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Consumer fintechs will fail unless they rethink their business, says top bank exec

Consumer fintechs which are not developing a corporate offering are setting themselves up to fail, according to the chief innovation officer of French bank Societe Generale.

In an interview with Sifted, Claire Calmejane said that challenger banks still lag far behind her employer because they tend to focus exclusively on retail users, where unit economic are poor.

“A lot of [consumer] fintechs were saying ‘we’re going to take over.’ But very quickly…they were confronted with reality, and they understand that it’s not so easy,” she said.

She argued that to survive, neobanks must develop business-to-business (B2B) capabilities — just like big banks did.

“Fintechs can only [take] the opportunity if they have a B2B proposition,” she noted, explaining “neobanks have to optimise the cost base.”

A handful of companies are already doing this. UK digital lender OakNorth branched out from lending to selling its risk-analysis technology, Revolut is also building a payments stack for merchants, while Starling has dabbled with banking-as-a-service provisions.

Yet generally, fintechs suffer from a lack of diversification, thereby putting big banks far ahead, Calmejane says (“We [currently] do different things…we do more”). She added there’s no evidence of the mantra that “incumbents are dead” and still thrive in areas like private banking, wealth management and trading.

By extension, she expects smaller consumer fintechs to eventually look for fire sales.

Calmejane’s diagnosis of how to save consumer fintechs is strikingly at odds with the broad consensus, which is rapidly moving towards specialization (drilling down on set products).

One well-known fintech founder recently told Sifted that if consumer fintechs can’t keep up, they’re better off closing rather than getting distracted by getting a B2B offering.

“Consumer will come under enormous attack from big tech and big retail (like Walmart). Consumer banking will be so aggressive, that diversifying [and losing focus] actually risks success.”

The person added: “If you can’t make it work without subsidising, why are you doing consumer? Why not [just] do B2B?”

Another approach taken by neobanks more recently has been to target very segmented audiences; again deviating from big banks’ mass consumer play.

Yet while Calmejane’s solution may be disputed, there is generally agreement that consumer fintechs have battled to monetise their superior user interfaces.

As such, investors are also starting to look to other areas where there are better unit-economics. A Sifted analysis showed that funding for B2B fintechs overtook consumer fintechs by $2bn last year.

While Calmejane’s perspective may not be popular, she is broadly admired in the fintech community, according to half a dozen founders interviewed by Sifted, who say she has helped break the bank’s “innovation curse” since joining in late 2018.

In particular, the 36-year-old has earnt herself credibility as one of the 6% of bank executives with a tech background (she’s an engineer by training), and as a cheerleader of France’s blossoming fintech scene.

Her role stretches from spearheading acquisitions, managing a cohort of 60 intrapreneurs, oversight of the bank’s €150m fintech venture fund (it’s backed 5 startups so far), and even giving small debt lines to new digital lenders like Mansa.

“There is not a day where I don’t have contact [with fintechs],” she tells Sifted.

Calmejane also offers a reminder that the fintech ecosystem stretches far beyond digital banking. She muses on the rise on banking-as-a-service platforms and blockchain, for instance — both of which SocGen has dipped its toe into.

By extension, she says much of her attention is on finding B2B fintechs who can help defend, streamline and grow SocGen’s main revenues lines (the bank spent €4.4 bn in 2020 on IT). Read from source….