Last week the Wall Street Journal announced that banks are on pace this year to merge at a level that hasn’t been seen since the 2008 financial crisis.
This week, industry experts took to the stage at the CB Insight‘s Future of Fintech event to talk about the verticalization of banking and whether or not they expect the trend of increased mergers and acquisitions to continue in the future.
Asya Bradley, founder and COO of inclusive financial services company First Boulevard, says that verticalization, also called unbundling, has always been present, it’s just been centered around different characteristics of market segments.
“The only difference now is that we’re seeing the verticalization around things that we can’t change with ourselves. Alright, so you can’t change that you’re black, you can’t change that you’re LGBTQ, or that you’re of a certain age,” Bradley said at the panel, Bank Built for You – The Hyper-verticalization of Banking.
“So those are the kinds of things that I’m seeing, I don’t think that verticalization is going to just disappear.”
This demographic-based banking model has seen huge growth in the past few years, as big data and fintech has congregated financial institutions, but also allowed for targeted information and strategies for specific verticals of a population.
This can be seen in the three panelists: Bradley, Step CEO CJ MacDonald and MAJORITY CEO Magnus Larsson. Bradley’s First Boulevard is focused on digital banking for Black Americans, Step is attempting to build a banking platform for teens, and MAJORITY is working to introduce mobile banking to migrants.
“We always had local community banks, obviously in the digital format and footprint, you’re not geographically constrained, but I think it’s going to continue to happen. There’ll be some consolidation and there’ll be some breakout players that grow and kind of standalone,” MacDonald said about the current dichotomy of consolidation and verticalization.
Larsson, a Sweden native, pointed to one of Europe’s fastest-growing financial institutions, Revolut, as a company that started off in a specific segment, has grown through acquisitions and is now beginning to verticalize its services.
“They started with something potentially very specific, it’s either young people that didn’t want the same bank as their parents, and or they traveled and they were tired of the fees,” Larsson said, “but I think in banking, it’s going to be more verticalized, but for sure it’s going to be consolidation and not everyone’s going to survive.”
The three panelists all echoed a specific sentiment: while banks can verticalize and offer services across a large list of demographics, it is hard to offer truly meaningful experiences and services to these segments if they aren’t keyed in on a specific target, with an authentic mission to serve.
“Authenticity, it absolutely matters, especially when you’re a community that has been underserved and abused by the system. We know, we felt it. So, maybe our choices are limited right now, we’re banking with Chase, but the minute a viable option becomes available, we’ll be there, and that’s what our community is saying,” Bradley said.
“On a practical matter, you know, when we’re talking about product innovation, you can’t build a product if you don’t know who you’re building it for,” she said.
Larsson says that while a lot of these larger banks can offer services, if your financial institution isn’t on the ground, it isn’t really helping these demographics.
“If you’re not there and you’re for real. They even have a name for tech companies, they call them a flash in the pan. Because they come there they put up boots and they go away, and I think for us that’s been very important. That’s why we even open our own community centers within two of the first two communities that we started with, to be there on a physical location,” Larsson said.
The panel also discussed the use of “content” for targeting and appealing to these demographics. Larsson says that content is a complicated matter, because it can be great if used for the right reasons, but detrimental if used by larger companies for profits-sake.
“I think content for the right reasons matters. We realized that we had a lot of questions coming from communities that we work with, so actually put together content to say what is happening,” Larsson said.
“I think content for that reason, as long as you’re building a community, I think content is part of your journey. But I think if it’s not relevant, or if its not real, it doesn’t matter.”
Bradley agreed, saying that content can be a great way to reach out and identify with community culture, but it is important to know the way you are intersecting with money.
“I think for us it’s a matter of creating that community, which is why the content is so important. Making sure that people feel that they’re part of something that’s bigger than just a bank account,” she said.
“We’re talking about verticalization, a process about the consumer,” Larsson said, coming back to the ways this process can both help, and harm community members.
“I think it’s given us the ability to build on these new amazing platforms, to kind of combine them in the right way so it’s our consumer segment. And I think at the end of the day, the consumer banks that survive are going to be the ones that wins the hearts and veins of our users.”