words Al Woods
The big banks have weathered every major financial event of the last century and are better off for it. Technology, the great disruptor, is the latest threat to their stability, and the big institutions are taking note – the New York Times have noted, in particular, small steps being made towards the use of cloud computing in financial operations.
While the banks cautiously catch up, financial technology (fintech) accelerates at a tremendous rate – the question, however, is whether it’s too little too late. A few key trends are mapping the move away from conventional banking into the technology-led sphere.
Banks, and especially the oldest and most settled institutions, can be reluctant to share their data and technology. While this helps in defending against cyberattacks, there is an argument that they may fare better by sharing at least some detail. According to Business Insider, transparency has become key to banks looking to develop their digital trust – consumers need to have trust in the institution in order to have trust in the applications they are now proposing. Trust is important for banks; it’s at the basis of the entire banking system and studies have shown that big banks have lost trust from the years of the most recent financial crash onwards. Startups, without that baggage, have a head start when it comes to consumer trust.
As well as commanding a better degree of trust in their tech, startups also have a greater level of sophistication in their platforms. Experts, including one financial guru writing for Newsweek, believe that cryptocurrencies and fintech will force the banks to become sophisticated – but without actually taking their share of the market. In reality, it could go either way. Banks may create a superior level of tech but may also flounder and be rapidly outgrown by the fintech startups chasing their corner of the market.
The state of play
Currently, there’s huge interest in alternatives to the classic banks and that’s leading to a surge in growth for these digital banks. The Financial Times London recently reported a significant stake that Chinese media firm Tencent had invested in $4.5 billion British challenger bank Monzo, who plan to expand into the US. Other US players, like SoFi, Axos and MoneyLion have continued to eat up shares of the market that the big banks previously occupied, and have also plugged an important gap – alienated customers. ‘Second chance banking’, where bank accounts are issued to individuals with poor credit or banking histories, are an invaluable and entirely open aspect of the market that is only now being tapped.
The big banks need to recognize this slip before it becomes fully blown. The technology and marketing that smaller and more agile banks are utilizing is running rings around the bigger banks. As cryptocurrencies become more prevalent and more intuitive ways of working are required, the startups will flourish where banks have taken their market share for granted.