Why fintech startups are not (yet) dangerous for banks

Fintech is one of the buzzwords of this year, which is increasingly being heard. Recently, a huge amount of infographics about the future of finance and banking has spread. Something from this infographic is nothing more than a collection of logos, and something is a more structured attempt to classify the new generation of players engaged in financial services.

However, they all carry the same idea: technologies are actively being introduced into banking, and unsuspecting banks will be quickly replaced by start-ups. While such sketches can be excellent attracting attention to his headlines, designed to attract attention, however, they inevitably simplify what is happening. The truth itself does not cause much concern, but it is much more interesting in its essence.

Are existing banks too big to collapse?

To get a more detailed picture of the general interest of Fintech, you first need to figure out what place is given to banks in the broader financial picture. Unlike startups, banks have been building an extensive infrastructure for decades, developing solutions for controlling legal norms, establishing close networks with other financial institutions and, most importantly, gaining the trust of consumers.
')
Startups may opt out of these fundamental building blocks, considering them unnecessary or pointing out damage to the reputation of banks during the last crisis. But the truth is that the average client is much more inclined to put their funds in a large bank than a startup that is several months old, even if they are checked by the same control and supervision authorities.

Banks have their advantages over startups, because someone has to manage the money in this world and ensure control over compliance with the necessary requirements, and creating a complete technological stack (or its equivalent) of a mature institution from scratch is an expensive, difficult and time consuming process.

Now is the time to become part of the technology sector and the financial services sector.

Probably, some initiative banks even realize that having a banking platform could be very profitable if it was made very efficiently and for sane investments.

Few companies providing various services could support today's new wave of fintech companies and the fact that they are becoming the equivalent of Amazon Web Services in the banking sector. Others may be more open to startups thanks to their own App Store, offering customers applications of startups on their infrastructure.

Regardless of how poor and unintuitive they are to use the banks' online pages and their services within applications, the vast majority of customers do not replace them with a FINTECH alternative.

Startups whose existence should be worried about banks

However, banks in the form in which we are accustomed to seeing them are vulnerable. Today’s FINTECH start-ups have learned to identify the weaknesses of banks and focus users on them, they also offer improved services and ease of use of services, not imitating banks, but creating a new layer on top of the existing infrastructure. The time will come, and startups, which are terrific tools for users, will increase the flow of money and the number of transactions that were previously carried out exclusively through banks. This can take on such a scale that customers will ultimately choose them, leaving. In this case, this could have an adverse effect on the branding of banks, the transparency of the service and, ultimately, their role in the market.

This trend is not limited to banks. Startups such as Robinhood attract investment, focusing on the millennium generation and offering free simple solutions that allow you to trade stocks using proprietary applications. These companies promise transparency and accessibility and hope to do something that used to be the prerogative of the financial-rich in public services. Compared to their services, traditional brokerage looks slow and expensive. Other newbies have chosen niches related to international money transfers, loans and payments.

It is unlikely that banks will disappear.

The most deadly startups from the point of view of banks and the most interesting for investors are those that not only became a layer on top of banks, but built their own full-fledged infrastructure from scratch. They themselves work partly as banks and do not depend on other players. In the long term, customers can hope (and banks - fear) that the one who provides us with the full range of “bank in the application” services will win.

Over time, more startups will appear in this area, including those that started as a simple user service. These startups have the greatest potential to turn the financial sector on its head. It’s not easy to see on the huge infographics of hundreds of FINTECH startups, but there are already such companies, and Adyen is just one example.

Future fintech

So in what direction are we moving? Customers, led by a non-permanent generation of the millennium, will gradually move to the services of fintech companies. However, it is unlikely that banks will disappear completely. Even despite the fact that more and more start-ups will make their way into this ecosystem and compete directly with banks, now and in the near future the majority will depend on the infrastructure of banks.

The response of banks will be mixed: some will learn to apply innovative technologies, others will copy the solutions created by start-ups, or improve themselves by absorbing fintech companies. In my opinion, at least one bank can become a real infrastructure for start-ups, and, perhaps, we will be witnesses of how start-ups themselves begin to unite to create full-fledged banking. Finally, we will see the arrival of new players in the guise of large technology companies. Apple, Google or even PayPal can start to strengthen their relationships with users by providing financial services, eliminating both traditional and new players from the game.

Now is the time to be part of the technology and financial services sectors. We are no longer impressed with the number of new FINTECH start-ups on the charts. Now you need to start talking about the future and think about how to come to him.