The future of finance: Consolidation, commoditization, consumerization
For the fourth year in a row, Trustly attended Stockholm Tech Fest with great enthusiasm. As you can guess, one of the sessions we look forward to most each year is the Future of Finance panel, and this time was no exception.
Two years ago, the session was quite confrontational, with fintechs and banks going head to head. But last year, a palpable shift had taken place, and both sides were talking about cooperation.
Emma Heimonen, head of digital innovation at Swedbank, moderated the panel consisting of execs from Bambora, Klarna, iZettle and Mastercard and admitted that this year, “I hardly know which box to put each one of you in. Klarna has gone from fintech to bank. Bambora has taken parts of banks and turned it into a fintech. iZettle, still a fintech, has some bank co-operations helping it expand its growth.”
Sasha Krstic, Head of Nordics and Baltics at Mastercard, jumped in to define her company. “I would call us the connecting force. We are neither a bank nor a startup, but in the fintech umbrella, we are the one that connects with underlying technology.” In other words, an “incumbent fintech,” Heimonen suggested.
Things are certainly moving fast in the fintech sector. But where are they heading?
“I don’t think the future is a full-service bank. I think that’s part of the problem; that banks have too many products. And you can’t be good at too many products,” said Sebastian Siemiatkowski, CEO of Klarna. “What you can be is you can be very focused, and you can be global.”
iZettle CEO Jacob De Geer added, “Banks need to choose whether they go for the consumer focus or whether they remain a backbone for faster-growing fintechs.”
While Klarna opted to pursue a banking license, De Geer explained that iZettle with go to great lengths to avoid becoming a bank due to the complex regulatory landscape. Still, its banking cooperations have been vital to the company’s growth, especially in countries like Mexico and Brazil.
Johan Tjärnberg, CEO of Bambora, backed up that strategy, saying, “Banks and fintechs need to build partnerships or to be more focused. I think that’s the future of finance.”
Payments is a particularly hot topic within fintech these days, but Krstic believes that the notion of payments is changing in and of itself. “It’s no longer just a simple transaction with a piece of plastic. It’s really about a world not just beyond cash, but a world beyond plastic. So the question is: How do we think about how consumers pay for things without making them do the work?”
Several panelists agreed that in the future, the industry is going to shrink noticeably, due in part to emerging technologies.
“Payments are being commoditized,” explained De Geer. “Margins are going down, though maybe not too fast. But the reason we see so many companies in fintech is because it’s a pretty complex area and it takes a while to build a company that reaches a size where it really matters. So now we’ve reached that point where we finally have a lot of sizeable companies and suddenly they’ve all emerged.”
He continued to say that this will lead to massive consolidation because it will become harder and harder to make money on payments alone. “So what’s important for all these companies, including iZettle, is to build the surrounding services that can take over as true revenue generators, rather than payments. And that’s the big challenge. I think the consolidation is already starting and it will increase quite dramatically over the next 18 months or so.”
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