• Break it Up! Are Banks and FinTechs Really at War?  
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Break it Up! Are Banks and FinTechs Really at War?

Every good hero needs a great arch-enemy. Would Batman be so iconic if he didn’t have the Joker to tangle with? Would Sherlock Holmes seem so smart if Moriarty hadn’t been around to stretch his investigative intellect?

And what about FinTech? Does the evolving story of start-up success and struggle need a counterpoint to channel its energies against? And, if so, should the “big bad” banking industry assume the role?

A quick search for stories relating to FinTech and banking turns up plenty of results that suggest the two entities are locked in war. Just last week, FT.com ran an article which referred to banks as “huge whales – sprawling businesses built over decades that make them seemingly impenetrable to … technological disruption,” before contrasting them with FinTech startups, depicted as “nimble piranhas, each focusing on a small part of a bank’s business model to attack.” FinTech’s aim, claimed the author, “seems to be to inflict death by a thousand cuts,” concluding that banks “could suffer from a slow bleeding of their overall revenues.”

Piranhas. Bleeding. Death. It’s not a pretty picture, but it’s also not an uncommon take on how FinTech and banks relate to one another.

As with any perceived conflict, the rhetoric of opposing sides can become over-simplified, i.e., Banks stupid, FinTechs smart. Financial commentator Chris Skinner argued against this kind of thinking recently; “So many blogs talk about how banks don’t do this, or don’t do that, fail at this, fail at that, have no idea, cannot change, are stuck in the past…” he points out, before asking, “Do any of you, or us, really believe this? … These are intelligent people and these are intelligent businesses … They understand that FinTech is changing the market for good…”

Global investment in FinTech tripled from $4.05bn in 2013 to $12.21bn in 2014, with much of that money pouring in from banks. While some argue this represents financial incumbents hedging their bets rather than executing clear strategies, it at least backs up the notion that they are aware the game is changing and they can’t afford to be left behind. In a report on The Future of Fintech and Banking, Accenture highlights another common trend: “Collaborative engagement with startups has already become particularly popular. Take the FinTech Innovation Lab model, which brings together multiple banks to collaborate and provide mentorship to startups that could potentially help their businesses.”

Collaboration. Mentorship. Help. Are those three words a more accurate summary of how banks and FinTech ventures relate to one another today?

The notion of FinTech and Banks being locked in battle was referenced in the headline of a recent blog post on Daily Fintech, which read: “Media hypes Banks vs FinTechs, but real battle could be big banks vs small banks.”

Correspondent Banking as one example of an established practice that is ripe for disruption
The article imagines possible futures for Correspondent Banking—in which financial institutions around the globe partner to carry out cross-border payments—and explores how changes to the way those payments are made might affect relationships between big and small banks. The diagram below gives a basic overview of how Correspondent Banking works, but conceals the related problems.

Correspondent banking image

As each bank in the correspondent chain (there can be several) does their bit, the process can become expensive and slow for customers. One FinTech startup describes the whole landscape of Correspondent Banking as “convoluted and inefficient” and akin to “endless variations of band-aids on a global system that’s anything but global.”

Correspondent Banking is just one example of an established practice that is ripe for disruption, and its related issues are a great example of why FinTech startups start up in the first place! If new technology innovations can make something like convoluted cross-border payments a thing of the past, then there will be more winners than losers in the battle to reshape the future of finance.

So if banks truly understand their need for FinTech, and FinTech can really help banks transition into the successful digital future they crave, there should be less talk of piranhas, bleeding, and death in the future, right? Well, that probably depends on how much you agree with those two statements—and whether you prefer fighting talk to playing nice!

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