FinTech alliances to compete with banks

by: Indrek Neivelt

Despite of digitalizing retail banking distribution network, bank´s business model remained the same or became even more complicated. This business model was set up when banks had branches as a core of their business and they served mainly enterprises.

Universal banks have too many products and too many different segments. This makes them too complex and costly of course. But they are making changes. Financial sector is waking up. They are streamlining their product lines and internal processes. They started to disinvest part of their businesses. And they have substantial resources for changes. This is the reason I do not believe that financial sector will be fully disrupted. Banks will become more focused and specialized. They will become less complex which make them more efficient and they will become more innovative. They will become smaller, but they will remain in the business. Only relationship banking and deposits under insurance coverage will remain in banks.

From the retail customer point of view financial sector will become more competitive. As a customer you will have payment account for your everyday transactions in the payment institution not in a bank. This payment solution will be comfortable, easy to use and accessible by mobile devices. For these transactions which you make once or less in a year you will choose the best solution among several financial institutions. For this customers will have different aggregators or brokerage firms. But most importantly: customer will choose the best product and the best price from the different players.

In order to compete with banks FinTech companies should co-operate and create alliances. This will make customer acquisition cheaper and will create an alternative to universal banks. Every market participate (customers and FinTech companies) will win from this co-operation.

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