The digitization of businesses brings threats and opportunities. The threats are mostly felt by established companies. Established companies are threaten by new entrants with a digital business model with great content, customer experience and digital platform. The importance of digital business models is rapidly increasing. There is a trend of digital natives consumers nowadays demand a brilliant digital experience while interacting with businesses (Weill and Woerner, 2013). These trends require businesses to transform digitally. I think that just like how Facebook, Apple and Uber disrupted markets by creating a platform with complementary services, banks should also provide complementary services next to their own products and services. If they don’t they will continue losing customers to companies that do incorporate a digitalized shared platform like Apple and Google (Weill and Woerner, 2015).
A good example of a bank who started investing massively in fintech, providing financial services by using software and modern technology, is the French bank BNP Paribas. Its three year transformation plan is yet the most ambitious and costly investment made public in the financial services industry. Their 3 billion investment will go into tech labs, new internally developed apps and platforms. This to enable customers to access its services online, efficiently use its data and become more adaptable to change. They are expecting to generate 3.4 billion euros in saving in 2020 and after that 2.7 billion euros in annual savings (Williams-Grut, 2017).
The results show that the net income in comparison to last year’s decreased by 0.1%, however this is pretty low when we look at the major investment they made in 2017. In addition to this the net income has increased by 53% in comparison to the previous quarter this year. This shows that that the bank is on track for its 2020 objective (Amaro, 2018). This shows that it is not the end of banks yet, but major investments are required to transform existing operations and fend of disrupters. However challenges remain, especially in the corporate and investment banking. These are the areas that require more assessment and critical evidence-based decision-making.
Author: 431453mt
Sources:
Amaro, S. (2018). BNP Paribas profit beats expectations despite investment bank weakness. Accessed on 12 oktober 2018, from https://www.cnbc.com/2018/08/01/bnp-paribas-q2-2018.html
Weill, P., & Woerner, S. L. 2013. Optimizing your digital business model. MIT Sloan Management Review, 54(3), 71
Weill, P., & Woerner, S. L. 2015. Thriving in an increasingly digital ecosystem. MIT Sloan Management Review, 56(4), 27
Williams-Grut, O. 2017. French bank BNP Paribas is spending €3 billion to ‘build the bank of tomorrow’. Accessed on 12 oktober 2018, from https://www.businessinsider.nl/bnp-paribas-2016-results-3bn-digital-transformation-plan-profits-up-2017-2/?international=true&r=UK
Technology of the Week – Will cryptocurrencies take over the world? (76)
6
October
2016
5/5 (1)
Today’s topic is the disruption of the current banking system. Within the current model, banks are involved in every transaction made. As a middle man, they have control over the process and usually charge a fee to carry out the transaction. Wouldn’t it be great to carry out a transaction between you and the other side of the world instantly and without transaction costs? With the introduction of the cryptocurrency, this has become a possibility. Let’s focus on two of the most popular cryptocurrencies and their underlying technology; the blockchain.
The Blockchain
The blockchain is a database that maintains an ever-growing list of records. These records are so called blocks. What is unique about the blockchain concept is that the database is distributed among every user of the blockchain. All these users have a copy of the same database, which is automatically updated around every 10 minutes. There is no user which has more information about the blocks than one another, therefore the blockchain has information symmetry.
Cryptocurrencies use this blockchain technology as an open and secure ledger of all transactions ever made. The blocks then contain information about the transactions, which will be authorized by miners. These miners are rewarded a small fee for their work.
Bitcoin
Let’s illustrate how Bitcoin works. Every user of the Bitcoin has an own wallet, which exists out of 26-35 alphanumeric characters. When a transaction is made, the Bitcoins are transferred instantly to the other’s wallet, without the interference of a middle man. The transaction is verified by miners.
More about mining: (Bitcoinmining.com)
Ethereum
Ether is another cryptocurrency based on the blockchain. Its decentralized system, known as Ethereum, can execute peer-to-peer contracts using the cryptocurrency ether. Currently, there has been interest in Ethereum from large firms like IBM, Microsoft and JPMorgan Chase to solve issues in various industries. The value of Ethereum is rising from 1 tot 12 dollars in 1 year. This relatively new currency is therefore a serious contender for a dominant cryptocurrency.
Bitcoin vs. Ethereum
Pros
Cons
Prediction
If we compare the pros and cons we see that the two cryptocurrencies both serve different purposes. Nonetheless, the question whether these cryptocurrencies will ultimately replace traditional money remains. Experts believe that the price of Bitcoin and Ethereum will only go up as it attracts more interest. This will also lead to a higher acceptance by (offline) merchants. However, the blockchain technology itself is the real innovation. Banks are gaining an interest in the technology for their own activities. So even if cryptocurrencies ultimately cease to exist, the blockchain will continue to thrive.
The Future of Fintech – Collaboration or Cannibalization?
29
September
2016
4.92/5 (12) Source: Fintech Investment Financial Internet Technology Concept
According to M. Porter: “the “new economy” appears less like a new economy than like an old economy that has access to a new technology” (Porter, 2001). While this statement may be true for some industries, it is not entirely valid for the banking sector which got completely transformed through IT advancements during the last 30 years.
Before the advent of digital computers and the rise of the Internet, employees in financial firms had to keep record of all transactions on paper. Job hunting and advertising efforts were being conducted through newspapers. Nowadays every single bank department is transformed – through the introduction of various software programs, the Internet and IT enhancements in general (both software- and hardware-wise). Consequentially, new processes, jobs, and business models are continuously emerging.
Fintech
IT has helped financial institutions offer higher quality services and convenience, creating a potential for collaboration and mutual profit. There is a buzzword to describe the phenomenon – fintech.
But what gives fintech companies an advantage over traditional market players? The trick is that IT companies can engage in the banking business without having to go through strict regulations and complex processes. Exactly this window of opportunity threatens the old-fashioned and traditionalistic banks and favours technology firms.
So what new business models will emerge from the recent technology disruption? There are two major scenarios: banks will get stronger and improve their reputation through collaboration with tech companies or technology companies will get greedy and eventually start eating up bank’s market share.
Scenario 1: Collaboration
The sweet spot called fintech offers new opportunities for collaboration between fin and tech companies as the fin part (financial sector) is highly regulated while the tech part (technology sector) is not. Currently, tech firms are mainly concentrating on providing complementary products and services that do not require banking license. In the future, as they exhaust growth opportunities, tech companies might lose interest in entering the complex areas (products and services) of the banking sector, which require proper infrastructure, processes, and sufficient capital. On the other hand, banks enjoy a good reputation in the financial world and possess a valuable know-how. Thus, a future collaboration between financial and technology companies seems like a profitable opportunity for both sides.
Start-up Programs
Banks have shown great interest in start-ups by attending entrepreneurship- focused events or even sponsoring fintech start-ups. Examples are Fintech Innovation Lab, Startupbootcamp and other. Some banks take part in programs that allow them to benefit from IT developments by getting involved in various types of agreements.
Partnerships
Banks are also interested in partnerships with established IT companies. Such partnerships allow financial firms to buy services and/or products and implement them under their own brands. Additionally, by participating in business networks, banks and IT organisations can provide complementary products and services that better meet consumers’ needs. Examples are online and mobile banking platforms which are often not developed by banks themselves.
Scenario 2: Cannibalization
Cannibalization is the perfect term to describe the other option for fintech’s future. The term refers to the process of one kind eating species of its own kind. Since technology companies have started offering financial services and products, they have been eating up the profits of banks.
Banks – too big to fail?
A comparison of the Fortune 500 firms from 1995 and 2015 shows that only 12% of the largest corporations still exist (Perry, 2015). This means that the largest banks of today might not exist in 10 or 20 years. On the other hand, tech companies have been very successful in offering better financial solutions that are time-saving, convenient and correspond to the latest customer preferences shifts. The tech giants have sufficient capital, human resources and the advantage of technology know-how so one could argue that they have the capacity to replace the traditional banks.
Financial products and services offered by tech companies
Customers no longer need debit/credit cards to make payments and execute financial transactions. Mobile payments have become easier with the recent hardware and software advancements. Companies such as Alibaba (its affiliated company Ant Financial Services Group), Google Wallet, Paypal, etc. offer mobile payment services, without keeping customers money under custody (in their own premises). Ant Financial Services Group sells insurance products online and provides small loans to business owners that use Alibaba’s retails website. As tech companies continue to offer convenient financial solutions, banks might abandon less profitable products and services, and focus on highly complex solutions.
Conclusion
In order to keep their market shares and for some – to survive, banks need to consider new business models that involve collaboration with IT companies. The future of banks depends on their adaptability as well as on their willingness and success in embracing new technologies. On the other hand, technology companies should as well evaluate the pros and cons of entering new areas of the financial industry.
In the long term, I expect the financial industry to go through continuous transformations in terms of hardware and software. My personal predictions are that robots will replace bank tellers, programs will completely replace financial advisors and mobile payments will make money obsolete.
What do you think – what does the future of fintech hold?
If you are interested in additional fintech analysis and prognosis, you can find more information on Deloitte’s Banking Industry Outlook.
References:
“Banking Industry Outlook | Deloitte US | Center For Financial Services”. Deloitte United States. N.p., 2016. Web. 29 Sept. 2016.
“Fintech’S Golden Age: Competition To Collaboration – Accenture”. Accenture.com. N.p., 2016. Web. 29 Sept. 2016.
“Future Of Fintech And Banking – Accenture”. Accenture.com. N.p., 2016. Web. 29 Sept. 2016.
Group, Ant. “Ant Financial Services Group: Private Company Information – Businessweek”. Bloomberg.com. N.p., 2016. Web. 29 Sept. 2016.
Perry, Mark and Mark Perry. “Fortune 500 Firms In 1955 V. 2015; Only 12% Remain, Thanks To The Creative Destruction That Fuels Economic Prosperity – AEI”. AEI. N.p., 2015. Web. 29 Sept. 2016.
Porter, Michael E. “Strategy And The Internet”. Harvard Business Review March 2001 (2001): n. pag. Print.
“The Challenges And Pathways For “Fintech” Companies To Break The Traditional Financial Model”. Centrodeinnovacionbbva.com. N.p., 2016. Web. 29 Sept. 2016.
“Traditional Banks And Fintech Firms: New Collaboration Models”. ICAR. N.p., 2016. Web. 29 Sept. 2016.
