Twenty-five years after the advent of the commercial web and 17 years after PayPal established itself as one of the world’s largest online payment platforms, it looks like banks and other traditional financial institutions may be preparing for war.
J.P. Morgan CEO Jamie Dimon warned shareholders in April that “Silicon Valley is coming.” And, what he really meant is: financial technology (FinTech) is coming.
A couple of months later, financial services operators converged upon New York to debate the future of banking at the 2015 Next Bank USA conference. The event’s headline was “We live in interesting, fintech times”.
Defending the banks against FinTech companies were European digital banking professional Michal Panowicz and banking industry analyst Ron Shevlin, who likened FinTech startups to the redcoats and banks to Paul Revere and the colonial raiders. Shevlin seems to think the banks are the underdog, which Philip Ryan of Bank Innovation quickly set him straight on.
In the end, Shevlin made a prescient observation in mentioning that daylight between FinTech companies and banks is getting more difficult to detect. A few days later, Sam Maule predicted that banks and FinTech platforms will inevitably become partners.
Is it just me, or are the banks backpedaling?
What’s Really at Stake In This Financial Technology ‘War’?
It’s become evident that traditional financial institutions have realized that they are not going to stop technological progress.
They may call it something else, but FinTech companies are disrupting the financial markets in many ways. That includes crowdfunding in its various forms, which allows companies and entrepreneurs seeking funding to find capital outside of traditional banking institutions. It includes peer-to-peer lending platforms like Prosper and Lending Club, which enable individuals to seek loans from other individuals. It also includes payment systems like Stripe and Dwolla, and cryptocurrencies like Bitcoin.
Sarah Todd at American Banker says framing the FinTech-Banking MMA duel as a winner-takes-all game is too simplistic. Banks may partner with FinTech startups, although not because they want to. Otherwise, they may eventually find themselves irrelevant.
But, by the same token, Shevlin has a point when he says that banks have the financial resources to scale “wide-ranging financial services” into one “customer-facing package.”
It’s now clear that technology has come to the financial services sector. The only question is, who will employ it and how creatively? Banks can get in on it or be left out in the cold.
Where Banking Meets FinTech
Independent commentator Chris Skinner is correct to point out that banks and FinTech companies are increasingly entering into mutually beneficial partnerships. Not only are banks providing some of the services secured by FinTech companies, but traditional banks are also investing in some of the most innovative startups.
In an Accenture report titled “The Future of Fintech and Banking: Digitally Disrupted or Reimagined?”, the Executive Summary reads:
Digital disruption has the potential to shrink the role and relevance of today’s banks, and simultaneously help them create better, faster, cheaper services that make them an even more essential part of everyday life for institutions and individuals.
In other words, FinTech isn’t so much threatening the existence of banks, but it is threatening their continued existence in present form. If banks are going to survive, they’ll have to adapt to technological change. If they aren’t going to be innovators, the least they can do is partner with those who are.
Bottom line: When new technologies disrupt, the smart thing to do is extend a hand. FinTech innovators need not look for a mallet in the other hand.