Even central banks see this. The Reserve Bank of Australia’s chief information officer Sarv Girn, in a speech entitled “Digital Leadership in Today's Economy”, noted “CIOs are now given the quest to seek, disrupt or protect business models to keep their organisation ahead in the race”.
" Banking will look radically different in 10 years’ time, probably even five."
Andrew Cornell, BlueNotes managing editor
That entails “unravelling or shaping the possibilities from mobile, social, cloud and communities of online stakeholders”. Moreover, Girn added, the environment for disruption is global, fast-paced and open to new, non-financial competitors.
The Deutsche Bundesbank’s Andreas Dombret told a bunch of German bankers a similar thing: “the old financial value-added chain is already lying in pieces and is being reassembled by the new fintech competitors”.
A particularly thorough analysis by Ben Robinson, head of strategy for Temenos, noted “digitisation of the banking industry is making new banking business models possible. But it is the combination of regulation and technology that is making new business models a necessity”.
Little wonder than that fintech analysis is everywhere. A new survey by East & Partners, the Treasury Fintech Index, found a “dominant majority of corporate treasurers in the world’s top revenue-ranked corporations are planning to increase their spending on FinTech over the next year”.
The latest “Fintech Innovators” survey by KPMG and fintech investment firm H2 Ventures found funding has continued to rise for the firms covered with the 50 Established companies attracting an additional $US14.6 billion of capital since last year’s report, an increase of more than 40 per cent.
According to H2 Ventures’ Toby Heap the survey demonstrates the “acceleration of the disruption taking place in the global financial services industry, with more capital than ever being invested around the world in start-ups and established ventures that are creating new financial products and solutions”.
It sounds like we are approaching a fintech singularity in financial services. Yet the logical error many make is to believe because fintechs will be behind the disruption, fintechs must be a huge part of the financial services sector and/or they are good investments. They’re not and few will be.
History tells us technologies may destroy companies – Kodak and Encyclopaedia Britannica being the classic examples – but rarely individual disruptors.
Take mobile payments, a favoured target of disrupters. Banks were indeed slow to move in this market.
Now however they are. This bank, ANZ, is in partnership with Apple and Android. There are also fintech-style projects such as Zelle which promises to “revolutionise” peer-to-peer payments (presumably because PayPal and others don’t fit the definition). Late, maybe, but reacting with scale and clout.
Critically, while the colour and movement of the fintech universe grabs attention, the world is not changing overnight. While the individual efforts of incumbents may be a bit lame they still have consumer trust and inertia on their side. So far.
A survey by CGI found while consumers are indeed in the market for digital banking services, to date they would prefer to get them from their current bank and not a start-up.
The survey, ‘Fintech Disruption in Financial Services', examined market awareness, preferences and purchase trends of consumers in Singapore, Canada, Germany, Australia, Sweden, France, the USA and the UK, finding lack of trust was the biggest obstacle to purchasing across all digital financial services.
CGI vice-president and global lead for retail banking, Kevin Poe, said: "Incumbent banks are well positioned to offer digital financial services based on their trusted customer relationships. Work is now needed to reduce the complexity of these services and aid purchase".
Poe’s advice to start-ups looking for credibility? Consider partnering a bank.
But surely the huge investment pouring into fintechs will change attitudes? The near $US15 billion, up 40 per cent, in the last 12 months to just the top start-ups?
Not so big in context. Fintech remains a minor part of the venture capital universe.
IT’S JUST A MINOR THING