This article in Forbes by Benjamin Verschuere is a fun and worth reading. It argues that much of what’s new in Fintech is easily replicated, and easy replication moves the solutions in the direction of commoditization and a race to the bottom. Neobanks are just wrapping paper over the traditional banking systems, and BNPL and free stock trading are easily replicated business models:
“We can extend the trials and tribulations of neo-banks to other parts of the fintech industry. The commoditization trend in fintech can easily be seen in one of its most celebrated innovations: BNPL. While a cool feature, is there any differentiator between any player in that sector?
Similarly, commission-free trading apps are a great feature, but they have been replicated by many stockbrokers; legacy companies such as Schwab or TD have caught on to their younger fintech competitors.
Another characteristic of the intense competition fintech companies face is the fact that most of them make no significant profit. This again can ultimately be traced back to their lack of product differentiation. As clearly described in economic theory, the end game of commoditization is perfect competition, which means zero marginal profit. Fintech 1.0 could well be a real-life example of such a dynamic.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
