The companies forging the future of finance are a bit different today than they were just a few years ago. Not all that long ago, a slew of digital-only upstarts were staging a frontal assault on traditional financial firms, and mobile banking was the beachhead.
As the great digital shift continues, it seems as if anyone with enough customers, be it a consumer goods or services company, can now official financial services to those individuals. However, simply setting out to offer payments and banking can be an expensive and risky proposition for many companies — especially if they go it alone.
Eric Byunn, founding partner of Centana Growth Partners, told PYMNTS’ Karen Webster in the latest edition of the “Monday Conversation” that we’re moving beyond the days when innovation was a battleground, where banks sought to maintain market share and FinTechs sought to chip away at their flanks.
Increasingly, we’re moving towards partnerships between companies that want to embrace banking while building connected ecosystems, and the FinTechs that can help them do it. That’s led to a shift, too, for the investors seeking to fund innovation along the way.
The Way It Was
When Centana was founded in 2015, scouting for investable opportunities meant focusing on mobile banking, and a slew of companies focused on disrupting — and even replacing — traditional players and processes. Byunn said that there’s still a place for the disruptors.
“FinTech entrepreneurs, management teams and innovators now have a pretty good understanding that there’s this complex ecosystem that they need to exist in, and coexist with, as they challenge [incumbents] or find ‘white spaces,’” he said.
To that end, firms like Centana have been finding opportunity in investments tied to pick-and-shovel infrastructure enablers, as well as firms that seek to change the world, while making financial services immeasurably better.
If the last two years have shown us anything, Byunn said, it’s that pretty much all aspects of the economy and daily tasks can be digitized. We’re past the “activation” stage of the digital pivot, and consumers are becoming more judicious about what they do in person and what they do online.
That opens the door to a range of investment opportunities — and investors. Big Tech companies are putting money to work, funding digital-only upstarts. Byunn said that growth equity firms like Centana are finding ample opportunity in holdings such as Teikametrics, an artificial intelligence (AI)-powered eCommerce marketplace, and identity management firm Jumio.
No Need to Become ‘Experts’
Byunn said that thanks to technological advancements, companies don’t have to become financial firms themselves. Partnering with infrastructure FinTechs, he said, means that a consumer services or commerce company can offer a narrowly specific set of financial services to complement their core business.
“We are seeing this everywhere,” he said, “from the largest companies to the very smallest.”
Goldman Sachs’ ongoing credit card partnership with Apple is a good example, as Apple hopes to leverage its technological strengths in partnership with a company that has its own niche within finance.
Read more: Goldman’s Consumer Banking Segment Sees 8% Growth Year Over Year
While Centana fully expects that a wide variety of companies will offer specific financial services products, they won’t be building out a full continuum of banking services, Byunn said. Part of that stems from all the compliance and regulatory boxes such offerings need to tick.
There’s also the need to see a shift in the consumers’ behavior and mindset, he noted, to embrace those who want financial options on offer from, say, Apple. Marquee names in banking are trusted by consumers, and consumers will continue to want core banking services that are affiliated with a relatively select group of banks.
To that end, Byunn said, “We think individual products are going to be very successful,” tied to specific financial service offerings that make transacting or engaging with a brand easier.
Looking for the ‘It’ Factor
Centana has been investing $375 million raised in its second fund, targeting the financial services ecosystem. In one area of focus, regulatory compliance efforts have been “trailing in terms of digitization,” when compared to other aspects of financial services.
The intersection of commerce and loyalty also provides ample opportunity for investment, Byunn said. When it comes to loyalty, payments remain an integral part of the equation. Consumers increasingly value personalization and context within loyalty programs, even if the monetary reward being offered is relatively small.
Byunn added that digital identities are increasingly important, not just for online security, but also in commerce. Consumers increasingly want to be identified with their favored brands in some way, shape or form, from initial engagement all the way through to payments.
As the connected economy continues to evolve, Byunn said that personalization and identity will be critical in helping consumers become more comfortable with the data they share by explicit permission. To get consumers on board means enabling them to control their data with as little friction in place as possible.
As he told Webster, the technology that is needed to connect the world in a digital way — at least in the developed world — is largely already here.
Through the past few years, Byunn said, “We’ve been able to envision a world where everything is digital, everything is virtual and a lot of friction can be removed — and we’re never going back” to the way things were before.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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