New kids on the blockchain

A long, long time ago, in the beginning of the 21st century, there was this thing called dot-com collapse. Yes, some big IT-based companies did fail, but the innovation spirit has survived.

Ever since, small startup businesses worldwide have been surfing the wave of the Internet-enabled business disruption. Nothing is sacred: entertainment, gaming, health, transport, accommodation and plenty of other services have been thoroughly addressed by the smart disruptors having a clear mantra: we know your pain points — so we can do it better, cheaper, more appealing, with less friction.

The only industry acting as the uncharted territory so far was banking. Because it was all about serious and complex things: money, risk, collaterals, payments, regulators, interest rates, three letter acronyms. The huge banking crisis in 2007 didn’t help the cause as well — banks, their services and products have fallen under very deep scrutiny of regulators, which added up to the complexity.

#Fintech

But for the last five years Banking Wall had been crumbling. Today one of the most popular hashtags is #fintech. The business newspapers are full of financial startup success stories, the fintech companies are heavily invested into and they are new lieblings of mainstream media — even my own father had asked me the other day what is this bitchain thing.

Worldwide global Fintech investment jumped 201% between 2013 and 2014, breaking the $12B mark in 2014 with more than 730 deals.

Disruptors that redefine banking

Small fintech companies started disrupting literally every field of banking: from prepaid cards and mobile payments to mortgages, from small business lending to invoice trading, from advanced authentication and money transfers to credit scoring. Some are even on their way to become smart retail mobile-centric banks themselves (eg. Mondo, Lunar Way, Atom, Koho, Starling, Moven, Fidor, Number26), some are offering banking services throughout Europe (eg. Revolut, Monese) or — servicing the underbanked worldwide (eg. Dopay, Oradian, Stellar, InVenture).

All over the world banks started closing down the physical branches, their usual way of interfacing with clients, and there’s a heated debate going on whether we will need branches at all in 2020.

The top 20 non-bank money transfer providers based in the UK now account for over £40 billion of foreign exchange per year, saving customers over £900 million annually, according to data compiled by FXcompared.

“It’s complicated”

Things are not going to be that easy for the blooming fintech sector though — for example, JPMorgan employs nearly 30.000 programmers and other IT employees, not to mention other City and Wall Street banks. They will not go down that easy — can you imagine their power of delivery? The only thing they’re currently lacking is — ideas.

The disruption makes them uncomfortable, so they started thinking. They started making their APIs public, started proclaiming simplification and digitalization, investing in Big data, they even started considering blockchain as a technology for mainstream banking. For example, there’s a wide alliance of major global banks (Goldman Sachs, JP Morgan, Barclays, Societe Generale, Citibank, Deutsche Bank, Credit Suisse among others) formed around the US/UK startup R3, with a clear plan to build the “fabric” of blockchain technology for banking, as well as develop commercial applications for banks and financial firms. All in all, as Brett King recently pointed out, the relationship status between banks and fintech companies would be “it’s complicated”.

All in all, as Brett King recently pointed out, the relationship status between banks and fintech companies would be “it’s complicated”.

Bring it on

What would then be the best advice to #fintech startups aspiring to have a say in financial industry? Talk to the banks constantly, mercilessly market yourselves, keep talking about the pain points and keep showing the advantages of your solutions to bank customers. Pilot your solutions, with or without banks. But keep working, keep disrupting, outside the national and regional borders. Sooner or later banks will look for the allies.

Then again, many banks are willing to step out of their comfort zone, and they are ready to embrace change from the outside world: either for the good of their customers or because they are afraid to lose both Generation Y and the Millenials to the new fintech kids.

Banks are slow, banks are bureaucratic, and major change coming from their insides is not very likely to happen. Their brands have lost the power and the appeal. On the other hand, startups are fearless, equipped with new knowledge and deep understanding of the ever changing environment; they are lean, they know how to build a brand and are ready to disrupt the crappy routines and adapt the old procedures from manual to digital. The only thing they don’t have is time to wait, those new kids on the blockchain.