Applying the Industry Life Cycle to FinTech
Back in 1397 the world’s first bank, Medici Bank, started onboarding customers in Italy. Fast forward to 1997 and the first Online Banking service was launched by Sumitomo Bank in Japan. Fast forward again to 2005 and the first widely regarded FinTech, Zopa, launched as a peer-to-peer lending platform in the UK. These developments have culminated in 2021 to catalyse dramatic changes across the Financial Services and FinTech landscape. By the end of 2021, there were more than 26,000 FinTech’s operating globally and annual VC investment in FinTech topping $115BN.
The Financial Services and FinTech industry growth may seem extraordinary, but if we look at history there have been numerous industries following similar growth patterns; from coal mining to steel production to railroads, all these industries have seen their own rise (and eventual decline) over time. Designed to capture this cyclical industry trend, the ‘Industry Life Cycle’, conceptualised in 1980 by Michael Porter, was formed to demonstrate the evolutionary process that new industries go through from Introduction to eventual Maturity and Decline.
The five stages of the industry Life Cycle are:
We can apply each stage of the Industry Life Cycle to different themes and events that have occurred within the FinTech industry over time to indicate where we are along the Life Cycle, peaking over the edge of the dizzying heights of the recent growth phase.
So, what’s happened so far?
Every industry is born through a new and innovative way to solve a customer problem. For FinTech, leveraging the internet and mobile technologies to service customer needs was just that. Through technology, companies could speed up processes, reduce manual intervention, break down barriers to global trade and provide better financial outcomes for consumers.
It is widely agreed that the early Millennium was the period of the Introduction phase for FinTech, promoted by increased global adoption of the internet as well as the Financial Crisis of 2008. Some companies that dominated during the Introduction phase include Zopa, offering the general UK population access to a Peer-to-Peer lending platform. Others such as Hargreaves Lansdown in the UK or BlackRock in the US are democratising access to the stock market through web and mobile platforms, and others creating digital-first banks such as Monzo in the UK and Chime in the US.
As the adoption of these services reached the wider market and the technology and skills to build these types of propositions became more readily available, we saw a period of significant growth. Between 2011-2016 the number of FinTech’s increased 21% year on year (Deloitte).
We have seen what would generally be regarded as early stage businesses achieving sky high valuations at IPO stage, including Nubank with a $41BN valuation, Paytm a $14.5BN valuation and SoFi a $8.7BN valuation.
Businesses are popping up with niche propositions that have little validation from the market, such as WiseAlpha (customers can buy government bonds directly), PrimaryBid (customers can invest in companies at IPO stage) or BullionVault (customers can buy physical gold).
A significant contributor to much of this growth products is the democratisation of tech and skills, such as back-end as a service (BaaS) companies enabling new businesses to be launched with very little up-front cost, like WealthKernel providing digital wealth services via API, or Onfido providing KYC and AML services.