There’s a lot of discussion about FinTech and what it means to banks. Originally, everyone was talking about disruption, disintermediation and dissing banks. Then the discussion went to incumbents versus start-ups. Then it ended up last year about partnering and co-creation.
I personally believe most of the discussion is off-beam and off-track. For example, there was an interesting report from Accenture last year entitled: FinTech - did someone cancel the revolution? The report explores the idea that the big vision of FinTech has fizzled out, but concludes as follows:
The reality of the Fintech scene today is that its full impact can’t yet be predicted. When Zhou Enlai the Chinese Premier said ‘it is too early to tell’ when asked if the French revolution had been a success he was actually referring to the 1968 disturbances. His sentiment can still be applied to Fintech. This revolution has not been cancelled, the old world is indeed changing, and the financial services industry will still be living in interesting times for some years to come.
Some built upon this report to say that the “FinTech revolution hasn’t been cancelled, it’s been co-opted. Startups that once aimed to disrupt big financial firms now partner with them.”
Yes, but I think both miss a key point and I keep coming back to it: where we apply technology to make a faster horse, we fail; where we apply technology to build a new business, we succeed.
Many of the FinTech start-ups have ended up partnering with banks, because they are trying to make the existing business more efficient and effective. A good example is the Regulatory Sandboxes developed by national regulators to aid speed-to-market for FinTech start-ups. Most of the start-ups that qualify for the Sandbox are focused upon one of two things:
a) reduce costs and inefficiencies in the existing bank processes
b) improve the customer experience and access to information for the customer
The former camp is illustrated by firms focused upon things like KYC (Know Your Client) and AML (Anti-Money Laundering) or firms like Transferwise and Zopa, reducing costs through peer-to-peer connectivity; the latter camp is all about using data better, such as how Monzo runs their financial app or Loot delivers cashflow forecasting and personal financial management to millennials.
These are faster horses.
What I see developing however is the new model of business coming from markets that had nothing before. Because they had nothing before, they don’t know what a horse is, and so they haven’t even considered developing a faster one. They’ve just leapfrogged everyone with a new way of thinking.
China is a great example.
Chinese markets didn’t have cheque books and plastic. Most Chinese citizens didn’t have bank accounts and so, when the internet took off, this is the reason why the big innovators – Tencent, Alibaba, Baidu – have just leaped from old style bank products to mobile wallets, micro savings and micro loans. Many of the Western pundits talk about these big Chinese players as being banks, but I don’t see them that way. I see them as technology firms first, applying technology to create new ways of exchanging value and money.
Their vision is based upon easier shopping and commerce online, and better management of money with technology. It is why China transacted over USD$15 trillion through mobile wallets in 2017, tripling the value of 2016, whilst the USA is still stuck in old style money. Americans transacted USD$6 trillion with plastic cards in 2016, and just $150 billion on a mobile phone. The numbers are radically different.
A great example of the reimagination of money in Asia is the discussion I had regarding ePassi and Chinese tourists visiting Lapland. As I said when I blogged about this case study:
I currently cannot travel the 43 kilometres from Copenhagen, Denmark to Malmo, Sweden, with the same mobile payments app. The mobile wallets of the Nordic region have no interoperability today. Yet I can travel the 6,300-kilometre trip from Beijing to Lapland and pay for everything with the same app.
This is where I see the vision: starting with a fresh idea and developing it. In fact, Ant Financial’s vision is something, because they are a firm on their fifth-generation systems architecture, when just fourteen years old. How often has your institution regenerated their systems? Once? Never? Ant Financial regenerate theirs from scratch every three or four years … because they can.
It is not just the Asian internet giants that are changing the world however. Firms from Paytm in India to M-Pesa in Kenya to Globe Telecom in the Philippines to Banco Original in Brazil are all reimagining finance with technology. What all of them demonstrate is the mindset of starting with technology first to address a problem of people who are not getting the right access to money.
It is these markets that will deliver the FinTech revolution because they are not thinking of a faster horse. They are not looking at bank products and trying to think how they could make them faster or cheaper. Instead, they are looking at technology and trying to work out how it could be used to reach the people who need service.
The thinking is in stark contrast, and I firmly believe the FinTech revolution will not come from American or European FinTech firms, but from South American, Asian and African start-ups. Watching that space.
Postnote: if this sounds familiar, it’s because I’ve blogged about it before.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...