[Editor’s note: This is a blog post from Tim Hong at MoneyLion. MoneyLion is a Silver Sponsor at LendIt USA 2017 which will take place on March 6-7, 2017 in New York City.]
It’s well characterized by now that the first wave of fintech disruption came in the form of the unbundling of the bank. From lending to wealth management to insurance, startups targeted specific verticals by offering customers advantages over incumbents. Online lenders provided faster, more cost effective and accessible personal loans. Robo-advisors automated portfolio diversification and rebalancing. Personal finance apps built tools to help customers build savings and simplify other financial goals.
It makes sense that the startups of Fintech 1.0 focused their time and resources on single products. Without established brands, new entrants relied on innovative solutions that addressed a single unmet need in order to attract and acquire new customers. These new solutions also flourished in areas, where constrained by regulation or legacy technical systems, incumbents were unable or unwilling to operate.
Today, as fintech matures, we’re seeing a new dynamic, the rebundling of financial services, take hold as banks and fintechs alike seek to diversify and expand their offerings to meet a broader set of customer needs. Square expanded from payment processing to merchant loans, and SoFi, leveraging a customer base that started with refinanced student loans, now expects mortgages to be its fastest growing product line. Even companies outside the industry, like China’s WeChat, are aggressively integrating financial services into their product offerings.
This evolution is only natural because of the mutual benefit it presents to both customer and business. Fintech firms that establish traction in an initial product vertical can leverage their customer relationships to earn a greater share of wallet. When done strategically, rebundling can more meaningfully solve customer problems and help them reach their goals, since the solutions themselves often span financial products. Ultimately, this customer-centric approach has advantages over one that is purely transactional and may only leverage a single product.
But this shift in fintech comes down to more than just product line extensions. Where some extensions may simply seek to broaden the addressable market, true rebundling of financial services deepens the customer relationship and holistically looks to solve real customer needs. SoFi’s Student Loan Payoff ReFi product is a great example as it traces the arc of a customer’s personal journey from student loans to mortgages.
At MoneyLion, our customers have told us that improving credit scores and reducing debt are key hurdles in building wealth and reaching their financial goals. That’s why we’ve brought together financial tools, like credit monitoring, and financial products, like debt-consolidation loans, that are part of the solution to these needs. When combined with our personal finance tools that track payments, savings, and spending, our customers become much more capable of addressing what can be complex financial problems in a holistic, yet simple way.
One of the key drivers that has accelerated re-bundling is the “API-ification” of financial services. The rise of horizontal specialists ranging from financial data providers like Yodlee, Plaid, and Quovo, to banking-as-a-service providers such as WebBank and Cross River Bank, means fintech startups can focus in on their core competency despite offering a package of different bundled products. The result is a convergence of the ability to rebundle with the clear value in doing so for the customer.
Moving forward, rebundling still poses certain challenges. Smart players will navigate questions around building their own products from the ground up versus partnering with banks or other providers. So too must companies work to build trust and credibility with their customers, so additional financial products and solutions make sense with the context of the brand and customer expectation. And every organization must assess their operational and servicing capabilities to be able to fulfill additional products.
At MoneyLion, we believe the rebundling of financial services is an important step toward solving the most pressing financial challenges of consumers. As the industry continues to evolve in the face of market pressures and regulatory changes, we think next-generation fintech companies will deliver bundled solutions that ultimately drive the emergence of a generation of financially healthier consumers while building brand loyalty.