Chris Skinner recently wrote, “Like airlines and pharma, banking’s too big to disrupt”. He argued that banking has no Uber-equivalent on the horizon, poised to change the way we handle our money forever. Maybe he has a point: a well-established billion pound industry might be more than one fintech company alone can take on.
But banking is far more complex than the taxi industry. There are so many different divisions even within one bank, all serving diverse purposes. There are banks that work with consumers, with businesses, or with both. There are hedge funds, insurance houses and asset managers. Is it realistic to expect one company to revolutionise our dealings with all of these incarnations?
In part, I believe that is why fintech has sprung up in so many guises. We have payments companies like Transferwise and WorldRemit, capital markets businesses like Essentia Analytics, as well as niche lenders like my business, Sonovate. We’ve divided by necessity, and we’re conquering because of that.
Sonovate is challenging the banks in a way that has never been done before. The UK recruitment industry is worth upwards of £30bn and up to £26bn of this is funded by banks. As the traditional provider of invoice finance to the recruitment industry, they’ve dominated the market for 30 years. Until now that is.
As part of London’s fast growing fintech community, I’m of the opinion we should share our experiences to help ensure the future growth of fintech. So here are the lessons I’ve learned from taking on an industry that hasn’t developed in decades.
Trust your experience
Recruitment agencies placing contractors have to pay the people they place on a weekly basis, but are paid monthly by their clients. This creates a significant cashflow shortfall, which is why recruiters have traditionally turned to the banks to secure the finance necessary to overcome this.
My business partner and I worked in recruitment for many years, so we have first-hand experience of the problems the old-fashioned, inflexible, off-the-shelf finance packages cause in the industry. We knew we could do a better job for recruitment agencies, so we came up with a flexible finance solution, combined with the technology that takes care of all the admin associated with running contractors.
And the proof is in the pudding; the industry loves our solution. The banks’ approach to this niche problem was restricting the growth of micro and SME recruitment agencies; by trusting experience, we’ve found a way to help other businesses grow.
Find your niche
Think about all the successful fintech companies we read about on a regular basis. What do they all have in common? I’ll bet one of those traits is that they’ve all found and exploited a niche market. As I mentioned, the banks used to have a stranglehold on contract finance for the recruitment market, but they weren’t willing or able to produce a finance package that fitted the industry’s needs. We found this niche, and designed a product that provides a specialist service to businesses that is mutually beneficial – we grow and make money by enabling recruitment agencies to grow and make money.
Change direction, if you need to
Innovation is rarely linear. And even a brilliant business model has room for improvement once it’s put into practice. At Sonovate, we initially offered a “solution in a box” that contained everything recruitment businesses needed to run. We offered contract finance as a part of this, and quickly realised that it was by far our most popular feature. So we pivoted to refine our business focus, and in the process became a true fintech company. It was an incredibly fruitful decision: we’ve recently overtaken the banks in terms of new deals recorded to become the number one provider of contract finance to the recruitment industry.
Entrepreneurs are nothing if not innovative. If the banks aren’t working for us, we’ll seize the opportunity to change the marketplace. It was optimistic to take on a £30bn industry, but if you use prior experience to your advantage, listen to your customers, and remain flexible and open to change, then anything is possible. It’s an exciting time for fintech businesses and I can’t wait to see what the rest of 2015 has in store.