Why Fintech will eat Banks Lunch

Millennials don’t really like banks. According to the Viacom millennial Disruption index, a study carried out over 3 years covering 10K+ respondents, banks were the least loved brands by millennials — as per the study more than 70% of millennials would rather go their dentist than to a bank — Ouch!

So why does my generation dislike banks so much?

Because for years they have functioned as governments — we pay’d them fees/commissions, deposited money with them, only to be treated with a poor customer experience and little or none financial returns. In the Viacom survey, 73% of respondents are looking for the likes of google, amazon, paypal, stripe etc. to release products with which millennials can substitute their banks.

Disrupting Banking is not easy but it definitely not impossible

The biggest blockers startups face is not in finding what services or products to offer but really is the heavy lifting to be done with: regulation, integration into the core banking system and compliance & security.

One model that is helped startups relatively overcome these blockers has been partnerships.

For example, German startup Number26, an online only bank, did this by partnering with Wirecard a payment service provider with a banking license and Mastercard. Partnering with service providers that are already in the core banking system helps startups scale quickly and focus on what matters most — the customer.

Banks are also getting into the startup game

Banks like Barclays and BBVA are naturing startups via accelerators (e.g. Barclays Startup Accelerator) and investment funds (BBVA invested and kick-started the fintech VC fund Propel with a $150 million investment) so they can be part of any innovation and disruption that happens in the sector.

Banks have begun to realise that their cake is going to be eaten sooner rather than later and have begun to adopt innovation either through investments, incubation or by changing themselves into being more consumer focussed.

In the meantime, investment into Fintech will only grow

Between 2013 vs 2014 investment into fintech increased four folds from $3 billion to $ 12 billion. Goldman Sachs has estimated the emerging fintech industry could snatch more than $4.7tn in revenue and $470bn in profit from traditional financial services companies.

But wait, ex-bank bosses too are investing their own money into fintech startups

Hans Morris, ex-VISA president invested in companies such as Indiegogo (Crowd Funding) and Lending Club (P2P Lending). While, Vikram Pandit, ex-Citi CEO too has invested in companies such as Orchard (a data and infrastructure provider for the marketplace lending sector) and MMKT Exchange (technology to improve liquidity in the secondary market for loans).

The turn in financial services has been long overdue and things can only get better for customers in the coming years.