Bank Betterment & Bank Breakers.

A Fintech story of Boats, Banks, Icebergs & Orville.

Bank Betterment and Bank Breakers.

Firstly, I want to point out that as ‘Fintech’ is such a catch all phrase for a MASSIVELY diversified sector, this article is written with Commercial Banking (lending, payments, FX, Trade, liquidity) as a focus, but broadly Betterment vs Breakers applies to most areas.

Bank Betterment is the Fintech that partially or fully requires banks to enable their improvement of traditional products. Bank Breakers are those re-designing Finance to create entirely new operating realities.

Both sectors are trying to solve the same problem, the notion that our Global Financial System is inefficient/broken/evil and ripe for change….but are coming at it from two different angles, evolution & revolution. This article isn't about picking winners & losers (we can do that another time) but I hope it will be useful to set a landscape & context — so to do that I’m going to seek parallels in a battle that’s already played out, passenger shipping.

Not because you really want to, but because you don’t have much choice.

UK Banking is the modern day White Star & Cunard. The largest Banks (Barclays, RBS, Lloyds, Santander, Nationwide & HSBC) all enjoy a historic monopoly — accounting for 70% of lending to ALL UK businesses, 85% of SME lending and 50% of all consumer credit. When you add in the fact that those Banks also own a whopping 93% of the Bank Account market for all consumers & businesses, the lack of real choice is staggering!

Bank Betterment delivers its services, by acting as a parasite on Bank rails.

It’s not the prettiest terminology, but it’s not far off. Theoretically it hurts Banks when Fintech hacks its infrastructure to dis-aggregate their customer relationships, but on the other hand these aggregators can act as enormous customer acquirers and be extremely lucrative clients for banks who’s ‘rails’ they rely on (and pay for) — there’s a rough balance in opportunity & threat.

Is Bank Betterment Fintech the messiah or just a very naughty boy?

How will Banking react? Lets see if 20th Century Shipping has any insights for us…

So how did the big shipping companies respond to these ‘challenger boats’?

Broadly in two ways — in 1908 White Star set to work designing The Titanic, a vessel that none of the challengers could ever afford to build. Titanic would compete on unparalleled luxury and it’s design would be so fantastic that it would be quite literally ‘unsinkable’. Cunard meanwhile worked tirelessly to make their new boats faster and more comfortable, investing heavily in engines and design to strive towards the much hallowed Atlantic crossing time of 5 days!

Pressure from Challengers competing to deliver the same commodity eventually leads to a race that only the customer wins.

The fate of White Star’s Titanic is obviously better known, unfortunately for them and the passengers aboard that maiden journey, it’s because their unsinkable ship was abruptly disrupted by an Iceberg.

So is Fintech going to give Banking it’s Titanic moment?

I've heard a lot of pundit’s looking at Fintech Betterment like it’s the iceberg that will eventually doom Banking’s Titanic… but sorry to disappoint the doomsayers, that’s just not going to happen.

So if Fintech isn't the iceberg that will derail Banking, what is it?

Five years before workman had even put a rivet in the Titanic, although no-one could see it at the time, the Trans-Atlantic passenger route was already doomed.

Cunard’s record for an Atlantic passenger crossing peaked at 3.5 days in the 1950's — Concorde’s is 2.52 hours.

We are undoubtedly at the cusp of a revolution in Financial Services but it’s a battle of two overlapping stages. Bank Betterment is a potentially enormous industry that Banks have every right to fear to avoid being demoted to ‘dumb pipes’ and to sort their acts out in the process. This innovation & improvement class for traditional financial services will deliver better, cheaper, faster banking & will delight a lot of customers and no doubt produce a lot of Fintech millionaires….but could well result in some parts of the Banking Industry eating itself (do we really think we’ll be paying to make payments in 20 years!?)

But you won’t find many Orville’s in Bank Betterment.

The Bank Breaking Orvilles are those weirdo’s you call crazy when they tell you Block Chain tech changes everything… but don’t lose too much sleep tonight because they've only really managed their first 12 second flight.

Director @taulia in London. Former Tech & Treasury Banker with @svb_uk & @JPMorgan. Fintech, Innovation & Social Enterprise advocate.

Director @taulia in London. Former Tech & Treasury Banker with @svb_uk & @JPMorgan. Fintech, Innovation & Social Enterprise advocate.