Battle of the banks: Traditional v neo

As ever-evolving approaches to modern financial solutions continue apace, the impacts are visible far and wide. But how are new approaches affecting traditional banks?

Any debate on the future of banking is not just about what will change – and plenty will change – but about what will stay the same.

Saul Van Beurden, head of technology at Wells Fargo, has hinted at the direction in which large banks will move. He’s confident that banks still have a competitive edge in the fintech revolution.

Guillaume Pousaz, founder and CEO at Checkout.com, disagrees.

New disruptors have an edge

“I think that financial systems are still mostly broken.”

So said Guillaume, who argues that banking is in a state of dwindling services, with one-size-fits-all offerings and a focus on shareholders over customers.

Legacy issues within banking itself, according to Guillaume, mean that banks are not well placed to innovate or generate ideas internally in a rapidly changing financial ecosystem.

But fintech, he said, places innovation front and centre: “If you just look at the older players in the [banking and financial services] space, almost all of them have been built through mergers and acquisitions. It was this whole thing. You don’t build your technology. You acquire it. You piece it together.”

The opportunity for fintechs is in offering products that target specific banking services.
Guillaume believes that “most banks have been monetising ignorance of customers for years.”

Fundamentally, he said, this has led to dissatisfied customers who are now a captive audience for new solutions that make their lives easier.

By peeling services away from banks, fintechs can become serious players in the financial world.

“[Fintechs] go after the unbundling,” said Guillaume. “They’re going aggressively after the bank, focusing on one sector … trying to compete on user experience and service towards the end customer. Because, at the end of the day, it’s always about the end customer.”

According to Guillaume, there is still one service that the industry is reluctant to take over from banks: deposits. As fintech continues to expand rapidly, the focus remains on building payments.

“We care about reinventing financial services around deposits … but we don’t want to hold the money,” he said.

Traditional banks enjoy key advantages

Traditional banks still hold some competitive advantages over fintechs. Chief among them? Customers.

“Many people have their primary accounts with a large mainstream bank,” said Saul. Three additional advantages enjoyed by banks, he said, are trust, knowledge and capital.

• Trust:
  Banks ‘make the economy run,’ said Saul, and the scale of this is very much in evidence… well, everywhere. “In the US, [Wells Fargo] do a money movement every night of around US$3 trillion,” claimed Saul, illustrating how institutions of that size still play an evident role in the operation of the global economy.

• Knowledge:
  Large banks bring a depth of knowledge that is invaluable to new fintechs. “We know how to deal with regulators; how to apply a regulatory framework,” said Saul.

• Capital:
  The third advantage, according to Saul, is the balance sheet: “There is a global debt, and somebody needs to underwrite global debt … neither fintech, nor the larger tech companies, are willing to step in.”

According to Saul, banks need to adapt in order to maintain their position.

“Banking is not a hobby for people,” said Saul. “We have seen that fintech has broken down that wall, where banks made it sometimes too difficult for our customers. So I think that’s a reason why fintech is growing.”

But banks still retain the powerful position of scale.

“If you’re a fintech with a great idea, you don’t have the skill or the distribution yet. Banks have the skill and the distribution, and can embed that idea into their ecosystem of services,” said Saul.

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​​Main Image:​​Harry Murphy/​​Web Summit(​​CC BY 2.0)