This week we are exploring the role of B2B FinTech to find out why it’s hardly ever talked about by the mainstream FinTech press when financial technology is the engine that drives finance.
The financial press and social media contributors are obsessed, it seems, about FinTech apps at the consumer end of the value chain, so we decided to look into an area we know well, business technology platforms, and we spoke to Gareth Lewis, CEO of the B2B FinTech company, Delio.
Here’s six salient insights Gareth shared with us.
FinTech is a new doorway that has opened up for a new wave of entrepreneurs
It might seem a stupid question to ask a FinTech entrepreneur, but we often start with something very simple. When it comes to a term like ‘FinTech’, one that is used so loosely, it’s important to frame an interview by asking: “What does FinTech mean to you?”
Gareth explains that “FinTech has provided small businesses that previously would not have been able to work with a financial institution, a doorway to help them to do things more efficiently”. He goes on to say that FinTech provides a “label that facilitates” for even the most traditional of industries such as wealth management, to actively choose to use technology as a key enabler to access their market.
We’re not surprised to hear this: it’s a recurring pattern we have seen in our work with wealth managers. There’s still a tendency to forget that not only have existing high-net-worth (HNW) clients’ habits changed, the new generation of wealth has a wholly different set of expectations in how they consume financial data and make decisions.
The corporate business door is being forced open by a new wave of tech-savvy, wealthy clients
While it is easy to point to event-driven change and there is no doubt that the Financial Crisis has been a catalyst for institutions to rethink their business, Gareth argues that is it HNW clients themselves that are the primary factor in ensuring financial services remains relevant.
“We are seeing clients driving change because they want to be more hands-on, more active. They are more tech-savvy and focused and they’re asking why the [wealth management] industry has not caught up”.
Delio came about because Gareth and his business partner David Newman were finding in their corporate jobs that the traditional wealth management product set was no longer relevant to “evolution of the HNW client personality”. So they decided that the new way was to “go into private assets that they understand: direct equities in fast-growing businesses, debt, and real estate”.
Financial Institutions have a new role, as the FinTech gatekeeper
Delio’s own business proposition has been shaped by the fact that private banks and wealth managers remain the “key component” in the industry structure. However, Gareth now sees them more as a ‘gatekeeper’, rather than a traditional provider of financial services products.
Here he makes specific reference to technologies such as robot-advisors which inevitably carry the tag of ‘disruptive’. He argues that in wealth management and to “get deals done”, the role of Delio is to “enhance the role of the advisor”, an approach he says is becoming known as “the second wave of Fintech”.
As a human-centred design company, we’re pleased to hear this. Too often we see companies seeing a tech solution to a problem due to the mistaken belief that technology will provide a cheaper, better outcome when in fact the reverse always proves to be true. Technology when poorly used leads to a bigger, more expensive solution that is often poorly adopted.
B2B FinTech is a smaller, less sexy marketplace
We asked Gareth why B2B FinTech is barely mentioned in the coverage of FinTech, compared to some of the consumer apps.
“A lot of people don’t have a lot of understanding of what we do, compared to consumer apps such as challenger banks that have raised an obscene amount of money. There are buzz words that seem to attract a lot of attention in FinTech because consumers can relate to them”.
Gareth says that because much of B2B Fintech is focused on aspects such as compliance which can be white-labelled unless you work in financial services or are an HNW individual, you’re unlikely to be aware of these tech developments. In that sense, B2B Fintech is a smaller market.
He adds that investors are putting money into challenger banks because, relative to B2B Fintech, challengers are operating in a far more sizable market where the opportunity to gain market share is easier because consumer banking is so out of date.
Proving the concept is a lever to through the door and into the institutional bed
Despite Delio seeing more and more people seeking access to private markets, the question that Gareth needs to answer is:
“How to we get banks to think of us as the private-asset platform of choice for the next five years when they’re not even confident we’ll be around”.
The advantages they have as any startup does (compared to a bank building its own platform), are speed and connectivity. This has led to Delio using proofs-of-concept (POCs) with large institutions to good effects, such as that it carried out recently with ING in the Benelux countries.
By starting small, yet still having to work with IT Risk and Compliance functions, a proof-of-concept of a private market proposition can be achieved in a short period of time and can easily be tested with a select client group and iterated, as Gareth found when Delio was part of a programme with 11 other startups at ING.
We like this approach as we are big fans of prototyping and learning before asking our clients to make a big investment in developing a product. Too often we see FinTech startups go out and raise money without proving any utility at all as they have not understood the most basic element of understanding the real needs of a customer.
As Gareth says, doing it this way “allows me to say ‘we’ve done what we said we would do’” and develop trust as a partner. We see this as a clear advantage of being a B2B FinTech startup.
B2B Fintech could become the FinTech Rock
To end our chat we resisted asking Gareth what the Uber of FinTech would be and rather asked: “what will change in the next 12 months”.
He sees B2B FinTech growing and becoming a cornerstone of financial markets because “whereas a lot of FinTech is about [process] improvement, we are doing something new”. He adds that B2B will continue to emerge as there is only so much that can be done on a consumer level.
It’s hard to disagree with this assessment when considering that despite all the investment that has gone into FinTech, it’s really only peer-to-peer apps that could be said to be a new business model. As for an industry-changing model, no one has cracked that yet but Delio is well placed.