To exploit their chosen market, a Fintech bank can adopt one of three service models. Two of them are consumer facing, and one is ‘Fintech-facing’ and enables new start-ups to get up and running quickly by delivering a pre-packaged core banking platform and banking balance sheet, allowing them to focus on the front-end user experience.
The fully digital bank
Lower cost: a traditional business model improved by using the latest technologies to offer a better banking experience at a lower cost. Examples include Monzo (UK), NuBank (Brasil), and Brubank (Argentina).
The marketplace bank
A one-stop shop for financial services run by a bank, offering easy access to a variety of financial products and services. Examples include Starling Bank (UK) and Fidor (Germany).
The Banking-as-a-Service bank
Banks as utilities: A technology company with a banking licence that improves access to innovative technology and economies of scale and scope. Examples include Solarisbank (Germany and Europe), Fidor (Germany), ClearBank (UK) and Starling Bank (UK). We will examine these three options in more detail.
How do traditional banks and Fintech banks differ? All retail banks have four layers of capabilities:
- Its banking balance sheet;
- Its products and services;
- Its relationship with its customers;
- Its physical distribution channels.
The above service models differ according to how the Fintech bank operates:
- First, a traditional bank has a tightly integrated relationship between its balance sheet, products (including regulatory compliance and underwriting), its customer relationships, and how it physically distributes its products and services. It usually designs and manufactures most of its products and services.
- Fully-digital banks typically have the same tightly integrated relationship between its balance sheet, its products and customer relationships, but has eliminated or outsourced any physical product and service distribution, opting for purely digital delivery. A fully digital bank will normally design and manufacture most of its own products and services.
- A marketplace bank is like a fully digital bank but offers products from several third-party businesses via their digital marketplace. As a result, its balance sheet only includes its own products and services (that it designs and manufactures). Marketplace banks focus on the overall customer relationship.
- BaaS banks eliminates the customer layer and focus on providing a banking balance sheet and core, white-label products (including regulatory and underwriting) to its clients and has no relationship with the client’s customers and rarely provide physical or digital distribution capabilities.