Banks and the Financial Technology Start-ups (FinTech) Challenge

  The financial services industry is in the middle of a digital revolution that represents a major change in banking for centuries. In most financial jurisdictions, FinTech start-ups present a credible threat to conventional banks. Using a combination of technology, consumer-centric service and flexible business practices, these new companies are reducing the cost of doing business, extending their customer base and taking market-share from established rivals. To retain market share, incumbent banks are looking to change their operations to compete, or considering collaboration with the very businesses that threaten them. Recent research suggests that the FinTech market is reaching the next level of maturity and moving into the mainstream. Technology giants such as Google, Apple, Facebook, Amazon and Alibaba (GAFAA) are redefining the customer experience and increasingly playing around the periphery of financial services. In addition, the growth in FinTech presents a unique challenge to conventional banks as technology has reduced the barrier of entry to new entrants, although, this challenge may be different for different regions. Local legislation and cultural differences mean that banks are taking different approaches in their respective regions to respond to these digital disruptions from FinTech start-ups. As with any evolving marketplace, the nature of the emerging relationship between FinTech and banks is still unclear. The main points of contention are: 1. Do these FinTech start-ups have the financial muscle to challenge conventional banks? 2. Can the size of the incumbent banks including their complex corporate structure allow them to compete favourably with these agile new start-ups? 3. How should banks reposition themselves to be net-winners from digital disruptions?