How to Eat a Bank — One Business at a Time ?

Over the past few weeks something interesting has been going on in the Banking world — several executives came out speaking on the impact of FinTechs on the traditional Banking business. In his recent letter to the shareholders, Jamie Dimon, CEO of JP Morgan warns “ Silicon Valley is coming .” He talks in detail about the growing competition for Wall Street from the FinTech companies and startups focussed on varied technologies such as bitcoins, mobile payments, peer to peer lending etc.

What’s going on & Why are the Banks scared?

“Banks are under attack ” wrote RRE Ventures Tom Loverro recently. Banks like Citi and Wells Fargo are getting unbundled by the FinTech startups. The traditional business models of Banks has been threatened. Their monopoly on the way customers conduct business is being questioned.

FinTech startups are giving a tough time to the Banks

. Money is pouring into the FinTech startups through the aggressive Silicon Valley investors, Venture Capitalists and the Angel Investors. Relaxation of the investment norms for the crowd funding startups through redefinition of an accredited investor has opened up the flood gates. SEC’s recent ruling on the Title IV of the JOBS Act has given a fillip to the investment climate by enabling common citizens to invest in private companies. Crowd funding startups like the Funders Club, Angel List etc. has been investing heavily through their thematic funds focussed on Bitcoin, FinTech areas. Global remittance business is around USD 500+ Billion. P2P payments tech companies are one up on the game. Easy access to tech has made this possible. Banks are unable to cut their transaction fee which these startups are able to do. Companies like WePay, Venmo, BrainTree, LevelUp & Dwolla have been doing well through their near real time payment options and innovative business models.

P2P Lending is yet another area of concern for the traditional lenders. In 2014, the total US outstanding consumer credit stood at $3311.8 billion . Meanwhile, the total US business lending portfolio stood at $628.3 billion in the same year. Out of the USD 6.6 Billion lending portfolio, online platform’s share stood at USD 2.3 Billion. Few leading players worth mentioning are OnDeck, Lending Deck, SoFi, Kabbage & Lending Tree. Non-traditional players like Google have started to venture into this lucrative area considering the business potential. Google has come out with its Mortgage Calculator and also now the funds available in Google Wallet is insured with a bank like FDIC insurance. FinTech startups are able to navigate the legal land mines through their innovative approach and have went on build mega billion dollar businesses.

Wall Street Bankers are joining Tech companies . The attraction of these FinTech startups has been so high that the bankers are willing to join these companies even without a salary !! Folks like David Pinski of ING Direct and later at Capital One joined Zumigo since he felt the technology is pretty cool. Jay Sidhu of erstwhile Sovereign Bank went on to start a digital only Bank Mobile with his daughter in tow as the Chief Strategy Officer. Even in India , CFOs of the system integration companies like Wipro and Infosys have applied for the Bank licenses. Two former CFOs and board members of Infosys — V Balakrishnan and T V Mohandas Pai — and the recently retired CFO of Wipro, Suresh Senapaty, have come together to try and establish a virtual bank in India.

What are the Banks doing now?

Not to be left behind, as Jamie Dimond articulated to his shareholders, Banks are keeping a close watch on these disruptive competitors. Their responses to the situation has been very varied and diverse based on the appetite of their Boards.

Looking into the future — What Banks should be doing?

Source :

World Retail Banking Report 2015

Source :

Awesome Banking APIs

You would certainly see many more instances of tech startups trying to eat the lunch of these big Banks. Monopolized and established norms of fixing the fee and charges for transactions which is key source of revenue would also be challenged. And many more challenges and surprises are in store for the Banks if only they understand that what people want is

Banking and NOT Banks . We shouldn’t be surprised if we soon see companies like Facebook, Google and Amazon starting Banks. They have the required infrastructure, technical ability and digital acumen to establish and run the Bank of the Future . In fact, Tencent and Alibaba have announced that they would soon be launching a Retail Bank.

Think more like a Tech company and less like a Bank seems to be the mantra for the Banks of tomorrow since every company now is a software company

What do you think?

How much can the Banks withstand and beat this new upsurge? How does this Uberisation of Banks would impact both the service providers and customers alike? Is this a beginning of a paradigm shift to the way Financial Services would function in future? How are the Banks responding to this new found reality? Is it true that the Banks are not being disrupted but they are just re-architected? Are they too big to be disrupted like the Aviation and Pharma industries? What are the other disruptive trends you have noticed and are bound to evolve in the near future?

Do share your thoughts below as comments.

Ramesh Babu is a veteran data evangelist and analytics thought leader, he champions the Analytics, Blockchain, Data themes for customers globally.

Follow Ramesh — Twitter —


, Blog :