The danger sofknifefights
Unless existing incumbents and new entrants collaborate, a knife fight and attrition war may ensue that can have more damaging effects than a healthy cleansing of the financial sector.
Any of the seven forces we just described might be the subject of a knife fight. For example, competition on margins could shrink the available pie by establishing a sense of entitlement with customers for low or no cost for services. For instance, in digital telephony, the advent of marketplace VoIP service Skype severely rattled the industry. Even though more people than ever before have gotten to use their computers and smartphones to connect around the globe for free, it has become incredibly hard to monetize VoIP calls. Skype's grab of 30 percent of the international market for phone calls came with less than 30 percent of its revenues. The technology company made phone calls less expensive for customers and shrunk the total revenue pool, while still turning a profit.4 It is hard to beat something that is free. Without a doubt, the emergence of Skype has been a boon for many SMEs and individuals who are more connected for a lower cost than ever before. On balance, the contribution of VoIP technology has definitely had a positive impact on the world economy. However, the freemium business model of Skype has cannibalized an existing industry and put in place a limit to revenue growth for itself.Competition on margin is already happening in financial services even without new competition in marketplace lending. Working at a bank has become increasingly unattractive in recent years while tech companies are paying record sums for the same talent. In the long- run, outspending the competition to gain access to talent, while fighting a war of attrition, is an unsustainable strategy. Sooner or later, FinTech companies need to turn a profit, too. If they build in barriers to raise margins with freemium business models they might sabotage their own future.
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