If a boom-to-bust expansion of consumer credit defined the last era in retail banking, a push toward digital will be the overarching theme of the current one.1

As we said in Part One of this book, the FinTech space is diverse and moving fast. The fact that marketplace lending platforms gain ground is just one of many attacks on established financial institutions taking place.

In the face of imminent disruption, banks feel an urgent need to act. Some analysts give banks an ultimatum of three to five years to become digitally proficient or lose the battle for the digital banking customer.² Nevertheless, doomsayers of the established financial sector often miss an important point: many FinTech products and services rely heavily on existing infrastructure and services that are under the control of established financial institutions. For example, payment processors require users to link their accounts with their existing bank accounts or debit cards, and marketplace lending platforms need banks when funding and issuing loans. On top of that, established players in the financial sector are some of the best customers of marketplace lending platforms: banks and large hedge funds have bought and securitized portfolios of loans from several marketplace lending sites.³ This stands in stark contrast to the vision of the nascent online lending industry doing away with banking as we know it.⁴ In any case, the future of credit will hardly be an either/or proposition. Rather, it will be important for the established financial sector to incorporate new ideas from FinTech entrepreneurs, who in return should take advantage of the experience and know-how of banks when it comes to risk management and financial analytics of complex portfolios.

In Part Two of this book, we learned that banks have incorporated digital services in the front and back offices for decades. To say that banks need to become “more digital” therefore misses the point. Globally, several incumbent banks and financial institutions already embrace digital and upgrade their value chains aggressively.

All banks offer online banking, and many of them use mobile technologies and are actively investing in FinTech innovation. Banks have realized that the habits of today's digital customer differ from those of the boomer generation or even the first generation that grew up with the internet, generation X. By no means are the banks asleep at the wheel, as some advocates of FinTech innovation want us to believe. At the same time—and we explored this in Part One of this book—banks are large bureaucracies that are hardly exemplars of rapid innovation and deployment of new technology. Even though they are hesitant to admit it, they are in general risk-averse and prefer to wait on the sidelines until their customers are sure to embrace a new technology. This is the weak point of established market leaders. Dominant players in an industry are in a poor position to judge which new technology will usher in a paradigm shift, and even well-managed companies fail to stay leaders in their industries when they confront changes in technology. Throughout history, the decisions that led to the demise of established companies were made when their leaders were widely regarded as the best in the world. They saw the markets through the lens of their past successes and existing customer base, not from a fresh perspective that allowed for trial and error over a long period of time.⁵

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Source: Akkizidis Ioannis, Stagars Manuel. Marketplace Lending, Analysis Financial, and the Future of Credit: Integration, Profitability, and Risk Management. Wiley,2016. — 344 p.. 2016

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If a boom-to-bust expansion of consumer credit defined the last era in retail banking, a push toward digital will be the overarching theme of the current one.1

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