FinTech: Disruption, Evolution or Something else?

Where will you do your banking?

One of my favorite reads is FinTech guru Chris Skinner’s blog TheFinanser.com. Chris knows a great deal about both finance and technology. I find that his blog lets me improve my understanding of technology in finance. In a recent posting “Bye-bye FinTech”, Chris raised the same question that many of us have been thinking. Are the cool jean-clad dudes in lofts coding really going to slay the legacy banks? Indeed, the FT recently pointed out that “Fintech users just can’t get enough of traditional banks”.

When considering a coming recession, Chris asked what will happen to the loft dwelling FinTechs? Well, that depends on how much cash they have. Weathering a downturn will take lots of cash. And, older people know why Willie Sutton robbed banks, because that is where the money is! So Chris’ first warning is that FinTech firms are at risk in the next recession. That will depend on how sticky FinTechs are compared to legacy banks.

His second warning is that access to a cash lifeline will have a great deal to do with customers. That is where stickiness comes in. It is not yet clear if FinTechs can keep their customers when times are good. What about when times are bad?

Next comes technology. Do we really believe that the banks are dinosaurs happily gamboling along unaware that an extinction event is imminent? Nope, they are investing. Sometimes they are buying or creating their own FinTechs as Bank of America, BB&T, Capital One, JPMorgan Chase, PNC Bank, US Bank, Citibank and Wells Fargo have done with Zelle. Or there is the collaboration between a large banking consortium led by HSBC and Standard Chartered to create the trade finance platform eTrade Connect. Then, there are all of those banks quietly outspending their agile, erstwhile competitors. You know how that works, the elephant has no idea that it crushed an ant.

And, then there are the FinTechs that would be banks. Pity the pain that Revolut is going through to become an American bank: Physical headquarters in downtown San Francisco; staffing like bank of America which was once headquartered in downtown San Francisco; and, all of those regulations. Life was surely more fun when as a techie, it moved fast and broke things. Now, as a bank, it must prove that it can’t break.

So the FinTech story has two parts. Absolutely everything in finance is becoming “FinTech”. And, legacy players are not as disadvantaged as the disruptors imagine.

Inspired by https://thefinanser.com/2020/01/bye-bye-fintech.html/ as Posted on: January 15, 2020

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