As the IT entrepreneur Joe McCann put it in TechCrunch, it wasn’t that long ago when we had to buy the whole album to get the one good song.
This was an example of bundling and it used to be standard. If wanted all the channels, you got Sky; if you had to create a document, you bought Microsoft Office and used Word. The service you wanted was often a micro within the broader macro.
But a lot has changed since those now distant days (well, less than twenty years ago). “As internet-based technologies reduce transactional inefficiencies,” writes McCann, “we have new opportunities to abandon unnecessary bundling in favor of choice and flexibility.”
The idea McCann is referring to is what’s known as ‘unbundling’. The phenomena is perhaps best described by the serial entrepreneur Hemant Tenaja: startups, according to him, are “able to quickly win market share from leading businesses… by decomposing markets into highly customised niches so that the incumbents can’t compete on scale alone”.
Unbundling, in a way, is the difference between doing an array of things well - or doing one thing brilliantly. The process is typified by startups - like presentation tool Prezi, for instance - that zone in on a particular aspect of bigger competitors’ offerings.
The banking sector, in particular, has been affected by this phenomenon (as this remarkable graphic by CB Insights shows). In the shadow of the big retail banks a diverse eco-system of startups have developed by unbundling the banks’ diverse portfolio of products.
The international money transfer startup Azimo is one such startup. Its founder Marta Krupinska - who just recently wrote a piece for BusinessZone - unbundled money transfer from the banking sector and created a niche into which Azimo grew.
If you bundle products, so to speak, you’re likely not going to manage each one as effectively if you were a standalone company
What Azimo specialised in is what’s known as ‘remittances’; that is, money that foreign workers send back home to family. Estimates vary on the amount of remittances sent from the UK each year, but even the most conservative estimate puts the total at £1.5bn.
This lucrative market has been traditionally dominated by high street banks. These services were quite pricey. As Krupinska puts it: “I wanted to send a portion of my wages home to help support my mum in Poland and found it was cheaper to buy a plane ticket and deliver the money myself.”
The frustration of sending money home - a common one for many immigrants - inspired Krupinska to start Azimo. And by uncoupling the international transfer service from the banks’ offering, Azimo was able to gain traction against gigantic competitors.
Osper is another fintech startup that has zoned in on a particular aspect of the traditional bank portfolio: children’s current accounts. The twenty-person startup based in Camden offers a prepaid debit card and an app from where parents can control things like their kids’ spending.
The startup Davids of the unbundled economy aren’t quite killing the corporate Goliaths.
“It’s designed to empower eight to 18 year olds,” says Jack Stevenson, a UX researcher at Osper. “Its aim is to give the kids confidence and to teach them to take responsibility from a younger age.”
Asked about unbundling, Stevenson notes that, while it wasn’t at the forefront of their mind, Osper’s laser focus on just one aspect of finance definitely empowers them to compete. “If you bundle products, so to speak, you’re likely not going to manage each one as effectively if you were a standalone company,” he says.“Because we’re smaller and we’re focusing on this one idea, we can create a fantastic product.
“If you’ve got that focus. In the banking sector, children’s current accounts are sometimes a leading product. They’re often there just to create a new customer and to lead them into the adult products. Banks haven’t necessarily engineered them in this way, but this is often how the products have ended up.”
As utopian as all this sounds, however, it’s not quite that simple. Osper’s Stevenson readily admits that they aren’t against the banks but rather they complement them. The commercial infrastructure, the invisible back-end, is still run by a faction of large corporates.
The startup Davids of the unbundled economy aren’t quite killing the corporate Goliaths. They are finding success within the extant paradigm, not creating a new one. Reflecting on the opportunity, Stevenson says: “High street banks are huge organisations that don’t always have the ability to create these products in a decent time frame. They might think it's a great idea, but it can be very hard for them to execute.”