In financial services, niche is nascent

I don’t know if it’s the same for you, but there are a lot of new, innovative financial services and companies clamoring for my attention these days: a digital neobank* for pet owners, a service for cross-border payments to relatives overseas, or a wallet for holding your crypto funds after your latest NFT sale.

While I certainly spend more time looking at these new services than most given my role at Synctera (a FinTech startup helping other FinTech startups build), this increase in new and targeted financial services is indicative of a Golden Age of personalized finance we’re all experiencing. Wherever you are in the world, chances are you are discovering (and using) more and more “niche,” embedded, and personalized financial products with each passing year.

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What is personalized finance? A brief history

Where is all this financial innovation coming from? Traditionally, creation and distribution of new financial products have been costly and difficult. As a result, most banks (both big and small) developed offerings that were standardized and targeted at mass-market audiences. It’s not that demand didn’t exist within specific affinity groups or for more personalized offerings, it just wasn’t economical or technically feasible to build these in many cases.

As a result of innovation in the tools and distribution channels for financial products in the last decade, it has become much easier to unbundle and repackage financial services to focus on a specific activity for a smaller audience. In other words, more niche services for niche groups of people. Examples abound: many people used Affirm loans at the point of purchase to finance Peloton bikes during the pandemic; traditionally underserved communities have discovered new “neobanks” like Greenwood that focus on their specific needs; gig economy platforms can now easily manage worker and vendor payments through products such as Dasher Direct.

One historical parallel to the trend we’re experiencing in finance is the shift to personalization in media from the big three network TV providers, ABC/CBS/NBC, to highly segmented (and even localized) on-demand content that caters to smaller, highly-engaged audiences. Fifty years ago the major networks created content targeted at the broadest audiences possible, and consumers had limited choices. Fast-forward to today and there are hundreds of cable channels, tens of millions of YouTube channels, and dozens of streaming services vying for our attention. You want content for pastry cooking enthusiasts? We got that.  Maybe you prefer niche extreme sports? We got that too. There is now seemingly infinite content for any demographic or interest group, available on-demand, 24x7.

So how does this trend to niche audiences play out in financial services? For starters, we’ve seen both startups and established companies make bigger and bigger bets in “Affinity Banking,” e.g. a neobank for employees that work at restaurants. But the trend goes beyond traditional financial services repackaged to meet the needs of a specific audience. More and more embedded finance use cases are emerging, in which businesses who are not primarily “FinTechs” offer financial services to drive better customer or employee experiences. For example, a digital real estate agent offering seamlessly integrated short-term loans to finance house staging and repairs for owners prior to listing their homes, or a landscaping company issuing virtual cards to workers to manage the procurement of materials in the distributed markets that they serve. And don’t get hung up on “niche” either – while niche implies small for conventional business, for global banking services niche audiences could be tens of millions of people.

“And don’t get hung up on “niche” either - while niche implies small for conventional business, for global banking services niche audiences could be tens of millions of people.”

— Shep Smith, COO of Synctera

A company I admire operating successfully in this “niche banking” space is startup Brex. Brex provides small business bank accounts and card products primarily to startup companies that are VC-backed. If you look at their website, first impressions may suggest that Brex simply offers basic business banking and credit card products - similar to what you could get from any number of traditional players. Upon further review, Brex has positioned itself as solving the unique problems a small subset of startup founders will ultimately experience: getting access to a meaningful credit limit for a company with no revenues or operating history, or getting rewards that align to startup needs like AWS credits and Google AdWords. With Brex’s latest valuation hovering around $12bn, clearly, they’re doing something right.

How can new FinTechs find success? Focus on solving the unique challenges of your customers, not building basic infrastructure

If your current strategy is to do mass-market account openings and basic banking services, you're unlikely to break out in a competitive market dominated by large incumbent players. Instead, solving the problems for your engaged audience with the things you’re best at –whether that’s a new type of user experience or a product that solves a unique problem– is how builders of financial products will win. Simply put: build for an audience you know and assemble a user experience that addresses their unique needs.

A common pitfall I see with excited innovators I talk with is they dedicate a lot of time and resources building supporting services or functions to power the core idea that’s unique. While this seems obvious in some areas –Why would you build a data center to support your app when AWS can do it better, faster, and cheaper?– it applies to embedded banking as well. Rather than building account verification from scratch to support your financial use case, use Plaid or Finicity. Don’t waste time building your own KYC, use Socure for that. These are solved problems**, and you’re not going to do it any better or cheaper building it yourself. The way to win in FinTech is to build differentiated and targeted solutions, and get to market quickly. Focus on your vision and your customers, and leave the non-differentiated bits to others.

“The way to win in FinTech is to build differentiated and targeted solutions, and get to market quickly.  Focus on your vision and your customers, and leave the non-differentiated bits to others. ”

— Shep Smith, COO

My colleague and Synctera VP of Product Arvind explained in his recent blog “How to build a modern FinTech?” that modern companies today now provide a lego-like architecture in “modular” bits and APIs that quickly help enable your idea instead of having you use valuable resources to build one-off items to support functions. In the real world, this would mean finding partners that provide undifferentiated building blocks you can use to set up your financial use case (cards, compliance APIs, account linking, verification) instead of working on something that has now been standardized by larger players for cheaper prices.

Tips on how to get your financial product from idea to market, fast

Here’s a quick guide on how you can tailor your thinking in the early stages of building in order to get to market quickly and start solving your audience’s problems:

1. Focus on the user problem that you understand uniquely and design for that. Everything else? Outsource.
2. Speed to market and iterative learning is critical. The best way to find out if your idea is any good is to get it into the hands of your target audience and get feedback.
3. Keep scalability in mind. When picking platform providers, make sure they meet your needs today, but also have the ability to grow with you as you mature. Making platform switches down the road can be expensive and time-consuming.
4. Don't underestimate the importance of knowing your bank partner/sponsor. They are your most important partner and the ticket to your ability to operate.
5. Build from day one with compliance in mind, and find partners who can support you in this area. While you won’t win with great compliance alone, failure to get it right can lead to really bad outcomes.

How Synctera can help

At Synctera, we are making it fast and easy for companies of all sizes to build and launch innovative financial products. We are super focused on creating a great builder experience for all of our users, even those that are new to the financial industry. We bring together all of the components that you need in order to bring a financial product to life  –from DDA accounts to cards to fraud and compliance tools and beyond– all enabled through a modern API. We combine this with a guided development workspace and special programs to help you launch fast with a regulated bank partner that can power your product’s accounts and money movement.  

If you’re a builder looking to launch a new standalone or embedded financial product, check out the upcoming Revenue blog series my team will be publishing on how you can start earning revenue in the market today - a key indicator of success for getting investors to join your mission, acquire new customers, and expand your idea into a sustainable business.  

And if you’re ready to get started today, let’s talk!

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Footnotes

* What is a Neobank? “Neobanks” is a term used to describe FinTech companies that are offering banking services to customers but aren’t banks. Instead, they use the license of a Sponsor Bank to get access to the banking rails in North America in order to operate their financial product / service

** Even better, if you can use Socure, Plaid, Finicity, Feedzai, Marqeta and other platforms with a simplified contracting and API model (we’ve standardized it all), you will go even faster. Building on Synctera is the fastest and easiest way to build your FinTech experience

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