“Banks have little to fear from this particular group of payment innovators. Some solutions actively support the established payment systems, in particular cards. Others are expanding the market by enabling payment transactions in places where they may not have been possible before.”There is no question that the pace of innovation has increased in the last five years since that quote. However, today we also have many startups and Fintech companies that are actively serving banks with their technology tools (from authentication and fraud management to back- and middle-office systems). Others, such as Apple partner with banks to develop propositions that “wrap around” a card transaction. In the last few months, we have also noticed an increase in stories around collaboration between banks and Fintech. Most payment unicorns (private companies with valuation of over $1bn) achieved their impressive scale and valuations mainly by competing with banks in a specific niche and focusing on being the best in class in that area. Often, it is in merchant services, such as those provided by the likes of Stripe, Adyen, Square, and Klarna, while TransferWise is successfully attacking banks in the international payments market. Yet, even among the unicorns there are those that have chosen to partner with banks, such as iZettle which has partnerships with Nordea, Santander, and other banks in Europe. TransferWise, a unicorn that has long been positioning as an alternative to banks, is now partnering with LHV, an Estonian bank, to offer its service via the bank’s online and mobile channels, and is rumoured to be in discussions with “up to 20 banks” about adopting its API. The Wall Street Journal recently quoted Ben Milne, the CEO of Dwolla, as saying, “Time humbles you. Working with banks is the difference between running a sustainable business and just another venture-funded experiment.” It has become fashionable to pronounce the death of banking. The disruption caused by Fintech is supposed to blow the old-fashioned banks out of the water. Of course, we acknowledge the disruption and recognise that banking is changing. We simply don’t agree that banks will disappear — at least not all of them:
- Today’s smartest banks will figure out a way to stay relevant for their customers.
- Some of today’s disruptors are becoming banks (e.g. Atom, Mondo, Starling in the UK)
- Both Fintech and banks are starting to acknowledge the value they each bring to the relationship and will learn to collaborate effectively.