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Over the last decade, FinTech has transformed UK banking. This was most prominently seen in the rise of challenger banks like Revolut and Starling and remittance companies like Wise. Unencumbered by the need for branches and sensing chronic disillusionment with traditional banking, the newcomers created systems and products that customers wanted, often at better prices than traditional banks could offer.

by Philipp Buschmann, Co-Founder and CEO of AAZZUR

This sent those banks scrambling to frantically bring their products into the 21st century. All so they could offer a customer experience that matched that of the challengers.  This genuine focus on customer experience is FinTech’s most visible legacy. Thanks to the positive customer relationships companies fostered, incumbent banks now face an expectant customer base who are willing to move to get what they want.

Philipp Buschmann, Co-Founder and CEO of AAZZUR on UK banking
Philipp Buschmann, Co-Founder and CEO of AAZZUR

That’s just the tip of the transformation. FinTech has reimagined what it means to even be a bank through Banking-as-a-Service (BaaS). This, combined with the data opportunities afforded by Open Banking, is FinTech’s real legacy and where the sector’s new players still lead most incumbent banks.

Traditionally a bank controls every aspect of its services. BaaS allows FinTechs to integrate their systems with each other to expand their own offerings or profit from others integrating theirs. Take Starling for example. It benefits hugely from opening its payment rails to companies like SumUp and MasterCard while simultaneously offering its own customers the services of FinTechs like Wealthify and PensionBee.

Traditional players in UK banking are already getting in on the action. Lloyds is working with Thought Machine, RBS with 11:FS. By integrating with some of the most innovative companies in the world they are able to vastly expand and improve their own offerings with relative ease. The most exciting bit is it’s not just banks doing this. Any retail business can now offer a vast ecosystem of financial products.

What, though, does this mean for investment in the sector? The end of the last decade saw billions of VC and private equity dollars annually pumped into FinTech. But the planet is a volatile place right now. It is this, more than anything else, that will dictate the direction of investment.

In times of crisis, investors seek safety, so expect a shift towards sure bets. In UK banking, this already seems to be the case. The biggest benefactors will be the largest FinTechs. Companies like Revolut, Starling and Wise are now, just like the very banks they were created to challenge, simply too big to fail.

Another big factor will be where traditional banks invest. As they continue to mirror the challengers, innovation seems most likely. Either internally or by partnering with smaller, agile firms like AAZZUR and focusing on the benefits of BaaS and embedded finance.

Further down the FinTech ladder, smaller startups are most at the mercy of the market. If global volatility stays roughly the same or decreases, investment should continue. The level of innovation at some of these companies is too high not to support.

But if something throws the globe – and, in turn, the markets – into prolonged chaos, expect funding to dry up for almost everyone but the biggest names. And if 2008 showed us anything, a few big scalps are still to be expected.

It’s this that makes me so certain embedded finance and BaaS are set to see an investment surge. Both from investors and businesses themselves. Why? Because they allow traditionally sluggish businesses to finally start turning a profit, offering their investors a genuine return. Most importantly, it allows them to detach themselves from investment life support.

Right now, that’s just good business but at some point, that could mean survival.

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