All this started with a tweet by Chris Gledhill:
I agree 100% with the idea that the whole idea of banking and what it is to be a bank will change completely in the next years.
I just looked around what “traditional banks” do at this point, in this era of post 2008 crisis of the banking sector and emerging of fintechs.
- All banks charge you for your current account. Most of the fintechs give this for free. They even throw in one or two different currency IBANs. Heck, there is a new bank Bunq that gives you 25 IBANs to start.
- Under 1% rate for deposits, so keeping your money in a bank from investment point of view is no different than keeping your money under the bed. There are Fintechs that offer more or they act as a broker so you get the most of every penny you “park” in a bank .
- Some banks, give some credit, with 5 or 6% interest. A lot of the banks have so strict criteria for credits, that almost no start-up or young people qualify for credit. How can they compete with all the crowdfunding schemas that provide virtually free investing money to start-ups?
- Banks suck at payments, most of them are really behind the fintech world. When new payment schemas are pushed to the market by regulators (real time payments, direct debits , electronic mandates) most of the banks are very slow to onboard to the new schemas. On the other hand fintechs are the first to request to be members in any new payment initiative that appears in a market.
- Banks suck at UX/UI and usability of internet banking. Here is a no contest land where fintechs dominate.
- Banks suck at user support, they are miles away from the social media oriented support of the new fintechs.
At this point if you do not need a credit or some more complicated banking vehicle there is no reason to use an “old bank” instead of a new “online bank.” It is sometimes even safer and cheaper to go with the new challengers.
This days, one very underrated thing in banking is customer care and product overspecialization. The new fintechs start to win at this game and the “old banks” are completely lost. They sit on a mountain of historical data but fail to interpret it.
If you want to assess the financial behavior or the real financial situation of someone or its credibility and ability to repay a credit, short term data has only low relevance.
For product overspecialization a good data-set and an intelligent analytics applied to that data is extremely important. Imagine that I get an offer for a car financing just in time to buy my new car, because the bank knows I change my car every 5 years :).
Most of the banks have that information but they do not use it. For too long, they got the easy money :).
So how do I think this will change?
Banks will be forced to become technology first and data analytics companies or they will simply die, like the dinosaurs, unable to adapt to the new environment created by a comet hitting earth. Yes, the technology revolution and the rise of fintechs can be seen as a comet hitting the planet Banking.