IBS Journal September 2016


EDITOR’S NOTE FINTECHS GET A DOSE OF REALITY


WHAT WILL BE THE LONG-TERM IMPACT OF FINTECH ON BANKING?


05


Senior Editor Scott Thompson Scott.Thompson@ibsintelligence.com


inTech has become something of a cottage industry over the past couple of years. As I write this, yet another (sigh) online news service is being launched. Everywhere you look there are listicles, thought leaders, bloggers, accelerators, incubators and theme parks…OK, I made the last one up (although it wouldn’t surprise me if someone somewhere is prepping FinTech World, fun for all the family!), but you catch my drift.


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A lot of people have done very nicely, thank you, by pushing hard the gospel of innovative new entrants shaking up an establishment hampered by creaking legacy IT systems, but the reality is that many of these ‘disruptive’ startups are operating at a loss in order to gain market share and in the best case scenario will be eaten by dinosaurs.


Cynics argue that most FinTechs are fuelled by hype. They are too small to threaten existing players, win over risk- averse customers in significant numbers and conquer high regulatory barriers to market entry. They’ll therefore need at some point to partner with banks or sell up and ride off into the sunset.


Take German FinTech upstart Fidor Group, which has been acquired by France’s second largest banking group BPCE. Telefonica Germany recently launched a mobile banking service. It teamed with Fidor Bank on this, effectively using its licence as a springboard into the financial services business. It’s a win win arrangement as Fidor Bank needs scale: its customer base of about 100,000 in Germany is


not giving Commerzbank sleepless nights, but chuck in Telefonica’s 43 million customers and, well, you can guess the rest.


One might argue that FinTech is nothing new. The banking sector has seen hugely important innovations in the past, such as credit and debit cards, ATMs and online/mobile banking. These made a big difference to customers’ lives, but they did not dislodge the big hitters, if anything they made them stronger. Incumbents just threw huge amounts of cash at their digital offerings and snapped up emerging competitors.


At this point, I should stress that I’m not completely down on FinTech. There are companies out there whose offerings have the power to transform how we interact with money. But will they usher in a new era free of large banking institutions? Probably not.


There are 65 million current account holders in the UK. But despite incumbents offering financial inducements, digital-only challengers emerging and the best efforts of the Current Account Switch Service (CASS), which cost £750 million to launch, movement has been minimal. In short, new entrants have changed consumers’ expectations of financial services and perhaps that will be their lasting legacy. But banking is a tough nut to crack, and people are generally a lot more trusting of the old guard than FinTech fans would have us believe. Plus ça change, plus c’est la même chose, as no FinTech evangelist is fond of saying.


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