Banking Fintech

Unbundling, Fidor, and the model for approaching financial startups

Unbundling, Fidor, and the model for approaching financial startups.
Written by Stephen Greer

Stephen Greer suggests it may be wise for financial institutions to follow Fidor’s lead by creating a sense of community and openness.

I’ve recently had multiple conversations with financial institutions about the trend of unbundling financial services by fintech startups. In fact, it’s hard to discuss the future of the industry without touching on it. Articles from Tanay Jaipuria, TechCrunch, and CBInsights speak openly about inexorable disruption. They all tell a fairly similar story. Unbundled products and services disintermediate financial institutions by improving on traditional offerings. Banks lose that value chain. Banks become a utility on the back-end, essentially forced by the market to provide the necessary regulatory requirements and accounts for non-bank disruptors. With images like this (see below), it’s hard to argue that it isn’t happening, at least at some level.

Unbundling of a bank, by CB Insights


There are plenty of reasons to be sceptical about the hype surrounding disruption by fintech players (shallow revenue, small customer base, and so on), but even if only a few manage to become sizable competitors, that still represents a significant threat to banks’ existing revenue streams. There’s also data pointing to higher adoption in the future. A study from Ipsos MediaCT and LinkedIn showed that 55% of millennials and 67% of affluent millennials are open to using non-FS offerings for financial services. This number is surprisingly high, and the largest banks in the world are paying attention.

The threat of losing the customer-facing side of the business is a legitimate risk that banks face over the next 5-10 years, but there’s a possible solution that could enable banks to remain relevant even as they begin to see some of their legacy products or services fall to new entrants. Be more like Fidor Bank.

Chipping away at the value chain

Fidor Bank is a privately held neobank launched in Germany. It has a banking license and wants to transform the way financial institutions interact with their customers by creating a sense of community and openness. The bank views its platform, fidorOS, as a key differentiator that allows it to offer customers services from startups or new financial instruments. For example, it offers its customers Currency Cloud for foreign exchange, as well as the ability to view bitcoin through its platform.

Going forward, it may make more sense for financial institutions to take this approach. Banks can’t be everything to their customers, and there’s a healthy stream of market entrants trying to chip away at the banking value chain. A middle way is that banks become an aggregator for popular non-bank fintech offerings as they become popular. This would preserve the benefits of traditional bundling by aggregating offerings and re-bundling them alongside its homegrown services. Some benefits include:

  • Maintain the consumer-facing side of the business by letting customers access these service through your platform.
  • Increase cross-selling and marketing opportunities.
  • Preserve a convenient and frictionless experience by reducing the fragmentation of unbundling.

These benefits would provide value to the FI and the fintech partner, and it’s not a new concept. Netflix is effectively an aggregator of content from a variety of production companies (along with creating great content of its own). The music industry has been offering bundled services for more than a decade. Banks are loath to forfeit parts of the business, but as other industries have seen, the longer they wait the more disruptive the change will be.

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.

About the author

Stephen Greer

Stephen Greer is an analyst with Celent’s banking practice and is based in Madrid, Spain. His research focuses on retail banking trends, with an emphasis on digital channel technology.

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