David Fintechs vs. Goliath Banks
-by Kiran Kalmadi and Durga Prasad Balmuri
How many of us know that 'Minions' which released in 2015 is a prequel to the 'Despicable Me' which released in 2010? Likewise, how many of us know that this blog "David Fintechs Vs Goliath Banks" is a prequel to the blog Robo-advisers: Terminator or Transformer? We are just not stopping here, and likewise the trend of sequels, we have our sequels lined up too. Keep watching this space for more!
It's a battle out there. The financial services industry is witnessing an on-going battle between David fintechs and Goliath banks. Fintechs are building new business models and generating new revenue opportunities by leveraging technology, thereby compelling banks to rethink their business models. Mobility, big data, cloud, personalization, convenience, security, etc., are just some of the weapons in the fintech armory that are giving them the competitive advantage. And that is why banks are getting restless and anxious to compete across various business segments; be it lending, payments, or wealth management. To add to the woes of banks, fintechs are simultaneously investing in many other areas including - but not limited to - credit scoring, personal financial management, biometrics, risk solutions, etc., and the list only keeps growing with every passing day.
Does this signify the end of the road for Goliath banks? After all, these institutions face many challenges, such as regulatory restraints, dismal innovation culture, long development cycles, legacy problems, etc. Thankfully, all is not lost. To stay relevant and competent, banks must leverage cutting-edge technologies to innovate and meet the never-ending, constantly changing demands of the customer, in addition to reducing costs and improving effectiveness - all of which fintech firms are already doing at a faster clip, thanks to their nimbleness.
In fact, many of the traditional banks are taking concerted efforts to take on the competition from fintechs through a collaborative route. They are increasingly investing in start-ups (for instance, Goldman Sachs invested in the likes of Square, Circle, Motif Investing, Bluefin, and many more), setting up innovation labs (UBS, Citigroup, Commonwealth Bank, etc.), launching start-up accelerator programs (Barclays, Nordea Bank, Wells Fargo, etc.), and organizing competitions (American Express, RBS, etc.). Banks have woken up to the fact that they need to innovate and respond as fast as fintechs do. Bill Gates in the '90s said, "We need banking, but we don't need banks anymore." If the Goliath Banks do not take the challenges posed by the David fintech firms seriously, Bill Gates' words could become prophetic in the years to come.