Many people say that without any serious opportunities left, FinTech has become an overly saturated market and it doesn’t make sense to start anything new. Consumers expect everything for free, regulators impose costly new requirements, banking partners take decisions forever, and it’s extremely difficult to achieve profitability.
At the same time, because the costs of cloud services, standardised software, offshore development teams and communications costs continue to decrease, the barriers to entering FinTech and starting your startup in this space have
never been lower. I have met many entrepreneurs in robotics, real estate, or healthcare with companies and backgrounds who are seriously considering starting a bank. It sounds naive, but for outsiders, it might feel very good that it’s easy to start a bank these days.
Anyway, it probably means that your clients have a lot of options to choose from when you think your market is saturated, and it is difficult to compete. When you think your market is saturated, what does it mean for your go-to-market and pricing strategy?
You give clients the best product, the best free experience, and hope that they will eventually upgrade to a premium version, or later find a way to sell something else to them.
Alternatively, you can try to play the ‘trust and safety’ long-term relationship card (especially in wealth or asset management) and promise your customers more profits, more opportunities, and better experience in the future.
However, if you think your market is sophisticated, your strategy can be completely distinct. Your clients are still not satisfied with the products / services available and have needs and demands in a sophisticated market.
If you think this is the case, then you must win their minds, appeal to their values, be aspiring and ideally change their thinking or perspective about what becomes possible for them when they use your product or service in order to sell your services to sophisticated customers. It becomes a lifestyle, value-focused or identity-based decision to pick you as a service provider or financial partner. For instance, TransferWise did a great job during their early days with their provocative marketing campaigns.
Let’s look at how their customers charge or do not charge FinTech companies. The fact that many FinTechs do not charge at all and call it ‘our customer acquisition strategy’ is no secret. Which may make sense or may not. We also understand that fees and charges (particularly for consumer-facing financial services and retail banking) have decreased rapidly in recent years. And it is quite difficult to make money in FinTech with regulatory constraints around surcharges and extra fees for customers.
The following trends in FinTech pricing appear to have arisen:
- Subscription-based monthly fees (think Netflix or Amazon Prime) are slowly and steadily replacing per-transaction fees.
- In many instances, consumers do not really know how much things should cost, and it is very difficult for them to know if a price is fair until plan options are presented to them in a particular context. If you are looking at 3 pricing plans where the left option is free, think of Dropbox or any other SaaS product. A clear, tested, and strong tendency to choose the middle option is present.
- VIP pricing plans or premium membership levels are highly efficient, not necessarily because they are popular, but because they act as anchors for decision-making and, in comparison, make basic pricing look affordable.
- Free trials are conducted, but some companies can attract a lot of tyre-kickers. I haven’t got the chance to see successful model for no-fee financial services trials yet.
- Pricing grandfathering is risky, but it can also function as a powerful stimulus. This implies that your customers will be entitled to receive your services over their lifetime at a lower monthly price, as long as your members / subscribers remain. Your original members have a strong incentive to stay if you gradually increase your prices over time, because they know that they are losing a lot if they leave. For services where your delivery cost is under your control (e.g. trading inside your platform or transactions between your members), this pricing model could work well.