosyncratic features have left room for the emergence of fintech firms with a positioning strategy consisting primarily of providing an improved user experience, a lower price and more transparency through a digital platform. However, the success story of this strategy is coming to an end, and those firms that do not evolve such a positioning will fall behind in the medium and long term.

It is difficult to think of an all encapsulating industry other than banking that has been so disconnected from real market dynamics, trends and competition for so long. This is to a great extent due to its huge barriers to entry, which in the end have not only reduced banks’ incentives to improve customer experience, but also have supported “objectionable” behaviours (e.g. abusive commission charges, complete opacity, etc.).However, with the arrival of the digital era, these barriers started gradually falling down, especially given the possibility for newcomers to reach millions of potential consumers with little more than a laptop (without setting up any physical branches) thanks to the democratisation of the internet.The moment new agents gained access to this market they realised it was not necessary to create a totally new disruptive product or technology in order to pose a challenge to banks and compete with them. To a great extent, that could be done through a very “simple” positioning that consisted of: 1) reducing pricing; 2) increasing transparency; and 3) improving the customer experience through digital tools. And in hindsight, this was a logical step to follow. The combination of these three factors was so powerful because it was easy to understand and demonstrate, and resonated with potential clients.Here the website (and in some cases the app) played a crucial role, since, unlike traditional actors, incomers live in a totally digital environment and have no legacy systems. Slogans like “new banking”, “simple banking” and “cheaper banking” were pretty common, which packed together with the much-hyped word “fintech”, was enough to start attracting clients and raising funds from VC.However, the above-mentioned 3 differentiating factors present clear limitations since they are not distinctive enough. But why did this positioning become outdated so quickly? On the one hand, although some banks are slow-moving creatures, they have not only tons of resources to create web designs or outsource them to specialists, but also big enough margins to reduce their commissions at least to clients they have lost and look forward to bring back (even beating the ones provided by incomers). But even more importantly, we also find more and more fintechs entering the market providing similar services. So, this is not just fintech vs banks anymore, but also fintech vs fintech. That’s why, in this new, increasingly competitive environment in which digital has become the “new normal”, positioning your firm in terms of UX, price and transparency won’t be enough.So what is the solution or the next step for those fintechs that want to keep going? For sure some companies will stay with the original positioning hoping that their strong branding will help them to defend it. In the end, there is always some room for “low-cost” positioning. Other companies have bet on the only logical strategy in the medium and long term: evolving their value proposition. This means building a unique technology that is hard (or at least long) for banks and other Fintech to replicate and that brings huge value to customers (i.e. efficiency, productivity, risk management, automation and straight-through processing, etc.) which in the end will drive true co-petition. Here, one of the few key factors enabling the creation of sustainable value is to master deep product innovation. For fintech, this means combining a deep knowledge of what technology makes possible and the financial expertise to give answers to clients' problems, combined with the ability to execute quickly.So this does not just mean creating a one-off innovation or a service that replicates a bank's service in a cheaper way. It's more about the capacity to create better products and evolve them faster than competitors to stay ahead. This includes understanding what the real consumer needs are, and the big problems and frictions that need to be solved, especially in an era in which the digital gap between generations is increasing. This does not mean that we underestimate such one-off innovations or positioning based on price, since it is often enough to gain initial traction and some market share. But again, we think that in order to build a sustainable fintech company, the best way forward is focusing on deep product innovation, pieces of technology that are unique, hard to replicate, sticky, defensible and so for which you can charge a high price.Here at Kantox we are a good example of the evolution of the value proposition explained above. We started off with a strategy aiming at increasing transparency, offering much better prices (up to 10X cheaper than banks and brokers) and providing a customer-oriented service. When you are small, you choose a positioning compatible with your limited resources. However, being close to the client (as opposed to banks’ turning-their-back attitude) has helped us to really understand what their day-to-day problems are, and therefore enabled us to leverage our tech capabilities to provide new solutions and products that respond to real needs.And this is something you can easily verify by simply entering our new website. Avoiding easy slogans, we have tried to put the focus on what really matters: our innovative products and solutions. We are convinced that these are ultimately the only drivers that will make our company sustainable in the medium and long term. And we hope that more and more fintech firms take the same path.