Are rumours of the death of the banking industry being greatly exaggerated? Is the fintech industry ready to consign the infrastructure and techniques of traditional banking services to history? Or could there be a “third way”, where banks and fintech work together to usher in a new age of value exchange.
One where disruptive tech ensures the banking industry as we know it survives, but having, somewhat noisily, undergone a tech revolution?
This was a question put to the audience at a panel discussion last week at the Treasury Leaders’ Summit in Canary Wharf, which I took part in on behalf of The Money Cloud, and as a future technologist and fintech “expert”.
A show of hands from the audience, which consisted mostly of corporate treasury operatives, banking employees, accountants and compliance experts, was both surprising and revealing.
Asked, “who thinks banks and fintech firms are in direct competition with one another”, by our erudite and well-travelled panel chair, Pierre-Jean Hanard, a banker turned entrepreneur, advisor to fintech startups and a veteran of MIT Sloan and The Said Business School at the University of Oxford, only one member of the audience raised their hand.
But when asked “who thinks banks and fintech firms should seek to collaborate as closely as possible”, most of the rest of the 50-strong audience were not shy about sticking their hands up.
Banks are often unfairly castigated for being old, unwieldy, expensive, and unwilling to change when it comes to delivering the kinds of financial services – sending money abroad, for example – that the modern baby boomer, millennial or Generation Z consumer are demanding, but there are mitigating circumstances here.
Most banks built their core IT infrastructures in the 70’s, 80’s and 90’s, so it is hardly surprising that they are somewhat less “agile” than their fintech counterparts, who are rolling out products that leverage the latest tech, completely unencumbered by “legacy” systems and staff costs that the big banks have to deal with.
Another point to consider is one made by my fellow panel member, Andy Farnhill, Head of Global Transaction Services at Singaporean bank DBS; fintech disruption is all well and good, he commented, but the fact is 9 out of 10 attempts to start a disruptive fintech firm capable of providing a better service than the banks, still fail.
“I don’t know about you”, he asked the audience, “but I wouldn’t feel terribly comfortable approaching my finance director with an idea that had a 90% chance of failure.” Having attended an excellent keynote on the first day of the TLS conference, by Malcolm Pape, FD of Experian, about how to pitch ideas to a financial controller, I too, would think twice about doing such a thing!
But that is not to say that banks can’t be innovative. During my time at Barclays, space, time and energy was devoted to new ideas and ways of approaching the work that banks do. There were whiteboards everywhere, break-out rooms, massage chairs, dedicated projects and dedicated project rooms, teams and individuals, all devoted to discovering and developing the next big banking innovation.
“What’s in the hopper this week”, was an expression I heard frequently. Financial firms are increasingly turning to their “intrapreneurs” – insiders who think like disruptive fintech startup founders – to inspire, inform and build their next generation of products and services.
But the key point I want to make is that fintech firms and finance firms need each other. Think of it like the pilot fish and the shark if you like – the pilot fish nibbles at the shark’s imperfections, helping to smooth them out, whilst feeding itself at the same time. Without one, the other is significantly weakened.
It is not necessarily a case of fintech firms supplanting banks, or banks beating down the new-fangled opposition with their cryptocurrencies and their distributed ledgers, it is about the common good.
After the global financial collapse of 2008, the banks lost a great deal of the public’s respect, and customers became much more open to new ways of doing things, proposed by startups from the tech world – an industry that enjoyed the public’s overwhelming support.
The Whale – Tech Firms are eating the world
Now, of course going forward there could be a significant change in the dynamic of the relationship between banks and fintech firms. Tech firms that do banking, could become big enough to swallow banking firms trying to do tech, and their Pilot fish startups. In other words, we may end up banking with Apple, Google, Facebook or Amazon, rather than Barclays, HSBC, Lloyds and RBS.
It was my job on the panel to describe how I thought we would use banks, and what form they would take, in the future. I felt a bit silly saying it, but I do truly believe in the answer I gave. That banks won’t look like anything, because they won’t “be” anything, or have any physical, bricks and mortar form.
Algorithms, machine learning, ledgers, and digital transparency will mean that all of the key facts about our financial situation, the best products for us to use, the solutions to our money worries, will be present for anybody to access, at any time, in a tiny chip that we will wear on our wristwatch, smartphone – or who knows, under our skin.
We are nearly there – think of Amazon’s soon to be rolled out stores in which you enter, take the goods you need from the shelves, and walk out without using the checkout. The money spent will be deducted, the goods taken recorded in an indelible ledger. No cards, no PINs, no receipts, no cashback.
We are not there quite yet – but we are getting there.
What The Money Cloud Has In Store?
In the meantime, as I have mentioned before, the “digital dashboard” will bridge the gap – a one-stop shop for all of your finance needs. It was too early this year for The Money Cloud to pitch our latest, greatest product, to the Treasury Leaders’ Summit (and a big thank you to Hannah Patey for asking us and running an excellent summit), but we are massively excited about it and it is coming soon – so watch this space, whether you are a banker or a fintech nut!