Times of economic crisis, fraud, unrealistic promises and enormous bonuses for bank directors have caused a bad image of banking. However, this crisis situation has also contributed to several positive developments. Hard times often provide innovation and creativity.
The turbulent economic developments in combination with the digitalization has introduced a totally new market for financial services, called FinTech. FinTech is a collective name and abbreviation for technological innovations and applications in the financial services area. This small market is controlled by small innovative start-ups which give the financial market a new boost. The new thinking of these start-ups provides new ideas to make arranging finances easier, more reliable and much cheaper. The remaining question is: are banks becoming superfluous? The expectation is that the emergence of FinTech will deem thousands of jobs unnecessary. Consumers prefer to pay quickly and anywhere they want. They prefer transactions with their smartphone rather than a visit to the bank.
FinTech provides not only a reliable overview of the financial position of the consumer but I expect that in the future they will also provide a customizable platform which, through algorithms and machine learning, evaluates the financial position and activities of the user. With these outcomes they can offer advice about the customer’s financial position.
US investment banks like Goldman Sachs and JPMorgan Chase invest billions of dollars in US FinTech companies. I think this is a clear indication that FinTech companies are slowly becoming a major player in the banking world. FinTech businesses could be really disruptive to banks. In response to this trend, banks and insurance companies have to renew their business models to stay sustainable competitive. In the coming years we will see whether there really will be a transition of traditional banking into FinTech innovations. One thing is for sure, The impregnable position of the traditional bank will be threatened in the upcoming years.
Fintech: are banks becoming superfluous?
9
October
2016
The biggest costs for traditional banks are old nearly irreplaceable critical systems, low to middle skilled employees, and bank branches. When starting a new bank you don’t have to deal with this and can in general offer better service for a fraction of the money required to run a traditional bank. However I don’t think that the traditional bank will disappear. There is still place for them in the market but they have to act quick. The biggest 3 banks in the Netherlands are laying off unnecessary bank clerks and support staff (30.000 over the last couple of years), closing/merging bank branches and improving their mobile presence. They are the ones with the deep pockets and are not afraid to use it to prevent newcomers from entering, by either taking over FinTech startups or competing directly with them for customers.