When you think of industries heavily influenced by fads, fashion is likely the first thing that comes to mind. Clothing or hairstyles that might be all the rage today can become yesterday's news at the drop of a hat. It is a precarious business.
The world of technology is rife with fads as well. Remember laser discs? They were originally projected to swoop in and replace VHS tapes in short order, but they never took hold with consumers and were abandoned nearly as quickly as they arrived in stores.
This is how some view the global rise of FinTech (short for "financial technology") in the banking industry. While its rapid escalation makes it buzz-worthy, they expect that it may ultimately go the way of the dinosaur.
What Is FinTech and Where is It Headed?
FinTech is an umbrella term used to refer to a number of different consumer technologies that relate to money management and the facilitation of financial transactions. In the early going, FinTech was used strictly to refer to back-end systems, but with the rise and adoption of mobile apps, the term is now used a bit more loosely. Industry insiders recognized its potential fairly early on, too, with investment in FinTech jumping +18% in 2017 from the previous year, CNBC reported.
Any who continue to view FinTech as a flash in the pan may want to reconsider their assessment, as its popularity is proving to be a major game changer – requiring traditional banks to up their game if they are to remain competitive.
"Nineteen percent of financial institutions in the U.S. are new entrants and have captured 3.5 percent of total banking and payments revenues"
Traditional Banks Challenged
Perhaps the best way to identify FinTech's growing grip on the global banking industry is by looking at the numbers. According to Accenture, which analyzed over 20,000 banking and payment institutions in the world from 2005 to 2017, there are currently 19,300 financial institutions across the globe. That's down nearly -20% over the aforementioned 12-year period.
At the same time, a number of "new entrants" – as Accenture describes them – have come onto the scene since 2005. These include FinTech, big tech and digital-only banks. Approximately 1 in 5 FIs in the U.S. opened post-2005 and are gaining momentum – now accounting for roughly 3.5% of total banking and payments revenues. This mirrors the global trend where new non-traditional entrants to the banking space are amassing up to one-third of new revenue and challenging the competitiveness of traditional banks.
The disparity between traditional banks and new entrants is even more apparent overseas. For instance, close to two-thirds of post-2005 FI arrivals in the United Kingdom are digital only and/or FinTech, Accenture reported. They now own 33% of all new revenue in the U.K. and almost 14% of banking revenue overall.
Julian Skan, senior managing director at Accenture, noted the aftermath of the financial crisis gave rise to FinTech amid the digital revolution. And if long-standing retail banks truly want to succeed and reclaim their dominance, expanding their services isn't an option. It's a must.
"With challenger banks and platform players reducing traditional banks' competitiveness and the threat of a power shift looming, incumbent players can no longer rest on their laurels," Skan warned. "Banks are mobilizing to take advantage of industry changes, leveraging digital technologies and ecosystem business models to cement their relevance with customers and regain revenue growth."
Many of the world's largest banks are doing just that. Over the past year, the likes of J.P. Morgan, Bank of America, Wells Fargo and Citigroup have spent a combined $38.4 billion toward technological innovation, Bloomberg reported.
Tristan Thomas, head of marketing at Monzo, told Bloomberg that FIs and other traditional lenders are spending heavily to keep up with the rapid pace of FinTech's explosion, never mind get out ahead of them.
Kristo Kaarmann, executive officer and co-founder of TransferWise, said some traditional banks are partnering with FinTech rather than outspending them, as maintaining a branch network is a task unto itself and something digital-only banks don't have to contend with.
While FinTech may have less overhead, the branches that FIs maintain remain go-to destinations, as a majority of banking customers prefer face-to-face interaction for certain financial transactions. In other words, you have something that most FinTechs do not. BranchServ can help you make the most of your network by optimizing current workflows so you can be all that you can be – and then some. We'll provide you with the customized solutions that never go out of style. Contact us to learn more.