Digital Transformation Fintech

« Fintech », opportunity or threat for traditional banks ?

“Fintech” have an increasingly important place in the banking sector. They support their development on mobile technology and cloud computing for highly innovative banking and financial services. But overall, changes of customer behaviors (connected, geolocalized, social network users etc.) have boosted their emergence.

Customers consume more and more services developed by “Fintech” (2/3 of the banking customers in the world). Trust in new actors is increasing, which makes the risk of disintermediation more and more real for traditional banks.

HSBC, BNP Paribas and other traditional banks are afraid of losing some of their business due to this disintermediation. They believe that a quarter of their current business is threaten. Personal banking and payments are the sectors most affected by « Fintech »’s offer. The threat is primarily seen as pressure on margins and a risk of loss of market share.

Adding to that « Fintech » succeed to diversify their activities, we can see below on the diagram their different activities :

 

Sans titre

by Lucas Salvadori

 

Here we have a sample of various « Fintech » offering different services in Mobile point of sale, Mobile payment system and digital wallets.

They also provide tools for financial decision-making. We note that there are three main types of « Fintech » providing these kind of services:

 

  • « Comparison engines » that allow consumers to compare financial products and services to find the one that best suits their needs. (eg: Kanetix, check24, Findbankrates, Banktracker, MoneySupermarket, Finance Scout 24 etc).
  • « Digital money manager » to help the consumer to manage his expenses and budgets (eg: Mint, Hellowallet, kontoblick, tink, Money Dashboard, Afas Personal Bankin’Ontrees etc).
  • « Digital finance advice », these « Fintech » offer consumer advice in terms of financial investment through software that analyzes its expense. (eg: Learnvest, MarketRiders, Jemstep, Personal Capital, Eyeopen, Planwise etc).

 

 

« Fintech » expand exponentially and meet perfectly the new needs of the consumers this is why their integration into traditional banks through the creation of partnerships or through acquisitions can ensure that they remain in the pace of competitiveness of the digitization process.

In fact, traditional banks are slower concerning the « digital transformation » and less innovative.

One of the keys to the future of traditional banks seems to be collaboration with Fintech. This induces 3 types of connections:

 

Partnership, eg: La Banque Postale with KissKissBankBank

Acquisition, eg: BPCE bought the potcommun.fr

Incubation (internal development), Barclays with a start-up specialized in bitcoins exchanges.

 

Traditional banks benefit from a very strong competitive advantage: a physical branch network. This advantage traduce that «Fintech » are not able to replace banks because the physical dimension will always be important in banking sector. Thus, banks have to see « Fintech » as an opportunity by collaborating with them, to offer new services but overall, to create innovation.

 

About the author

Lucas SALVADORI