Is fintech to banking what craft ale is to brewing?
Is fintech to banking what craft ale is to brewing? If so, what can banks learn from the rise and rise of craft ale? Aden Davies, principal consultant at ABZD, looks at ten trends seen in the craft ale industry that have interesting parallels with the rise of fintech.
The mass commoditisation of products, little real differentiation apart from so called brand, massive conglomerates owning great swathes of the market and products that are largely sold in staid premises not fit for the customer wants of today. Am I talking about beer or current accounts?
The last few years has seen a change in how large parts of the western world drinks beer. Craft ale has risen from niche industry and overtaken the well established cask or real ale market and brought good beer into today for generations new and old. Banking services feel on the cusp of a similar change. They have been commoditised and remain largely unchanged for decades. They are designed governed and prospered from by a generation seemingly out of touch with today. Can the rise of craft ale provide pointers as to how the financial industry may alter and what the banks need to do to stay relevant.
What is fintech?
From Investopedia: “Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.”
Its meaning, however, has shifted over time and it seems to now encompass companies which can be fintech because of their use of technology but their culture and their approach to “digital”. It also seemingly refers to size of the company. Small, nimble, agile.
What is craft ale?
Like fintech, it is not easily defined and its meaning has morphed over time. According to the US Brewers’ Association: “A craft brewer is small, independent and traditional.”
Craft or not brewery, Brew Dog had a lovely line: “For us, the distinction should be as simple as beer brewed for taste versus beer brewed for volume. Regardless of dispense style of production method, craft beer is beer brewed for taste.”
These shifting definitions of two seemingly disparate industries introduce the first of many parallels. While comparing a highly regulated service with a heavily regulated fast-moving consumer goods (FMCG) may not be comparing apples to apples – or hops to hops – but I believe there are quite a few similarities from which banks can learn.
1. Building a new product for customers with changing tastes and unmet needs
The importance of taste must never be underestimated. Few have really good taste, taste that shines through. Taste that is not lost in the mire of committees and management layers. That taste drives brilliant products. You can feel the human care poured into it. You can tell the difference, you can feel the difference. That, for me, is what is driving the riser of craft ale. Really nice beer made by people who have good taste and really care about good beer.
Fintech is no different. It is being driven by people with good taste that can build great products for those customers who are not having their tastes met. The makers of these products are closer than ever to them and that resonates with people.
The banks and brewers have built products that serve the masses. They are bland and blunt and are largely good enough. The times have changed and those products are no longer good enough. The masses are fragmenting.
2. Understanding the power of design and branding
Having a very tasty product is one thing but how that is branded (and how that product feeds into the brand) is so important. The successful craft breweries have such a strong visual design to go along with a strong product. They are harmonious and again show a level of care by the creators of the product that most large organisations cannot match. The branding on packaging and pump badges plays a huge role in their being chosen amongst hundreds of similar products.
Design of this nature is easily copied, however. This is my first mention of the attempts by large brewers to get involved with the craft phenomenon. Applying the design standards of today to the products of yesterday can only work so well but it breaks the harmony of a good product and good design and will be found out.
The current design trends for beer seems fairly clear. I wonder how these will shift and merge. Big companies want their products to look like craft/fintech ones. The beardy old purists might always want to market to hopgoblins but do they shift one way or the other?
For banks these design trends need to be well understood but they are more than just slapping a new visual representation on old products.
3. Global megalith versus local business
The brewing industry is moving towards an ever greater monopoly. The biggest brewers are merging to create mega corporations that span the globe and control the vast majority of the big beer brands we know.
Craft ale is seen as a rebellion against this. It is a small company approach replicated in their hundreds and thousands to target niches and localities that the big brands just steamroll over with one size fits all products.
The local nature of these small brewers brings with it real customer loyalty. Spending their money for a product that is part of their community. Made by people like them, for them. Between this ease of access and shift from hobby to business, breweries are popping up in record numbers.
The number of breweries in the UK has seen a 65% rise in the last five years, according to accountancy group UHY Hacker Young. My home city of Sheffield famously had two large traditional breweries until the early 1990s. It now has nearly five times more breweries per capita (one for every 23,000 people) than greater London.
Fintech companies that are building out products with a small team in a specific location can play to the strengths of tieing to local communities. The pull of digital is to be massive and at scale but can smaller work better for banking as it can for brewing?
It is not as easy for a service industry to compete at scale as it is for an FMCG product. We are, however, starting to see the rise of local banks. The newly-launched Community Savings Bank Association (CSBA) is a co-operative society looking to create a network of regional banks across the UK. These banks will focus on local communities, lend to and invest in them. The new mayor of Warrington, who is an ex-Natwest banker, has promised to make banking local again.
4. How big can craft be?
Returning back to the definition of craft ale, small, independent, it is clear there is something about size that keeps things craft. Fintech has a similar problem. What makes a fintech company? Technology focused, small and nimble? When a fintech grows – does it stop being fintech? Can a large bank be a fintech – so many of them keep saying they are, but can they ever be? We have this intangible feel for what craft or artisanal or handmade products should be.
I saw Evin O’Riordain, the founder of Kernel Brewery, give a spellbinding talk last year. He is someone who was just a hobbyist who happens to have built a great business around his good taste for beer. He was keen to keep the company as small as possible, he was up to 13 employees at that point and was part of a collective of other small food produces in Bermondsey (a London district). He wanted to retain that character, that spirit.
That does not fit in with the tech narrative though – we need to be a unicorn! we need to exit for a bajillion dollars. Is that craft? Does the product suffer as you dilute your beliefs chasing an exit? Scale is not all bad of course, solving problems for masses of people is a good thing but can staying small, local or ultra focused be the goal? We have not seen many in banking or fintech attempt this. I would love to see what would happen if they did.
The upcoming open banking regulations across Europe will give access to new players. They have the potential to target niches, to stay small. Let’s see.
5. Fake craft ale
The big brewers are not stupid. They want in on this change. There are a few options open to them. The first one I want to talk about is faking it. With craft ale being such an open definition why can’t the big boys just make some? Or better yet why can’t they just rebrand one of their existing, well crafted products as craft ale targeting the beard and tattoo hipster brigade? There have been a few attempts to rebadge existing ales, such as Green King IPA, or to slightly change the recipe to make it more hoppy or more like other taste profiles (e.g. Big Juicy IPA in the US), but they have largely failed. They stand out like a sore thumb and sucking a sore thumb invariably tastes better.
Another trend I have noticed is in-house craft teams. Now, is it still craft if a small team at a massive brewery makes it? Using the facilities at hand to make beer in a different way? To experiment in smaller batches? Is it craft? If not why not?
That is the challenge. A lot of the elements of what makes a craft ale could be copied by the large breweries with varying levels of authenticity. Will it ever be accepted as craft though? And in the long run, will it matter?
The same is true of fintech. As more banks and financial services companies state that they are just big fintech companies really then some of them may be able to fake it and even make it. If craft/fintech is just a series of copyable features then in the long run does it become mainstream itself? What is fake then?
6. Buy craft
If they can’t make authentic craft ales, then they can just buy them surely? The banks have long said once a fintech gets big enough then they will just buy them so they are never a threat really. That level of hubris has brought down many other businesses and will continue to do so. Buying, however, can be successful if handled right.
London’s Camden Brewery is an interesting example of a brewery bought by giant Inbev, left untouched as a brand but then given greater distribution powers and a brand new brewery built for the. Are they still craft or mainstream?
Breweries like Wicked Weed in the US suffered backlashes after they were purchased by the same brewery chain in the US. The closeness to a craft community comes with many complexities and big businesses can’t just buy the product and the community that comes with it. Will the promise of scale come with a loss of custom? Or are the backlashes just a noisy hardcore few?
I am intrigued to see if there will be brand backlashes if fintech firms are bought by banks, if say Monzo sold to Lloyds, as was rumoured. Would the very customers that helped build the brand and the product abandon them as they become yet another big bank? Or can larger companies provide growth opportunities, while leaving the brand untouched, that the community understands? Simple being bought by BBVA in the US, for example, seems to have been relatively successful, and so has the acquisition of Finnish SME bank Holvi by BBVA.
The strengths that help craft and fintech to grow can also be used against them. Authenticity is the goal of many a brand but can you really buy that? Will customers stand for brands that throw away their reason for being behind joyous announcements at their acquisition where they talk about “our incredible journey” or will their previous customers just move to another brand that fits their taste and world view?
7. Experimentation, innovation and collaboration
Every industry has to be innovative these days. Banks are beaten with the innovation stick daily.
Craft ale has shown a lot of smart innovation to continue to evolve and stay relevant. For instance, there are plenty exampled of fantastic collaborations between breweries to make something new. We see smart use of new products and processes to create something different and we even see history in the form of old beers and methods updated with new technologies and approaches to make something true to the past but fit for today.
Fintech has pushed all these buttons too. A lot of new fintech innovations are actually old methods scaled up by the power of the internet and mobile devices. Peer-to-peer (P2P) lending and insurance is just how it used to work in days of yore. Now those models can scale far greater and be run with more efficiency. The smaller fintech companies can more easily experiment and implement these
Experimentation is also not happening within sole companies in craft ale. We see frequent collaborations between companies. Brewers coming together to experiment further. Again we are seeing fintech companies starting to realise they are stronger together. Platform and marketplace banking trends showing the first signs of these companies together to build something that they could not do alone. Experiment and test. They have built their products, processes and cultures in way that make this easier.
8. Value perception and the pricing of product
One of the main reasons big breweries are so drawn to craft is the fact they can charge more for their product. They have broken the ceiling for what people will pay for beer. Even a tight northerner like me who might have winced at the past at prices in that London now regularly pay over £5 or £6 for a pint. Special edition bottles and cans can be far more.
Collaborations such as those mentioned in the previous section, small batch runs of beers, regular speciality ales and more are areas where the craft ale are constantly changing. All kinds of marketing powers are at play here, building scarcity and exclusivity into a product.
It is not easy for a service industry (although it seems to be working for 50p coins in the UK) to copy a fast moving consumer goods sector in this respect. Can services be small batch? Can you design scarcity into digital? Can collaborations in financial services be as exciting as a twin brewery 9% double IPA?
Banking has long been “free” in many regions and the banks are desperate to understand how they can charge a fee (more obvious and regulator friendly fees, that is) for services.
Fintech firms are coming to market with new product offerings. Some are starting off free but then trying to introduce fees later as reality sets in, other are charging from day one (e.g Monese). Can fintech change the perception of price with financial services by creating a new product that the banks can’t match and that people are willing to pay for? This remains to be seen.
9. The changing consumer premises
The Great British pub is in decline, closing left, right and centre at an increasing rate. Just like bank branches.
However, the craft beer revolution has also brought about a bit of a retail revolution too. It is kind of in line with what is happening to branches also. Pubs are getting smaller… kind of. The grand old buildings of yore, owned by breweries and leased out at crippling rates are being sold off as they are in most cases not viable businesses.
A new form of smaller pub is being opened by independents looking to sell a varied choice of craft ales. Mainly old converted shop units fitted out as small bars. My home city of Sheffield has seen several open in the last 12-18 months.
The bigger craft ale firms are opening specific premises. Magic Rock from Huddersfield have opened its own “Tap”. Manchester’s Clearwater also has “direct sales space” at its barrel store.
Smart brands getting closer to their loyal customers. As for fintech, we have not really seen them use physical locations too much. SME banking start-up Tide had an interesting pop-up shop in Old Street in London, which gave the company a physical opportunity for customer acquisition and community building.
Bank branches are shrinking too. The marble lined banking halls are all going, not just to be trendy wine bars as the famous old Natwest advert stated. The branches are now packed full of technology, very few employees and taking up as little space as possible. They have become ever more removed from their customers.
Automation is seemingly more important than engagement. Branches used to be local businesses. Centralised command and control took over and the advantage seems lost. I personally feel this may be an advantage for banks of having humans on the ground.
But it’s to hard to make it work, as obviously the premises of the future are online ones, in the palm of everyone’s hand. Fintech clearly see this as their territory to dominate. With a better understanding of the underlying technologies, the power of networks and the new scale and distribution capabilities this brings them.
New companies are born digital. Craft ale is the same. The web allows their product to be known and sold all over the world, while still relying on those good old fashioned supply chains.
10. Product focus above all else
The last one feels like the most obvious one to me. It also I think where both craft ale and fintech firms live and die by their product. They are focused on that above all else. The mainstream banks and brewers say they have this same laser like focus but it feels like they have sold the same old thing for so long they don’t know how to change.
The mainstream products are by no means bad. They sell in their millions. Most people don’t know any better or are genuinely happy with what they are consuming and using. There is also a broad spectrum between mainstream blandness and beer bore rigidity. As it becomes ever easier to access ingredients, the means of manufacture and have distribution methods on tap then innovation and improvement will surely follow – both for beer and banks.
As platforms infrastructure matures and commoditisation reaches saturation then opportunities arise for ever smaller and more niche brands to create very personal products. The seeds (or hops) of the new breed are being sown.
People want something different. Not all the people but some of the people. Fintech might never be for everyone but the smart practitioners will make sure it is for someone. They will continue to keep their products small, crafted with care that shines through, a brand that stands for something, that has style and substance. Fintech can learn from craft ale. Banks can learn from them too.
I don’t think there will be one winner. All parties can co-exist. There will be partnerships, there will be acquisitions and there will be new players that stay true to their values and stay small and pure and there will be those that want to be giants. Craft means many things to many people.
For me, it is about humans putting real care into products, about catering to the needs of all kinds of people. Whether it be beer or bank the future will always need well crafted products, services and experiences.
This article is featured in the September 2017 issue of the Banking Technology magazine. Click here to read the digital edition (it is free!).