2016 PREDICTIONS – EXPERT FINTECH PANEL PREDICTS THE BIGGEST WINNERS AND LOSERS IN 2016 BANKING.

While 2015 was just awesome on nearly all fronts, I think the close of the year has left us with a cliff hanger that George RR Martin would be rather proud of.

Speaking of Game of Thrones, our last blog post “2015: #Banking Game of Thrones, EU regulator get serious, banks learn to share & #FinTech puts on big boy shoes” is our summary of the year that was 2015.

For the curious among you, the question remains what’s next? What will 2016 bring?

9 Questions for 4 Actors and 4 Audiences.

If we summarize the industry, we see four main actors and four main audiences who are going to be the main players in 2016.

The actors are the ones who actually do the work. They provide the products and services, deliver the change, create the regulations and support the banking ecosystem.

The audiences are wrapped around the actors and are the consumers, either of the products, profits or via some element of halo effect. These could be shareholders or governments as well as customers and the industry as a whole.

Times Up, Pens Down; It’s Answers Time.

Across these actors and audiences, we feel there are 9 questions we need to answer to be able to gauge who the winners and losers in 2016 banking will be.

To get to the bottom of these questions, we have given our professional opinions, asked a panel for their inputs and have also asked a few expert friends of Think Different Group.

Q1 – Which actor is the most agile and responsive to change?

It’s clear that people have a clear inkling, with 90% believing it, that FinTech is much more agile and responsive to change. Given the evidence of the change in 2015, you would be very hard pressed to argue against that and with only 10% combined of the votes going to Banks (3%), Regulators (2%) and Traditional Suppliers (5%) then the no one has.

That said, we think David Gerbino makes really solid points here:

“When one looks at the Financial Services (#FinServ) landscape to assess which segment, banks, regulators, #FinTech companies, or traditional suppliers, is the most agile, many typically say it’s obviously the FinTechs. This type of generalized thinking is flawed. To assess the question correctly, one must #ThinkDifferent. All these segments move at different speeds and should be analyzed within each segment.

1) The Banks: Many banks have been saddled with an aging infrastructure and a business that is large and diverse. Moving quickly is not typically part of the bank DNA. This has not kept all banks from becoming agile or use innovative products and services from traditional vendors and FinTechs. Banks across the globe (Examples: Germany: Fidor Bank, Poland: mBank, Spain: Caixabank, Turkey: Denizbank & Odeabank) have embraced innovation. Additionally, many banks partner with #FinTech companies (Examples: Yodlee, Geezeo, MX, D3 Banking, Meniga, Avoka, CUneXus, Backbase, Personetics Technologies and Strands) to enhance their capabilities.

2) The Regulators: The regulators get no respect. Many consider them to be slow as molasses. Despite this affliction, a US regulator (SEC) moved quickly to regulate P2P lending. New regulations were not made in this case, rather, the SEC felt that P2P lenders interpreted the laws incorrectly and they forced corrective action. In the US, New York State created regulation around digital currency, New York State Department of Financial Services’ BitLicense framework for regulating virtual currency firms. These two examples show a quick response as it relates to regulators.

3) The FinTechs: Everybody assumes the FinTechs are agile. This is a false assumption. Some FinTechs from a decade or more ago have legacy technology that is now hurting them compared to newer FinTechs. Maybe 2016 becomes the year where we see more new FinTechs look to disintermediate older FinTechs.

4) The Traditional Suppliers: Like banks, many traditional suppliers are saddled with aging legacy technology platforms. Despite these problems, the more progressive ones are attempting to buy their way out of this situation. Jack Henry and Associates, a US core banking provider of approximately 2,000 banks and credit unions, has purchased several FinTech companies to upgrade their technology.

Financial Services companies that have a culture that embraces change, innovation, etc. are the ones that will have the greatest chance at surviving the changes that exist in the industry today. These type of companies are not unique to the FinTech sector. FinTechs has it’s laggards too. The focus for all these segments should be to embrace change and to Think Different.”

David Gerbino – DMG Consulting – @dmgerbino

Q2 – Which actor has the most customers?

While FinTech came a long way in 2015, it is still dwarfed by the level of customers that most of the banks have and this is reflected in the panels votes with 83% going to the banks. Doing something and doing it at scale is a very different matter and FinTech has got to go a very long way to compete on the numbers of customers with banks.

Most banks can lose the amount of customers that FinTech gains without an issue. But magnify up all of these little leaks and it could indicate the real waters of change.

In our opinion, 2016 will see challenges to the banks, traditional suppliers and FinTech themselves for customers.

In the UK, with the advent of a new kind of bank being delivered by the likes of Atom and Mondo, we think we will start to see the trickle of success as customers are tempted by the new potential of these companies.

That said, in our opinion, 2016 will be the year that traditional suppliers lose more customers, percentage wise, than the banks do to FinTech.

“In 2016 we will see close to a dozen pure digital players in Europe, some of them with a full banking license, some just specific services traditionally provided by banks.

These new incumbents are designed to be drastically more user friendly, data driven, inclusive, and customer centric that any large player will ever be, and needless to say substantially cheaper.

The profitability for these neo-banks is designed on a much smaller scale than their much larger competitors.
Even if not – yet – to a scale that will significantly damage them, large banks are the ones likely to suffer the most from this new digital players wave.

The key question is the pace of scale: if neo-digital banks can demonstrate growth while maintaining the financial solidity not to compromise the leap of trust needed to actually embrace them, it could become a viral effect.

Similarly to how fast it took for a digital platform to reach millions of customers, the same could happen for the new era of digital financial customers.

Traditional suppliers might have something to be concerned about from FinTech with the startups tackling easy bank inefficiencies, but this will be hard for them to make a difference.

The real threat will come from a more “holistic” approach (the Atom and Tandem in UK for example), where mass market customers can be advised properly, something traditional banks can’t do.”

Matteo Rizzi – Advisor – Omidyar Network – @matteorizzi

Q3 – Which actor has the biggest budgets?

With almost all the UK banks spending in the region of ￡100-130m a year on transforming their functionality and customer offering, and their international counterparts doing likewise, then it’s clear they have pretty deep pockets.

While money doesn’t maketh the man, neither does it maketh for a successful digital transformation. Much of this investment has proved to be spurious or onto fixing legacy issues.

While some of the traditional suppliers also have legacy to fix, their investment, on the whole, is going into developing serious intellectual property. The same can be said for FinTech for that matter.

At the end of 2016 the banks will have spent a lot more money than anyone but how many of them will own something or have anything other than a long contract with someone to give them more money to maintain it?

For the rest of this article go to the Think Different Group website here