FinTech vs Banking Revolution: 10 Must Watch Developments for Big Banks and Startups in 2019

Having spent almost 20 years in the #FinTech space, working with large UK Banks, the UK and European Regulators, I thought it timely to highlight some technology trends that will heavily impact the entire Banking Sector between now and the next 5 years.

The plan is to cross-pollinate my experience in the core banking technologies of the big banks and experience in the latest #FinTech developments.

Here are some key highlights which I believe will help both the big banks and the start-ups maximize their opportunities.

1.    Progress in Artificial Intelligence (#AI)  

Fraud and KYC Operations can be easily streamlined using AI - Biometric technology services like #iProov and #CallSign offering 100% guaranteed real-time portable Identity and Identity verification.

This will certainly impact these departments in the big banks. On the plus side, the big banks that are willing to embrace AI specifically machine and deep learning, having operated for years, can use the data they hold to predict future customer behaviour to provide insights on threats and opportunities.

Unfortunately due to the current low appetite for adopting new technology, most big banks are not doing this.

2.    Impact of Bank-in-a-Box:

Bank-in-a-box services are getting better and better coupled with the drive by the regulators to open the banking space with PSD2 regulation, new banks can now start easily.

Focusing on the core banking services and not on technology at a reasonable cost. Now with many banking customers frustrated with their current banks, they will not hesitate to try a new bank as long as they have a banking licence.

Irrespective of the number of customers they can steal from the big banks, the threat is still real.

3.    Impact of Challenger or Neo banks:

With the growing number of millennials and Gen X preferring convenience to reputation; there lies another major threat to big banks.

To confirm this threat: Starling Bank, founded only a few years ago by @Anne Boden was voted Best British Bank, Best Current Account Provider & Best Business Banking Provider.

In the US, New York Times reported in November 2018 that Chime, the biggest new name to pop up, has opened two million fee-free online checking accounts and is adding more customers each month than Wells Fargo or Citibank. CG42 said in a recent report that it expected the 10 largest banks in the US would lose $159 billion in deposits to smaller competitors over the next year.

The rate of customer migration to challenger banks in the UK is actually faster with Monzo and Revolut adding 2000 and 7000 customers per day respectively. Big banks should design a strategy to stall this.

4.    Cloud infrastructure:

Cloud is safe and reliable, relatively cheap and specialist companies in the space like Google and Amazon are relentless in their quest for better efficiency.

The biggest threat is that it offers seamless scalability, which the current big banks' legacy systems are incapable of.

5.    Blockchain

This technology facilitates immutable record of data that is managed by cluster of computers not owned by any single entity is bound to revolutionise banking in the areas for Identity by #Evernym, Smart Contracts from Ethereum and co, Money transfers via digital wallets powered by Blockchain technology, using crypto-currencies will surely have significant impact on revenue channels of the big banks.

There are endless use cases in the works and already delivered in this space even offering GDPR compliance.

6.    PSD2 Regulation:

This regulation which came into force in 2018 incorporating: Open banking, customer rights and low barriers of entrance for start-ups with the concept of Third-Party access, Payment Initiation Service Provider (PISP) and Account Information Service Provider (AISP) business models.

These new models will allow new entrants to enter the market to provide value added services to corporates. The big banks are obligated to provide open access to accounts for these new players via APIs. So far, from the FCA portal, there is little movement on registration/authorisation for these new services.

This means that the start-ups can grab this opportunity make it happen and destroy significant percentage of current big bank revenues.

7.    Infrastructure & Support:

FinTech is growing at rapid pace reducing the need for own tech infrastructure, buildings and support staff. How is your bank re-positioning for this?

This means lower cost for start-ups and therefore low or free service fees which is then passed-on to their customers.

For big banks, who are predominantly maintaining status-quo, it will be hard to compete and operate efficiently with the burden of buildings, legacy systems and expensive support staff.

8.    Employer Liability

We know that #Fintech will reduce the banking work force by 30% according to Citi Bank, although a few other organisations believe it will be up to 50%.

Personally I believe it’ll be at least 70% judging by the pace of innovation in FinTech. This will leave banks with huge redundancy bills.

9.    Shareholder Retention

I agree that investing in private start-ups carries its own risks; zero dividends and the long term nature of the investment but in comparison, new banks appear to be better investment.

For example, Monzo shares were sold for ￡7.7145 each in the 2018 round but just a year earlier, they were worth ￡2.3566. Now compare these numbers with the big banks.

Although portfolio diversification is alive and well, most investors will be tempted to move funds to higher return investments than investments with less than 10% pa return. This will impact the share prices of the big banks.

10.    Innovation Appetite

Big technology players with unlimited budgets are making inroads into #Fintech: Alibaba, Samsung, Google Amazon etc. They live and breathe innovation and employ the best futuristic, #creative thinkers and programmers while most big banks are seeking ready revenue opportunities from traditional channels.

So today we have ApplePay, SamsungPay, AndrodPay and AliPay.

Although we are currently seeing collaboration but in the background these organisations are working hard at banking licences and many intellectual property applications.

When received, they’ll not have the issue of legacy infrastructure or cumbersome manual governance processes and approvals but will rise astronomically powered by their culture of extreme and never ending innovation and lessons learned from dealing with the big banks. How will the big banks respond?

Let’s continue this discussion, comment below.

Chiedozie Hez is an award-winning Digital Transformation Consultant, Performance Coach and International Speaker specialised in #Fintech. I have worked with brands such as Visa, VocaLink - MasterCard, RBS, Barclays, BNP Paribas, Financial Conduct Authority and London Clearing House and delivered digital transformation projects faster, effectively engaging teams and saving on average 40% on project costs.