English | EN How #fintech companies disrupt banking
Mar 4, 2015
We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information. You shouldn’t need 100,000 people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment.
These are the words of Marc Andreessen — one of the founders of Netscape and nowadays venture capitalist in companies like Facebook, Skype, Twitter, LinkedIn and AirBnB. His words started an explosion of FinTech-startups. Recent research shows that global investment in FinTech is set to double from $10 billion in 2014 to $19.7 billion in 2015. By 2020, the total is projected to be $46.1 billion. The FinTech scene is so hot, it’s boiling.
Banks are getting undressed
The total service offerings of banks are stripped by the FinTechs. Or “unbundled” as the VC’s from Silicon Valley like to say. Parts of the bank are turned into stand-alone products that are delivered to the consumer at a scale and cost that no traditional bank can match. This unbundling happens on two fronts. Top-down there are FinTechs that piggy back on the traditional payments and transaction solutions for fiat currencies. On top of these networks they focus on “enhancing customer experience, increasing convenience and streamlining the process of using bank and card payment networks.” The downside of this development is that banks loose their ability to manage customer experience by themselves. Banks are moving to the bottom of the value chain.
Bottom up FinTechs are threatening the market from a cryptocurrencies-point of view. They not only bring Finance and Technology together, but also reinvent the entire financial system. It’s a complete new network protocol that allows value to be exchanged without the need of a trusted intermediary. In this scenario banks hardly play a significant role anymore.
Data storage comes to the rescue
In both cases, fiat or not, the game is about the bits and clicks behind the money. That’s what make banks stand out: one big data engine, a digital vault with values and risks that are used to turn the wheel of digital transactions around. The Big Data-platitude “data is the new oil” must be taken seriously. If data becomes more important than money, than banks have a huge opportunity laying in front of them.
Consumers don’t trust Facebook, Google, Twitter etcetera with their financial data. In the eyes of these technology companies we’re just the product. One of the things that banks have is trust and resilience. With all the cyber security risks that’s incredibly important. It gives banks the opportunity to become the guardian angel of people’s data.
Santander is the first global bank that is radically changing its course. It will offer cloud data storage services to its corporate clients as it fights back against the competitive challenge posed to its business by some of the world’s biggest technology groups like Apple, Facebook, Google en Amazon
The definition of what a bank is and what a tech company is becomes more vague. But do not blame Santander. If anyone can build a bank by using new technology, why doesn’t a bank concentrate on its core business: protecting valuables?
Bank to the Future
The bank of the future is a databank. Banks can use my data — if permitted — to fulfill my deepest needs in realtime. Thanks to an increasingly intelligent and intuitive network a bank can link up perfectly with the extremely personal and natural interfaces of individuals. Like in the movie Her, the digital representation of a bank can be become my best friend in life.
Conclusion
The function of money — a medium of exchange, a unit of account and a store of value — hasn’t changed in the course of years, but new technology has changed the way financial institutions interact drastically. Banks need to embrace these innovations in order to reinvent themselves. It’s Digital Darwinism: adapt or die.
About the author
