Connected Economy Requires New Business Models

In business, sometimes things change…well, the more they change.

We see disintermediation and disruption as the connected economy continues to shape. Innovation leads to these disruptions, and along the way, unsurprisingly, top lines are disrupted as well.

Just one example of the above statements can be found in recent headlines (via Bloomberg) Two A-list stars twirling around – that would be Tom Cruise and Sandra Bullock – who claim the connection between Paramount+ and Epix (owned by Amazon) will cost them money.

In terms of disintermediation and disruption, in this case the film studio gets less than in traditional models, since the streaming services buy the rights in advance and do not pay part of the money to the stars.

What happens next is unclear, but the linchpin in the film industry mirrors what is seen in financial services. At high levels, banks and fintechs have relied on interchange revenue to fund other entities that underpin other revenue streams.

Change the looms for exchange

The models are of course in flux. Interbank fees — charged by card networks and billed to merchants — can and do help neobanks continue their operations. The interchange fees charged to merchants were not capped for the smaller banks that have traditionally been the partners of the purely digital upstarts. The card programs also serve as a gateway to new services (crypto, anyone?) that are the hallmark of FinTechs.

And while, as with the film studio model just mentioned, the short-term and long-term model disruption is still not entirely clear, there will be a reckoning for the FinTechs if regulators cap interchange fee revenue. Some of the impact can be mitigated by innovations aimed at meeting consumers directly at the point of commerce (e.g. with BNPL) or providing banking services (digital wallets, checks and a “holistic” view of financial health), operating within the growing connected continuum of a range of everyday financial life.

As passed by Karen Webster Earlier this week, digital engagement surges across more than three dozen activities tracked by PYMNTS, even as we return to life outdoors and in person.

“Channels need to adapt to consumer preferences, not the other way around, so that the trip to the store, to the doctor, to the real estate agent’s office, or to the gym is worth their time and money,” she wrote, and so we’re seeing some disintermediation. For example, a trip to the grocery store is transformed by the Aggregator/Delivery option. And we’re increasingly seeing one use case leading to another through cross-pollination, where familiarity with using cell leads to greater convenience in accepting real-time payments or booking travel online… and so on and so on.

If in the end even Tom Cruise (or at least his wallet) gets a little rattled by changing markets… well, we know everyone and every company has to change sooner or later. Sometimes earlier.

New PYMNTS study: How consumers are using digital banks

A PYMNTS survey of 2,124 US consumers shows that while two-thirds of consumers have used FinTechs for some aspect of banking services, only 9.3% cite them as their main bank.