To Niche or Not to Niche, That Is the Fintech Question

A store that sells only cufflinks. A restaurant that serves nothing but grilled cheese sandwiches. A tiny stand where you buy only artisanal salt. In the not-too-distant past, these kinds of shopping and dining options were almost unheard of. Readers of a certain age will remember that if you wanted cufflinks, you went to an all-in-one department store like Macy’s. If you had a hankering for a grilled cheese sandwich, you ordered one off the kids menu at TGI Fridays. And if you wanted fancy salt, you probably learned how to make it yourself. But as times changed, so did consumer behavior, and industries adapted; these days a consumer can find a singular shopping or dining experience for almost any bespoke want or need (entirely egg-based restaurants—they’re a thing). These specialty places have done well by a) focusing on a niche product or service, b) applying expertise to something they believe in and c) executing and perfecting it daily.

In the past decade, the fintech industry has followed this model to a tee. Whether it was B2B or B2C, fintech startups broke the banking business into narrower segments, offering singular niche services for various finance needs, e.g. credit card refinancing, small business loans, student loans, P2P payments, mortgages and more. From this model, big banks became the TGI Fridays of financial offerings (where you go to experience a full spread of financial services), and fintech platforms became the speciality grilled cheese shops (where you go to get the one thing you really crave).

Fintech Niches Fill Big Gaps

Many startups went niche not only because it was a business model that worked, but because the legacy banking industry model was out of date and there was room for true disruption. With these opportunities, niche fintechs could hone in on services that fulfilled singular needs, and they could do it with a focus, passion and dedicated customer service that most general banks couldn’t provide—and the results of this have been mostly positive. Globally, financial inclusion of unbanked people has improved. According to The World Bank, 69 percent of adults or 3.8 billion people now have an account at a bank or mobile money provider. In the U.S., niche fintechs made it easier for small businesses to get a loan post-recession. A host of online lenders stepped in to fill the gap, understanding that without access to relevant capital, small businesses struggle, which ultimately affects economic growth, jobs and inflation.

Can Fintechs Stand up to Tech Giants?

Tech giants thrive when users treat their platforms/offerings as a one-stop shop, something that is already commonplace in China, where millions of people use Tencent’s WeChat app to do almost everything—pay bills, book medical appointments, chat, play games, read news and pay for meals. Although this is not at the same level of activity in the U.S., it is a trend likely to continue.

The winds have been shifting as fintech companies question whether it makes sense to stay true to their niche or offer additional services as a path to scalability and profitability. By taking the latter path, former niche startups are now either a) building out and offering more financial services or b) partnering with more established companies/banks. Some recent examples include eBay and Square Capital, Venmo and Uber and KeyBank and HelloWallet. These partnerships seem to be a win-win—for the niche companies hoping to solve for scale and revenue stream issues, and for the established companies looking to offer complimentary services their core customers already use—but they also have fintech startups standing at a crossroads. Will working a niche be sustainable in 2020 and beyond, or is becoming a jack of all trades the only means of survival?

Beware of Diluting the Brand

For starters, the only means of survival for any fintech company is to solidly define what the company brand is and what it stands for. For example, many small business lenders are deeply passionate about fueling the American dream through helping business owners unlock their financial potential. Supporting small business is key to our country’s economic fabric. Dynamism and the ability to recover from an economic downturn are both dependent on startups’ ability to grow quickly, and in most cases, the only way for them to do so is through access to capital. For a fintech lender to become a trusted brand to small business owners, it must remain devoted to them as a company that has the financial wellbeing and vitality of small businesses in mind. This means facilitating the right loan for them, right when they need it.

The key for fintech companies is to be careful about diluting the brand. When companies stray too far from what they are passionate about, their core audiences suffer. Tech giants enter new spaces every day, whether from R&D or acquisitions. A strong brand (and the loyalty its customers have to it) will not only insulate a fintech company from the tech giant threat, but make its mission and voice stronger by comparison. Think about this the next time you are eating at In-N-Out Burger (sorry, East Coasters!). The humble hamburger shop became a cultural phenomenon through its razor-sharp focus on simplicity, quality and consistency.

Always Consider the Human Factor

Innovation and automation are both critical to survival in the fintech space. But how much tech can a fintech leverage in its solutions to avoid becoming too niche? The answer lies in understanding the core customers’ needs and how much technology can be used to fulfill those needs. For an e-wallet app, the key needs of customers are frictionless payments and transfers happening in real time; it is not a solution (when it’s working) that needs a lot of human interaction. A fintech company such as this can use technology and machine learning to automate most of its services.

Conversely, the human factor is still a huge part of the equation in some fintech services. For example, a person’s livelihood is at stake when a small business takes on a loan or another capital solution for its growth needs. This is a very personal and consequential decision for a business owner. In fact, in the majority of cases, they don’t want to rely solely on a technology-powered platform to deliver the most appropriate loan options for their needs, not to mention address their specific concerns and questions. A fintech lender can leverage technology at every touchpoint to optimize the application and loan approval process; but ultimately, many business owners will desire interaction with a live representative, not a chatbot. The human factor is crucial in business lending, and something that could become lost as a result of brand dilution. While scalability is important, customer service is equally so.

In the end, the decision to offer niche services or to go wide will depend on what’s at the core of a fintech company. Indeed, the pressures to scale, grow and earn returns for investors are huge for any business, but decision-makers must keep their perspective on the market they serve and the problems they solve best. If expanded offerings and partnerships with other service providers enhance your brand and what it stands for, then this approach makes sense for growth and customer satisfaction. If not, then serving up the best grilled cheese sandwiches around, to the folks who really crave them, may well be the best path.