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‘Unbundling’ of services to boost fintech

By Tim Stewart
3 minute read

The barriers for new entrants in financial services are lower than ever, thanks to what Reinventure founder Danny Gilligan calls the ‘modularisation’ of design and development.

Danny Gilligan, the co-founder and managing director of Westpac-backed venture capital fund Reinventure, spoke about digital disruption in the workplace at the 2015 Finsia Forum.

Mr Gilligan compared the way new e-commerce firms operate today as opposed to the early 1990s.

"One of the beautiful things that happens as technology matures is we get this point called 'modularisation'.

"If you think about starting an e-commerce business in the early 1990s, Amazon itself had to build everything end-to-end.

"Amazon had to build its own server environment, its own logistics environment, its own customer front end, its own data analytics stack, etc," Mr Gilligan said.

But now that has changed, and new players can lease all of the technology they need to function on a variable cost basis.

"You can lease Amazon web services for storage, you can go to Shopify or Bit Commerce and get an e-commerce front end. You can get a third-party logistics plug-in service. You can get pricing intelligence services.

"In fact, all you really need to think about is what is it that you want to sell and what’s your proposition. Everything else you can lease, for very little cost," he said.

The 'modularisation' trend is also beginning to emerge in financial services, Mr Gilligan said.

"A new start-up can lease every single part of the banking [chain].

"You can have an Amazon web services back end; you can use Yodlee for a lot of information that you can get from customers in terms of managing their financials for different types of processing; you can lease a banking platform like ClearMatch from SocietyOne.

"We’re entering a world where you can imagine a new finance company being born with about five people in it," he said.

The unbundling of services, which Mr Gilligan referred to as 'verticalisation', is a natural extension of that modularisation experience.

"So when you take the entire end-to-end stack of the financial services industry and you break them into individual service providers who all operate off APIs at a very low variable cost structure, then all of a sudden small niches in markets that were previously unprofitable to serve become incredibly profitable to serve by a very small team.

"You’re going to see a lot more of this verticalisation of these very specialised offerings that are built on very low-cost structures," Mr Gilligan said.