In a recent article on Organizing for the Future, McKinsey & Co. has provided a great framework for organizing for a post-pandemic future. They recommend that to better organize for a post-pandemic future, leaders should embrace nine imperatives that collectively explain “who we are” as an organization, “how we operate,” and “how we grow.” This framework can position an organization to address legacy paradigms. However, what if seismic shifts in technology could now empower us to not only bypass legacy paradigms, but build entirely new and better products and services? We now have the ability to create products that are easier to consume and serve a wider range of consumers. For financial services organizations in a rapidly commoditizing space, newer consumer fintech experiences and purposeful, personalized offerings will become a key builder of loyalty among customers. This can result in newer, higher margin products that can be served and delivered digitally, lower Customer Acquisition Costs (CAC), higher Lifetime Value (LTV) and lower churn for legacy financial services organizations.

The First Wave: Fintech 1.0

The first generation of fintech companies was consumer fintech companies with products like Intuit Quicken, Microsoft Money and Mint. These products allowed consumers to manage their own finances and do specific jobs that needed to be done. They were then followed by companies like Lending Tree, SoFi and others that went deeper into specific problems like mortgages or insurance. There were also first-generation payment processors like PayPal that provided easier ways to pay and accept payments.These were quickly followed by online banking and other services that eliminated the need to visit brick-and-mortar locations to make personal finance transactions.

Most of these companies and products were started just as the internet was starting to blossom, and grew along with the internet.

The Second Wave: Fintech 2.0

The second generation of fintech companies was composed of B2C and B2B2C fintech companies that allowed businesses to offer financial processing or transacting capabilities. These companies provided specific solutions that could be offered to consumers by other businesses. They focused on specific categories and provided branded or white-labeled solutions that could be used by other businesses. Some of the representative categories and companies are Payments (Examples: Stripe, Square, Payrix, Tilled, Credit Key), Banking (Examples: Chime, Moven, Plaid, Dwolla, Step,Wise, Rho, Lili), Alternate Lending (Examples: Bloomcredit, Provide, lendbuzz), Wealth Management (Examples: Robinhood, Clarity AI, Addepar, Purefacts), Insurance (Examples: Hippo, Lemonade, Metromile, Clover), Payroll/Benefits (Examples: PayActiv, DailyPay, Rain, Even), Capital Markets (Examples: DataRobot, Fireblocks, Nydig), and Real Estate (Examples: Amerihome, LoanDepot, SundaeHomes).

While there are some clear leaders and winners, this category will continue to evolve and mature and we will see new entrants coming into these evergreen categories.

‍The Third Wave: Fintech 3.0

The next evolution of fintech on the B2B front will be a focus on horizontally integrating across the life cycle of a customer experience. New entrants will be enablers of private ecosystems that connect the various participants in the customer value chain.They will enable financial services organizations to seamlessly connect across constituents (customers, employers, employees, banks, donor advised fund providers and charitable organizations) in their ecosystem and provide ways for digital products from a variety of different partners to be plugged into the ecosystem. They will also weave in AI, ML, personalization and other building blocks in order to support the customer journey from acquisition to conversion to engagement to expansion to referral in a quick-to-market, white-labeled capacity.

B2B Fintech 3.0 Framework

While many of these framework pieces exist in silos in the first two generations of fintech, the ability to white-label a horizontally integrated framework can provide a way for financial services organizations to rapidly bring new products and use cases to the market.

Becoming a future-ready financial services company

In a world where acquiring customers and retaining them is critical but hard to accomplish, Fintech 3.0 companies will provide the platform to engage and activate existing clients to attract people like them from their personal networks. The platforms will seamlessly integrate with enterprise CRMs and engage customers and their community networks to attract people. They will empower their employees and customers to create branded engagement approaches like community projects, impact events and crowdfunding to attract people from the communities they serve. They will seamlessly use technologies like AI, ML and compelling personalized user experiences to build brand warmth and attract others to the brand. Future-ready financial services organizations that control their own community data will have a competitive differentiator over ones that build their community on traditional social media platforms with increasingly higher costs.

In a world that wants to see the talk being walked, being able to demonstrate corporate purpose becomes a key business imperative. Fintech 3.0 companies will provide the frameworks to be able to seamlessly connect payroll providers, employers, banking institutions and donor advised funds to create employee hardship assistance programs. These programs can then be administered anonymously, funded collectively, scaled seamlessly and celebrated socially. Financial organizations can become the providers of purpose to their business clients through the use of Fintech 3.0 frameworks.

Finally, Fintech 3.0 platforms will provide building blocks that can be used as ‘lego blocks’ to build compelling user experiences across the customer journey. They will allow financial services firms to repackage legacy systems and products into new, compelling digital offerings that can be presented, consumed, experienced and serviced digitally. Secure APIs and micro-services will allow organizations to stitch together compelling user experiences with legacy infrastructures. Future-ready financial services organizations will be able to create new business and revenue models that range from subscription fees to transaction fees to fees on assets under management. They will continue to drive down customer acquisition costs and servicing costs while improving the engagement of the customer.

In the same way that Amazon WebServices (AWS) enabled a new generation of tech companies with compelling business and revenue models, Fintech 3.0 platforms will allow future-ready financial services companies to create new digital products that are horizontally integrated and that provide naturally integrated distribution channels with partners who are able to provide complementary offerings. This will result in more choices, better products and lower prices for consumers.