Fintech startups, beware: Banks are coming after your customers.
If the giants of the banking world manage to crack the code of how to market to and serve millennials, that is. Should that day come, the financial-research firm Autonomous Next says, financial-technology firms’ advantage will shrink and “at least one unicorn will implode.”
The success of challenger banks and payment services such as Revolut and investment platforms including Robinhood have highlighted the potential gold mine of millennials. Big banks have taken notice, with Goldman Sachs, JPMorgan, UBS, and Santander among those that are also ramping up their expansion.
“As a result, customer acquisition costs will rise and the digital model will become more competitive, as servicing costs commoditize at a cheaper price point,” Autonomous said in a report Tuesday. While this is great for consumers, startups may feel the squeeze.
Revolut, a UK startup valued at about $1.7 billion, is growing rapidly both geographically and also in its offerings of services. The firm and its ilk are unlikely to go quietly. Revolut, for example, has a “punchy mission” to “turn the financial sector on its head.”
Goldman Sachs jumped into the space with Marcus, a digital lending offering for consumers. It launched in the UK late last year and is touting a savings account that pays an initial interest rate of 1.5%. That’s the best rate in the UK. (But Marcus doesn’t have a mobile app, an odd decision for a bank hoping to attract millennials.)
High spending on acquiring new customers has increased the need to sell a variety of offerings to an increasingly digital audience of consumers. Similarly, new and emerging fintech companies will look to even more revolutionary methods of disruption to gain new audience away from video and virtual reality. These include native payment systems within digital experiences and even social currency for video gamers within chat streams.
The trend will spread beyond fintech as well. The pricing pressure that started in consumer finance “will spill over into B2B banking, money movement, insurance, treasury management and product manufacturing,” Autonomous Next said.
An inevitable outcome is pressure on profit margins as prices adjust, the firm said.
“For those companies that are able to re-design operations using a digital chassis, they will be able to compete on the margin with fintech unicorns. Those that are not should exit, or retreat into more bespoke, relationship-driven business lines.”