There’s been a lot of talk about the “Uber moment” for fintech, or of how disruptive Uber is. Yes it is, but to be more original, I’d like to discuss a different parallel: a Netflix moment for fintech.
The streaming company has a winning model and is quickly catching up with its incumbent rival, HBO. What makes the model tick? If you look at the top 10 TV shows, most of them are on Netflix. But does Netflix truly deliver the best content, or is it simply delivered through a more convenient platform? Perhaps it’s simply better packaged and cleverly promoted within the platform by positioning it at “eye level”, just like supermarkets do with their promoted shampoos and soaps. Finally, the audience itself: has Netflix managed to attract a more valuable audience, that’s growing and sticky?
On the surface, Netflix has nothing to do with fintech. Yet, when we look deeper, it’s actually quite similar.
Netflix – some background
Netflix is a great company. It has always been one step ahead of the competition. I recall when Blockbuster used to laugh at the DVDs-by-mail notion, right up until they tried to clone the business in a last-gasp effort to stave off extinction. By then, Netflix was already well under way in terms of more closely fulfilling its name, moving to streaming over the web.
But even then, it’s easy to forget now that the Netflix streaming service started as a way to stream movies, and not exactly new releases either. Thanks to the Starz deal, it was sort of like a worse HBO without any of the great and original content. Then, as the film deal lapsed, television content quickly took over. Then, of course, the company did what seemed almost unfathomable at the time and moved into its own original content.
Each of these moves was genius, because it was a step ahead of the curve. With 54 Emmy nominations this year, second only to HBO, Netflix is seemingly closing in on what it set out to do once again. It has become HBO faster than HBO has been able to become Netflix. Just see its share price below.
Most of us agree that Netflix has been a success story, but how did it achieve its success? Is it the packaging? Is the content? Is it the delivery?
Netflix content is damn good (House of Cards, Orange is the New Black, Narcos, Making a Murderer, Stranger Things). There is, however, other fantastic content out there that we simply don’t discover because we’re too busy binge-watching (packaging) Netflix on all of our devices, synced (delivery). It’s easy to see why Netflix has been the prime cause for grey hair on the Time Warner board (the owner of HBO).
Is it finflix time?
Let’s talk about fintech now. There are many similarities between fintech and Netflix. I call it the finflix time – after all, some of these companies’ growth stories are worthy of a movie script. Fintech companies are picking up steam (SoFi $3bn, TransferWise $1bn, Funding Circle $1.1bn – NY Times). But we have to ask: do they provide better “content”, or simply package and deliver it better than the banks? Clearly, even with the latter, there’s enough scope to cause trouble for the incumbents (Netflix has a market cap of nearly $42bn vs $60bn Time Warner).
Let’s take TransferWise as an example. Its “content” is money transfer and the quality is measured by two factors: amount of money preserved after the transfer (amount sent minus fees) and timeliness of the transfer. I would say it’s doing quite well on that – check. Delivery? App or online. Pretty convenient – check. Packaging? It’s simple to use – check. Looks like a winning business model to me. TransferWise knows it and is sending a pretty strong message to the banks (picture taken in front of the Bank of England):
Time Warner didn’t fear Netflix early on because Netflix relied on the content produced by others until it decided to enter the big league and start producing content of its own. This made Time Warner sit back nervously in anticipation of what was to come.
Alternative lending is a good example here, with flagship deals such as Bank of America and Viewpost, JPMorgan and OnDeck, and others. Moreover, some estimates suggest that in the US, around 80-90% of the capital lent through the two largest P2P lenders – Prosper and Lending Club – is institutional money, and if they close their taps, fintech will suffocate.
Time Warner thought the same. This is a dangerous assumption. All it takes is for one of the current or new players to enter the market and position themselves as fintech-friendly. With the cross-promotion power and access to the right demographics that fintechs have, these can be the “original content” of fintech moment.
What does this mean?
Once the firms are not dependant on content from the institutions, all they need to do is simply package and deliver it better than the banks, which they already proved capable of. Content isn’t enough to dominate the market any more – you need the distribution network and appealing packaging, which fintech is great at. I think we will see a Netflix moment in fintech soon. Right now, I have to catch up on the latest season of Narcos …
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Fotos593, Shutterstock.com