Fintech a challenge to banks?

Interesting take by Chris Skinner on whether Fintech actually poses a threat to the established financial institutions. In short: no.

While financial technology firms can undoubtedly shake up the market and given consumers more options, they pose little threat to traditional banks. Banks have a few things going for them that make wholesale changes unlikely, even in the face technological innovation that is long overdue.

“Has any bank failed by not taking on board technology fast enough or betting on the wrong technology? Not yet. This is because they’re firms based upon technology, but they are not pure technology firms.”

Great point. New firms are, for the most part, selling themselves on their technology as opposed to their function (what banks currently do). If their technology fails, they fail. If a bank’s tech play fails they always have their function to fall back on.

“I would love to believe it would happen but the more that banks get disintermediated, the more they adapt and change. They have the luxury of time to adapt and change because the regulators step in and try to work out what model of banking is being impacted by the change demanded of the disintermediator.”

Governments support and protect banks because their function is vital for society. This means that change is slower to come about due to politics and regulation, which plays to a bank’s favour.

“These latter industries [book shops, record stores and travel agents] acted as intermediaries of things that could be digitalised without any requirement for human activity in-between; banks believe that they need to digitalise but that there will still be a requirement for human activity in-between.”

So long as the concepts of mortgages and investments have super long disclosures and vaguely-phrased ideas will the branch still exist. People still appreciate having the option to seek advice in-person.