Harvard Case - From Crowdfunding to Digital Banking: The Evolution of Funding Societies
"From Crowdfunding to Digital Banking: The Evolution of Funding Societies" Harvard business case study is written by Tan Swee Liang, Thomas Lim, Yoke Wang Tok, Thitipat Chansriniyom. It deals with the challenges in the field of Finance. The case study is 11 page(s) long and it was first published on : Aug 12, 2020
At Fern Fort University, we recommend Funding Societies to continue its strategic evolution by focusing on a hybrid model that leverages its established crowdfunding platform while expanding into a full-fledged digital bank. This approach will allow the company to capitalize on its existing strengths in fintech and emerging markets while mitigating risks through a phased and strategic implementation.
2. Background
Funding Societies is a Singapore-based fintech company that started as a crowdfunding platform for small and medium-sized enterprises (SMEs) in Southeast Asia. The company has successfully disrupted traditional lending models by connecting borrowers with individual and institutional investors through its online platform. However, Funding Societies faces increasing competition from other fintech players and traditional banks, prompting the company to consider expanding its services and becoming a full-fledged digital bank.
The case study focuses on the company's CEO, Kelvin Teo, who is evaluating various options for Funding Societies' future, including pursuing a digital banking license and expanding into new markets. The company's success hinges on its ability to navigate this strategic crossroads while maintaining its core values of financial inclusion and customer-centricity.
3. Analysis of the Case Study
To analyze Funding Societies' situation, we can utilize the Porter's Five Forces framework:
- Threat of New Entrants: High - The fintech sector is attracting significant investment and new players are constantly entering the market.
- Bargaining Power of Buyers: Moderate - Borrowers have options with various lending platforms, but Funding Societies' strong reputation and focus on SMEs can give it an edge.
- Bargaining Power of Suppliers: Low - The company relies on technology providers and investors, but these are readily available in the market.
- Threat of Substitute Products or Services: High - Traditional banks are increasingly adopting digital solutions, offering competition to fintech platforms.
- Rivalry Among Existing Competitors: High - The fintech landscape is highly competitive, with several players vying for market share.
This analysis highlights the need for Funding Societies to differentiate itself and build a sustainable competitive advantage. The company's existing strengths include:
- Strong Brand Reputation: Funding Societies has established itself as a trusted platform for SMEs in Southeast Asia.
- Experienced Team: The company has a team of experienced professionals with a proven track record in finance and investing.
- Technology Platform: Funding Societies has a robust technology platform that enables efficient loan origination and management.
- Data Analytics Capabilities: The company leverages data analytics to assess risk and improve loan approval processes.
- Strong Network: Funding Societies has built a strong network of investors and borrowers in the region.
However, the company also faces several challenges:
- Limited Funding: Funding Societies relies on external funding, which can be challenging to secure in a competitive market.
- Regulatory Landscape: The fintech industry is subject to evolving regulations, which can create uncertainty and increase compliance costs.
- Competition: The company faces intense competition from other fintech players and traditional banks.
- Expansion Risks: Entering new markets can be challenging and requires significant investment.
4. Recommendations
To address these challenges and capitalize on its strengths, Funding Societies should pursue a hybrid model that combines its existing crowdfunding platform with a digital banking offering. This approach will allow the company to:
- Leverage Existing Strengths: Continue to grow its crowdfunding platform and build upon its existing customer base.
- Expand into New Markets: Offer digital banking services in new markets, leveraging its existing technology and expertise.
- Diversify Revenue Streams: Generate revenue from various sources, including loan origination fees, interest income, and transaction fees.
- Enhance Customer Value: Offer a comprehensive suite of financial services to its customers, including savings accounts, payment solutions, and investment products.
Phased Implementation:
- Phase 1: Focus on expanding the crowdfunding platform, increasing loan volume, and building partnerships with financial institutions.
- Phase 2: Secure a digital banking license in a selected market and launch basic banking services, such as deposit accounts and payment solutions.
- Phase 3: Gradually expand the digital banking offering, introducing new products and services, and increasing market penetration.
5. Basis of Recommendations
This approach aligns with Funding Societies' core competencies and mission by:
- Leveraging Existing Strengths: Building upon its existing crowdfunding platform and technology infrastructure.
- Expanding into New Markets: Capitalizing on the growth potential of Southeast Asia's emerging markets.
- Offering a Comprehensive Suite of Services: Providing a wider range of financial services to its customers.
The recommendation also considers external factors:
- Competitive Landscape: The hybrid model allows Funding Societies to compete effectively with both fintech players and traditional banks.
- Regulatory Landscape: The company can navigate the regulatory environment by focusing on specific markets and gradually expanding its services.
Quantitative Measures:
- Increased Revenue: The hybrid model will generate revenue from both crowdfunding and digital banking activities.
- Improved Profitability: The expanded product portfolio will increase the company's profitability.
- Enhanced Customer Acquisition: The digital banking offering will attract new customers and increase customer retention.
Assumptions:
- Funding Societies can secure the necessary funding to implement the hybrid model.
- The company can obtain a digital banking license in a selected market.
- The regulatory environment for fintech will remain favorable for expansion.
6. Conclusion
By adopting a hybrid model that combines its existing crowdfunding platform with a digital banking offering, Funding Societies can position itself for sustainable growth and success in the evolving fintech landscape. This approach will allow the company to leverage its strengths, mitigate risks, and capitalize on the growing demand for digital financial services in Southeast Asia.
7. Discussion
Alternative options include:
- Focusing solely on crowdfunding: This approach would limit the company's growth potential and expose it to increased competition.
- Acquiring an existing bank: This option would require significant capital investment and could be challenging to integrate.
Risks:
- Regulatory hurdles: Obtaining a digital banking license can be challenging and time-consuming.
- Competition: The digital banking market is becoming increasingly competitive.
- Operational challenges: Integrating the crowdfunding platform with a digital banking offering can be complex.
Key Assumptions:
- The company can secure the necessary funding to implement the hybrid model.
- The company can obtain a digital banking license in a selected market.
- The regulatory environment for fintech will remain favorable for expansion.
8. Next Steps
- Develop a detailed business plan: Outline the strategic roadmap for implementing the hybrid model.
- Secure funding: Identify and secure the necessary funding for expansion.
- Apply for a digital banking license: Choose a suitable market and submit an application for a digital banking license.
- Develop a digital banking platform: Design and build a user-friendly digital banking platform.
- Launch pilot programs: Test the digital banking services in a limited market before full-scale launch.
This phased approach will allow Funding Societies to implement the hybrid model strategically and mitigate risks while maximizing its potential for growth and profitability.
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Case Description
Kelvin Teo, Group CEO of peer-to-peer (P2P) lending platform Funding Societies Pte Ltd, has submitted an application for a Singapore digital wholesale bank (DWB) licence to the Monetary Authority of Singapore (MAS), Singapore's central bank and financial regulator. For the purpose of this application, Funding Societies had set up a consortium with smartphone manufacturer Xiaomi Corp, investment bank AMTD Group, and electricity and gas grid operator SP Group. The questions that the case tackles include: Should Funding Societies remain a P2P lending platform or seek to become a digital bank? What were its reasons for choosing to team up with this specific set of consortium partners? Why did Funding Societies abandon its initial plan to be lead partner of the consortium? If the application failed, what should be its back-up plan?
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