A little healthy competition never hurt anyone. Unless that competition comes in the larger than life form of fintech – then, if you’re a bank, big or small, it’s adapt or die. Over the last few years we have watched the slow growth, evolution and adoption of technology in the financial services industry. While massive adoption and acceptance of technology in financial services has been taking place over the last couple of years, in 2015 and 2016 fintech exploded, coming on to the scene with such force that America’s biggest banks were pushed into a full blown panic, causing massive disruption in the industry. Early reports on the rocky fintech-banking relationship proclaimed that this could be the end of banking as we know it. While that is likely true, it’s starting to look like fintech innovators and banks could be moving toward forming very unlikely alliances, pushing financial services to become more customer-centric than ever before.
The Tipping Point
Digital revolutions have been consistently occurring over the last few decades in a slow but systematic process. The smartphone is a perfect example – the tipping point came when the smartphone so obviously transformed everyday life for consumers. Fintech, slowly and now very suddenly, is following the same path as the smartphone, and the tipping point is here. Consumers and investors alike, now demand not only ease of use, but a digital interaction with their finances – one that wasn’t previously provided by their banks. Fintech startups, and those that are well-established in the marketplace (i.e. PayPal, Mint, LearnVest, etc.), provide just that. Lucky for consumers, these trailblazers not only provide a much-needed service, but they are bringing investors’ needs to the forefront of banking, placing tremendous pressure on an industry that has not undergone a transformation of this magnitude in decades.
Friends or Foes?
Banks have admittedly been caught off guard by the digital revolution, and the explosion of fintech has them racing to make up for lost time. Fortunately for banks, fintech firms have come to the conclusion that to make it big in financial services, they need to partner with their more traditional predecessors. The result? A very unlikely alliance where banks can provide infrastructure for startups and competition for clients is diminished. Even more important for new businesses on the scene, these partnerships are leading to massive increases in cross investments between big banks and fintech startups, just in time for fintech to experience its first rocky patch in the marketplace.
Some of the largest fintech stocks have fallen roughly 50% so far in 2016 and record-breaking IPOs are becoming scarcer. Square is a great example with its stock falling not only below its IPO price but by 33% in just weeks in early 2016. While some fintech startups may have previously been “antibank”, the last year has many considering partnering with banks, which have historically proven themselves as sustainable businesses. And while partnership isn’t the only option for banks, it’s also becoming more attractive as a means for staying competitive.
10 Year Forecast
This continues to be an exciting time in the financial services space, particularly when it comes to banking and fintech, and lucky for us, we don’t expect the revolution to dissipate anytime soon. Looking ahead to 2025, Tech Crunch expects that banks will look vastly different. They’ll begin to transform the way that they operate and how they interact with their consumers, placing user-experience at the top of their priorities. Fintech has dramatically shifted the expectations of investors and in order for banks to stay relevant, they have only a few options.
- Develop their own competitive solutions
- Acquire fintech startups and incorporate their platforms
- Partner with fintech firms
Partnerships like J.P. Morgan Chase’s with startup OnDeck is likely a sign of what’s to come from big banks.
Unfortunately for banks, the revolution doesn’t stop with fintech startups. Social platforms like Snapchat and WhatsApp are quickly expanding their commerce capabilities, which will again force banking to face a new kind of competitor in the near future.
Adapt or Die
Luckily for investors, it’s becoming increasingly apparent to banks that they will be required to adapt or die – placing their customers before all else. While we don’t expect to see any of today’s big banks disappear due to pressure from fintech startups, we do expect the majority of them to undergo a full transformation in the next decade.
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