Software continues to eat the world and the FinTech is taking a big bite

According to McKinsey's recent report business leaders remain optimistic but the survey also hinders uncertainties about how the economy will look post-Covid-19. Many businesses that have weathered the storm successfully are those that embraced digitalization. App makers of companies large and small are focused on delivering products and services, uninterruptedly. Food delivering apps such as DoorDash and Uber have surged in use with consumers. They have also helped supplement income for millions of Americans.

We are also witnessing how other software enablers are helping corporate clients, specifically small and medium-sized (SMBs) businesses digitize their businesses and transition into e-commerce. Square is one such enabler.

Square's Cash App - super friendly UI/UX keeps the clients coming

While the macroeconomic environment remains very challenging for many businesses, software including, Square continues to show the ability to bring new, relevant products to the market and acquire new clients, as a result. In Q3 the company gross profits grew by 59% yr/yr while total revenue grew by 140%.

At the core of this phenomenal growth is Square's "innovation stack" or the collection of the company's innovation efforts (check out the book if you haven't). Though their P2P Cash App deserves attention with a whopping 212% increase in the quarter we will x-ray Square's B2B segment - the Sellers.

The Sellers ecosystem as part of the company's innovation stack includes segments such as eCommerce API, Invoicing, Point of Sale, Cards, and Payroll services. For the quarter GPV (gross payment volume) grew by 4% in the US. Internationally GPV grew by 50% which indicates that demand for omnichannel online services is starting to accelerate in their key foreign markets of Australia, Japan, Canada, and the UK. At the moment, international sales represent only 3% of Square's revenue with plenty of upside.

With new markets on the horizon and new products, FinTech companies like Square are taking the lead from the traditional brick and mortar players.

Value, Mission, and Client at the core

What really amplifies the growth for many FinTech players is not just the need for digital financial services but the clear vision, the clean value proposition, the pain points being addressed, and the above all the customer in mind.

Most SaaS companies have embraced the V2MOM Salesforce mantra where "V" stands for vision and value, "M" is for the method ( rapidly develop an MVP (agility)), "O" is how obstacles are overcome (product manager/business development) and "M" is how do we measure all this (high-quality system, product/market fit, etc.)

In contrast, traditional banks have chosen to focus on just one client tier - the private banking or certain corporate clients. What about the non-previliged, underserved clients? Retail and Business. How are banks preparing to support the client with depleting working capital and deposits? Or the consumers looking for credit facility? Will they extend any lending or would they hand these clients over to likes of Klarna, Ally Financial?

Deepening Banks & FinTech collaboration

My observation working for large and medium banks has been that the waterful approach is still at the core of "plan, resource and execute" for Tier 1 and Tier 2 banks. This does not allow many of the banks to produce smart and nimble solutions. To address the risk of underserving clients and a massive exodus banks should address enter in collaboration with IaaS and PaaS providers.

Final thoughts

What would the future in banking look like? Are the banks going to move enterely away from the brick and mortar business model and embrace digitalization? How would FinTech companies provide better banking for small businesses and underserved retail clients? We don't know yet.

But initiatives such as PSD2 in Europe, Singapore (MAS) 100 Fintechs problems to solve for Singapore have shown that that regulators could drive the right behavior in the market place. We need to also follow how many new banking licenses will the regulators issue. Are they allowing neobanks to step in the market place? Other factors that will shape the banking system over the next few years are cyber security threats and interest rates.