Is the era of fintech specialization coming to an end?

The Great Rebundling

Every year since 2012, the biggest players in global fintech have gathered at the prestigious Money 20/20 conference to discuss the future of the industry.

The emphasis has always been on specialization, as open banking regimes and API (Application Programming Interface) services led fintech startups to develop niche products, and prompted businesses to integrate an ever-growing number of providers into their finance stack.

But at this year’s Money 20/20 Europe conference, held in Amsterdam in early June, something had changed.

Recent research commissioned by Equals and conducted by Visa Consulting & Analytics found that 61% of Chief Finance Officers within banking, financial services, and fintech prefer a single unified platform - handling payments, foreign exchange, cards, and accounts - over specialist providers.

While the findings reflect only a sample of senior decision-makers from the financial services sector across the UK and Western Europe, the results were striking: even among fintech insiders, the preference for unified platforms over fragmented stacks is marked.

“The old unbundling model created a real integration tax,” said Tim Moncrieff, Global Head of Strategic Initiatives at Visa Direct, when describing the challenges businesses face when managing too many vendors. “We’re seeing a rebundling moment: customers want more from a single provider.”

A milestone merger sating the appetite for simplicity

Nowhere at Money 20/20 was this mood better captured than at the announcement of the launch of Equals, a next-generation money movement platform. The London-based, international company was formed by the recent merger of embedded finance specialist Railsr and international business payments provider Equals Money to deliver exactly the kind of full-service offering that businesses increasingly demand.

“Customers keep asking for more - more products, more markets - with as little integration work as possible,” explained James Simcox, Chief Product Officer at Equals. “Together as a unified business we can support customers through their whole embedded finance lifecycle.”

If the direction of travel toward a full stack offering is increasingly clear, the question for many at Money 20/20 was how to achieve it. There is a limit to how many services fintech companies can build in-house, and the timeline rarely matches customer demand.

The integration advantage

The answer, increasingly favored by the industry, is for companies with complementary specialisms to merge, so that the combined entity can offer customers end-to-end journeys on a unified platform.

Indeed, while previous waves of mergers and acquisitions (M&A) in the fintech space prioritized size to achieve economies of scale, the launch of Equals shows that fintechs are now buying in key strategic services instead.

“The M&A thesis now is value creation,” explained Jamaria Kong, Managing Director and leader of the Digital and AI practice at private equity firm TowerBrook Capital Partners. “Bring pieces together, remove touchpoints, strip out integration complexity, and build leverage at the platform layer.”

Designing the future of fintech

Moncrieff, Simcox, and Kong were all speaking at the “Beyond the Buyout” session at Money 20/20, organized by Equals. The interactive panel ended with a gamified challenge to the audience to build a “dream fintech” by voting on which capabilities will be essential over the next decade.

The answers provided a subtle twist on the full stack message that dominated the conference. The most popular core infrastructure approach was for fintechs to develop proprietary payment rails that allow for the customization of services in order to meet customer demands.

When it came to growth models, however, the audience chose a Vertical SaaS (Software as a service) model, in which fintechs go deep into one industry and own the workflow in that specific vertical. This suggests that even as customers demand a unified fintech platform which can meet ever more of their financial needs, it will be critical to offer these packaged with vertical market expertise. Customers have a growing expectation for higher service levels and strategic partnering, not just an ‘off the rack’ technology that leaves the complexities of implementation to them.

So, at Money 20/20, the direction was clear. The fintechs that thrive in the next decade won’t be the ones that excel at just one thing – they’ll be the ones that do everything seamlessly and become a truly strategic partner to customers in their chosen industry or industries.

The question now is which players can move fast enough to adapt, and which get left behind.

Find out more about Equals here.