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Fintech’s Evolutionary Dance: The Cycle of Bundling, Unbundling and Rebundling
Matthew James Low, Head of Tokenisation
5 March 2024
In August 1995, on the final leg of their pre-IPO roadshow to take Netscape public, Jim Barksdale, then CEO, took one last question from a dimly lit ballroom full of British investment bankers at The Savoy Hotel in London, “How do you know that Microsoft isn’t just going to bundle a browser into their product?” For context, Netscape’s flagship product, a web browser, was a standalone product. Microsoft was the market leader in the PC operating system segment.
In a rush to catch a flight he was late for, Barksdale responded, “Gentlemen, there’s only two ways I know of to make money: bundling and unbundling.” What was specifically notable about this statement was that it was prior to what eventually became known as ‘The First Bundling War’ between Microsoft (who bundled Internet Explorer with Windows) and Netscape (who bundled an email front end and newsgroup reader with their browser).
In the evolving fintech sector, the strategies of bundling, unbundling and rebundling have marked the progression of services and products, mostly digital, offered to consumers. This dynamic interplay, deeply rooted in the industry's fabric, reflects its response to technological advancements, regulatory changes and consumer preferences, shaping a landscape where agility and innovation thrive.
The Unbundling Wave: Death by a Thousand Cuts
Figure 1: The Rebundling of the bank by Citi in Feb 2017
The fintech revolution began with unbundling, as nimble startups identified gaps left by traditional financial institutions. Leveraging state-of-the-art technologies, these entities offered specialised, efficient solutions tailored to specific needs, thereby fragmenting the traditional banking model. This phase was characterised by the emergence of services such as mobile payments, peer-to-peer lending and online investment platforms, which offered enhanced accessibility, transparency and convenience. Seemingly in an attempt to out-innovate legacy banking players and inflict death by a thousand cuts.
This is not new news, as one of the first characterisations of the unbundling of financial institutions was a report written by a Tom Loverro of RRE Ventures in November 2014 titled, “Banks Are Under Attack”. Tom managed to visually represent how startups were beginning to offer specific financial services traditionally monopolised by banks. The graphic was updated in November 2015 and again in May 2016 by CBInsights to include over 50 new companies, removing those that had gone public (LendingClub and OnDeck) or were acquired (Future Advisor). Since then, there has been an exponential growth in the unbundling of each vertical once exclusive to large institutions, as documented by Tracxn whose database is 134,253 Fintech companies strong.
Figure 2: Tom Loverro original image from Nov 2014 blog post - Up & Right; An updated image from cbinsights in Nov 2015
The Catalysts for Change: Cost vs Quality
In our opinion, Jim Barksdale's assertion that “the only two ways to make money are bundling and unbundling” has never been more evident. The decision between these strategies hinges on two critical factors: demand-side buyer preferences and supply-side technological innovations. The fintech landscape has seen dramatic shifts based on these factors, with periods of economic prosperity favouring unbundling as consumers seek specialised, high-quality services, an offensive strategy opportunity for Fintech startups. Conversely, economic downturns tend to favour bundling, used almost as a defensive strategy for institutions, with consumers prioritising cost over quality.
Rebundling: The Fintech Response
As fintech companies mature and scale, a shift towards rebundling becomes apparent. This trend, illustrated by payment companies diversifying their offerings to include lending and compliance services, signifies a return to bundled financial services under a digital-first approach. Companies like SumUp and Rapyd have expanded their portfolios through strategic acquisitions, aiming to provide a more holistic service offering. This rebundling effort is not a step backward but a strategic evolution to meet the broadening needs of consumers who now demand convenience and comprehensiveness from their financial service providers. In most cases, a broad and comprehensive offer was in the plans right from the beginning, but lean and nimble startups in their early stages must be extremely focused at the beginning to efficiently use their scarce resources.
The essence of this movement lies in providing customers with a centralised platform which integrates various financial functions, allowing them to manage assets, transact and gain insights into their financial standing across different institutions. This approach offers a personalised financial management experience, enabling users to navigate their historical, current and future financial situations seamlessly. By consolidating data from multiple sources, these platforms empower users with real-time visualisations and control over their financial lives, including the ability to simulate future financial scenarios under one brand.
Further, innovative neo-banks like Monzo, Starling, Revolut and Atom Bank are championing embedded banking by extending their platforms to other startups through APIs, enriching their ecosystems with services like Wise’s (formerly TransferWise) P2P international money transfers or PensionBee’s pension consolidation service. This model not only enhances customer choice, but also maintains a cohesive user experience even when interacting with third-party services. However, a challenge remains in ensuring transparency and visibility into the customer's journey across these interconnected platforms. This evolution towards a rebundled financial ecosystem marks a crucial step forward in meeting the intricate needs of today's consumers, offering them a tailored and integrated financial service experience.
Figure 3: Starling Bank | Neo-Bank Strategy Deep Dive by Whitesight August 2020
The Allure of Financial Super Apps: The Ultimate Rebundling
The emergence of 'super apps' as a comprehensive solution for a multitude of financial services within a singular platform has seen varying degrees of success globally, largely shaped by regional technological and regulatory landscapes. While WeChat (penetration rate close to 90%) and AliPay (penetration rate is 63%) in Asia have become exemplary in integrating payments, shopping, social networking and more into seamless digital experiences, the concept has encountered resistance in Western markets. Forbes highlights that the robust adoption of super apps in Asia can be attributed to the prevalence of underpowered smartphones, which are less suited to managing numerous apps, unlike in the US and Europe where more powerful smartphones can handle many separate applications without issue.
Figure 4: Revolutionising consumption of digital services through super apps by Telefonica Sept 2023
Insider Intelligence points out that super app popularity in Asia is further driven by a significant unbanked population embracing mobile payments and stringent app regulations limiting service access, conditions less common in other regions. This disparity underscores the necessity of tailoring super apps to fit the distinct needs and regulatory environments of each market. As Danil Ovechkin, Head of US Growth at Revolut notes, success in the super app space is not just about consolidating services, but also about crafting offerings that deliver substantial value to consumers in specific markets. For instance, Revolut has honed in on financial services, whereas Klarna is pivoting towards e-commerce, indicating a strategic shift towards market-specific focuses.
Moreover, the financial and banking industries' variations across countries mean a ‘one size fits all’ approach is ineffective. Ovechkin emphasises the importance of understanding each market's unique characteristics to successfully deliver value. The US market, with its vast but fragmented landscape and community-focused banking, presents particular challenges for the widespread adoption of super apps. This nuanced approach to developing super apps, with an eye towards regional preferences and regulations, is crucial for their global proliferation and acceptance.
Figure 5: US Banking Market, separated by category, The Federal Reserve
Collaboration and the Future of Fintech
We believe the future of fintech is shaping up to be profoundly collaborative and intelligently automated, moving beyond mere partnerships between traditional banks and fintech firms. This new era, propelled by open banking and digital advancements accelerated by the COVID-19 pandemic, is steering towards a future where financial services are not only more integrated and personalised, but also smarter and more proactive.
Consumers traditionally view their financial lives without compartmentalisation, considering income and expenses, present needs and future goals in a straightforward manner. Yet, the integration of artificial intelligence and machine learning offers the potential to revolutionise this perspective by automating and optimising financial decisions. These technologies can analyse historical data, market trends and personal spending habits to recommend the most effective allocation of funds, identify cost-saving opportunities and even suggest changes in service providers to maximise financial health.
For instance, AI can pinpoint individuals who could benefit from lower insurance rates, advise on refinancing high interest debt or highlight unnecessary subscriptions that could be cancelled, thereby optimising financial resources. We believe this approach caters to various consumer preferences, from those desiring minimal engagement with their financial management to the highly informed users seeking a comprehensive dashboard of their financial status. The ultimate goal, in our opinion, is a platform that not only provides a centralised view of a customer’s finances, but also facilitates the execution of recommended actions, transforming passive advice into actionable solutions.
This move towards a more connected and automated financial ecosystem is already being pioneered by companies like CashApp, Wise and Betterment, setting the stage for a future where financial optimisation is accessible, personalised and seamlessly integrated into the daily lives of consumers.
Conclusion
The narrative of fintech unfolds through a rhythmic dance of bundling, unbundling and rebundling, mirroring the industry's adaptability and resilience. From the strategic manoeuvres of Netscape and Microsoft that signalled the first bundling war to the present day fintech revolution, this cyclical dynamic has been a constant. The advent of super apps and the integration of AI in financial decision-making represents a new era where services are not just comprehensive, but intuitively aligned with individual needs and aspirations.
This evolution promises a future where financial management is no longer a chore, but a seamlessly integrated aspect of our daily lives, offering a personalised, efficient and accessible experience to consumers worldwide. As fintech continues to redefine the boundaries of financial services, its journey from the early days of unbundling to the sophisticated ecosystem of rebundling and super apps underscores a relentless pursuit of innovation, consumer-centricity and financial inclusivity.
For any questions regarding the piece above, please reach out to Matthew James Low, Head of Tokenisation.