THE PERFECT STORM
The spread-based business model has worked well for banks for centuries. Only in recent years have affordable computing power and connectivity allowed entrepreneurs outside of banks to offer similar services.
Before the rise of social networking, it would have been difficult to imagine that people who only connected online would trust one another enough to underwrite a loan. At the same time, the proliferation of smartphones and the ease to access information on the go has raised the expectation of customers that everything has to be simple and immediate. This is somewhat at odds with the practices of established banks, who have gotten used to being in a monopoly position. When new companies can prove they offer cheaper and better services to customers than they get from their banks, customers will be more open than ever before to switch. As Steve Jobs said, “innovation distinguishes between a leader and a follower.”18 FinTech startups have written it on their flags to be the leaders, and banks have chosen to be the followers. Nevertheless, at the same time, FinTech companies are depending on the existing financial infrastructure to run their businesses: new mobile payments services use existing credit card infrastructure for security,19 and marketplace lenders depend on banking infrastructure for funding their loans and collecting payments. To what degree FinTech entrepreneurs can afford to disrupt the providers of their enabling business infrastructure is another question.3.3.3 From unbundling to fragmentation and back
At the core of the threat to banks is the fact that FinTech startups unbundle the services provided by the established banking sector. Startups compete with banks' payment infrastructure, mobile and social wallets, e-commerce and m-commerce solutions, lending, wealth management, stock brokerage, and more.
We have already examined the question about what would happen if the new startups joined forces and merged into one platform, where they offered financial services in aggregate that customers would prefer to the services their bank provides. We are not proposing a single, large behemoth of a company comprising the marketleaders in FinTech, but a fluid infrastructure that offers users the experience of doing business on one platform, with several invisible service providers on the back end. If the disruptive entrants in the financial sector are rebundled in this way, we will witness the birth of a new kind of bank that has little in common with the banks we currently love and trust. All enablers of online lending would favor such a plug-and-play platform over the way banks conduct their business. There is little banks can do about this, other than brace themselves for the perfect storm.Because much of the operation of a rebundled platform is technology enabled and automated, its overhead and footprint is much smaller than any bank with a branch network.20 New players have zero legacy overhang, enabling them to take a fresh look at doing business, unafraid of regulators. Furthermore, because information flows freely on such a platform, all the data about its users' financial transactions history will be at its fingertips. This could usher in a new era of analytics and risk management. For instance, investors could get a measure of concentration risk, notoriously difficult to measure in today's financial sector. Investors could spot correlations between different borrowers, which would help them assess the impact of each loan on the stability of the financial system. Unified data would also result in one transparent interface that regulators could access. Instead of wading through arbitrary labels that change from bank to bank, regulators would be able to deal with harmonized data that is fully transparent.
3.4 A DIVERGENCE OF TRENDS
Looking at the statistics we discussed in this chapter shows an important point: the trends in internet use, mobile computing, and social networks diverge from the lending practices of established credit institutions.
While a rise in the adoption of smartphones and tablets certainly makes traditional online banking easier, banks hardly seem to take full advantage of the newly emerging opportunities that technology brings. Instead of harnessing emergent consumer behavior, they seem to counteract it with a stubborn determination to build walls of procedures and bureaucracy between themselves and their customers. This has begun to erode the willingness of borrowers to comply with regulations that seem to benefit the banks but not the customer. The fact that customers now have somewhere else to take their business has opened up cracks in the monopoly position of traditional bank lending. Well-funded new entrants in online lending are ready and willing to exploit this opening. Online lending platforms have no burden of legacy processes and regulation, which aligns well with the demands of consumers. It is therefore hardly a surprise that online lending has taken the spotlight in popularity from traditional banks. But are the new entrants making the most of this opportunity, and are their services that much better than what traditional banking customers are used to? The next chapter will investigate this question.3.5
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- References
- Dialogue as a Conflict Management Strategy
- CANCER DIAGNOSIS AND MANAGEMENT ^227 ^306 ^318 ^711