Are Banks Facing an "Uber moment"?
Earlier this year, at the World Economic Forum in Davos, Bank of England Governor Mark Carney told a room full of the most influential voices in business and economics that we’re now looking at “an Uber-type situation” for banking.
Just as the simple car-hailing app is revolutionising personal transportation, Carney sees an “imminent” threat to established banks from unregulated, disruptive financial technologies. Taxi companies in major cities are on their knees, all thanks to Uber. Similarly, many analysts and media outlets are predicting a decline in the importance of traditional financial institutions in the next decade or so. This is, they point out, because new financial technologies will lead to the disintermediation of banking services in both a personal and business context.
There’s certainly something relentless about the rise of the financial technology ('FinTech') sector over the last couple of years. In fact, FinTech is expected to grow by triple-digits in 2015. It's industry worth is forecasted to be $19.7bn later this year. The question is: will it kill the banks, or save them?
FinTech is currently experiencing a dot-com-like fintech growth spurt. Accenture recently reported that the $2.97bn invested in FinTech in 2013 had tripled to $8bn in 2015. Growth of this nature might be unsustainable, but there’s little doubt that it will be disruptive. Compared to other sectors – retail (Amazon), music (Spotify), hospitality (Airbnb), etc. – finance (and banking in particular) have so far seen relatively little big-scale technology-driven change.
Yet the opportunities for new business models to deliver better customer experiences, value and margins are immense. The industry – and, often more vocally, its customer base – is ready for some kind of revolution.
Thanks to the global importance of the British financial services sector, a digitally-confident home market and London’s emergence as a centre for many pioneering technologies, some of the leading disruptors are to be found in the UK - including more than half of the FinTech50. Some of these companies - whether based in London, Berlin, Stockholm or Amsterdam - already appear to have the potential to threaten at least some established banking services, especially in peer-to-peer finance.
Truly data-driven business models are perhaps the single biggest difference between the traditional banks, still mostly making money through transactions, and the majority of FinTech innovators. In the digital economy, adding value to information is how firms like Uber, Spotify and Amazon are becoming global near-monopolies. All of a sudden, the idea of a 'Facebank' is not so far-fetched. The potential for Carney’s “imminent” Uber moment is undeniable. Could that mean the end of banks as we know them?
Actually, as Symbid recently showed in an infographic, banks are responding proactively to the FinTech boom in a positive way. Accenture, Barclays, Santander and many other established players are sensibly looking to benefit from this boom by investing in and partnering with the disruptors. In exchange for incubating and supporting these young FinTech companies, the banks are able to learn from their processes and adapt their own business models and the services they can offer their customers accordingly.
The complexity of global banking regulation will, ironically, maintain the status quo for longer than in less-regulated sectors. FinTech innovators will undoubtedly become more tangled in bureaucratic red tape as they grow. It's likely that the current speed of change in FinTech is unsustainable - don't expect it to triple every year - and unpredictable booms and busts may occur.
Nevertheless, the FinTech boom has increased the level of innovation in finance enormously. The new emphasis on financial technology is forcing the old players to work harder to stay relevant. Ultimately, this means their customers can look forward to better designed products, greatly improved service and more profitable businesses in the very near future. Maybe we don't even need an Uber moment after all.
Symbid recently won the Dutch FinTech Award for SME Finance. Get the full story here.