In my opinion the fintech startup honeymoon is over. Majority of the interests following Fintech startups come from governments – who want to increase foreign direct investments and create local jobs, entrepreneurs – who want to become the next Zuckerberg (come on, be honest), and angels and investors who are in it for the money. Again, this is just my opinion.
The more interesting bit, in my view, is what incumbents are doing today but let’s not get ahead of ourselves.
Sure, there was a period of complacency back in the early days of Fintech 3.0, following the financial crisis of 2008.
The apparent distrust of the traditional banking system following the massive failure of banks and banking regulators to protect consumers and employees (of banks) saw the emergence of new players alongside incumbents.
New players noticed consumer attachment to their smartphones and recognized an opportunity to create ‘new’ business models from traditional ones like banking and lending. These have eventually morphed into other areas like insurance, financial management, retail banking, and markets & exchanges.
But before you get all excited about this being an expose across the vast expanse of fintech, we will only focus on one aspect of the disruption – how banks will survive the fintech onslaught and become the dominant winners in the race for the customer wallet and loyalty.
Raymond Wyand, ceo and co-founder, gini
For this FutureCIO spoke to gini CEO and co-founder, Raymond Wyand, who candidly shared his view on the true masters of digital finance.
Strategies that work
He commended the direction that JPMorgan Chase and Citi took in response to the disruption and the subsequent changes taking place in the industry, including aggregation services, roundup investing, and startups that would offer new services traditional banks had not even thought of.
“The reaction [by JPMorgan Chase and Citi] was to very aggressively recreate those features. The logic was that it is easier for a JPMorgan Chase to offer a holistic set of finances and to upgrade the quality of their app, then it is for tech company to replicate a two trillion dollar balance sheet, and hundreds of years of trust,” explained Wyand.
He made it clear that the financial services industry is very different from the food delivery or taxi industry, which are being disrupted by smaller companies like Deliveroo and Uber – at least, not comparable in terms of scale.
“There will be a period where the traditional banks prepare themselves for the threat of the incumbents. I don’t think that they need to change everything in a day,” he thought.
Battleships vs speedboats
He referred to traditional banks as akin to battleships whilst startups were more like speedboats.
“For sure the speedboat is very nimble and can move very fast. The battleship doesn’t move very quickly but it’s a very powerful weapon once it does turn. The challenges which way does it go? So I think they will see the mistakes, successes, failures that happen, and where they want to work with us [startups like gini] is to prepare themselves right now, upgrade their own offerings in preparation,” suggested Wyand.
Incumbents know that people are going to be more data driven. These banks will respond with more personal financial services, which according to Wyand are tactical – quick wins.
“I don’t think they will be in a hurry to make big strategic changes. I don’t think that they need to be. But it will come over time,” he opined.
Watch the video above as he gives examples of what he believes are very good strategic moves by banks like HSBC (both in London and in Hong Kong).
Coming in 2020
He does caution that challenges will continue to present themselves for banks. Top management will make long-term strategies that are often not driven by motivations such as generating immediate revenue or reducing cost – tactical KPIs that are often the objectives of business unit leaders. Top level directives will be at odds with operations.
“I really think the success case comes when everything lines up, where everyone in the bank knows it makes sense. HSBC in London had a very clear strategy. Everyone from top to bottom knew they had to execute it,” he commented.
In its “Predictions 2020: Banking” report, Forrester prognosticates the new year to see a flood of new entrants into banking, with fintech and big tech targeting new areas they see as ripe for disruption. Regulators will add to incumbents’ headache by launching new open banking regulation that enables new entrants.
Peter Wannemacher, senior analyst, Forrester
According to Forrester, the first round of open banking initiatives has not delivered what it set out to do – introduce competition, customer choice, or level playing field between banks and innovators.
“In 2020, regulators will wake up to the challenges they created by not providing technical specifications and allowing wide interpretations of the standards — thereby unintentionally introducing a raft of open banking intermediaries that will become increasingly unwelcome.
“This fragmented environment will require a reset that will come in the form of more legislation to rebalance the playing field to favour new entrants — feeding in best practices from more recent global open banking initiatives. Bleeding edge comes at a price,” called out Peter Wannemacher, senior analyst at Forrester.
