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Sunday, 5 February 2017

Will 2017 be the breakthrough year for the non-bank, fintech companies?

Or will 'fintech' remain a buzzword without many further consequences, because becoming a real bank is more difficult than it seems at first glance?!

During 2016, I had the idea that all the large, Dutch  banks were preparing for a heavy and bloody war against the non-bank, fintech companies, like Google, Paypal, Apple, Amazon and a few other large American tech-companies. It seemed so clear that these companies were planning to take over the classic banks by storm... and the old and distinguished banks with their vast network of brick & mortar offices would probably be first on the list to be taken over.

Consequently, the aforementioned large (and internationally operating) banks, as ING Bank, ABN AMRO, Rabobank and SNS Bank, were all involved in massive lay off rounds that cost thousands and thousands of bank employees their job. They all did so in order to become “lean & mean” again in the eve of the big battle against the fintech companies. This made 2016 arguably one of the worst years for personnel working in the banking industry, as not only their own companies were involved in massive lay-offs, but also all their competitors.

Having brick & mortar bank offices suddenly seemed so “2005” and so utterly obsolete and overly expensive, that litterally all large, Dutch banks were involved in closing many of the already quite limited number of bank offices that they had left, dismissing their personnel in the proces. Only on a few key locations in larger cities, one bank office remained open. Most other offices were replaced by ATM's and cash back machines or just simply vanished from the face of the earth.

They argued in particular that their customers demanded better, quicker and especially much broader online and mobile services, covering the whole pattern of banking services, instead of having a B&M bank office around within 10 km from nearly all of their customers: 

Why would someone have to visit a bank office, when he can do almost everything via the internet or his cellphone. Online and mobile is everything and brick & mortar is nearly dead”.

In the process they took the risk of offending some of their elderly customers, as these could have nowhere to go, when they were not online or using a mobile phone. These were the casualties of this battle for the best online, realtime strategy and the best customer experience. 

The future of the banks lie on the online channels and the online channels alone: “be there or be square” was the bank strategists' motto. And in the online battles against the fintech companies, it was paramount to be cost efficient and to have the best, the broadest and the most userfriendly software for the customers. If not, the fintech companies would probably conquer their companies.

And I have to be fair to the banks: candidates for overtaking the role of the classic banks seemed everywhere around. Apple, Facebook, Google, Amazon, Paypal and perhaps some other new kids on the block, of which we had not even heard yet, but which was making its plans to surprise the industry. You name it, they would do it…

But now? We are almost a year later and I wonder where the large fintech breakthroughs are?! Except for buzzwords like 'blockchain' and a lot of background noise, I don't see real improvements and the real killer apps yet. Am I just too impatient? Or won't it happen, in reality?!

Many people were talking about the blockchain as killer technology and everybody seemed worried about the future of classic banking.

However, when you ask a few persons where they would go with their money when the classic banks would vanish immediately, I guess they would say: “I will put the money in my pillow again, just like my great grandmother did”. 

In other words: none of these “emerging” fintech companies is ready to collect your savings’ money yet (in my humble opinion), none are offering the products and services yet that the classic banks do and nobody from outside the banking industry has yet invented the killer app that 'solves it all.

Is it perhaps not so simple to replace the classic banks as it seemed initially? '

And are the banks perhaps better in what they do than these new kids on the financial block?! That is not so improbable as it seemed last year.

It is quite easy to offer some of the services that the classic banks do. You can easily:
  • Sell a mortgage;
  • Sell a car loan or another kind of personal loan;
  • Offer a credit card;
  • Start a special purpose bank for collection of private savings’ money and deposits, like the Dutch special purpose bank Leaseplan Bank did in order to finance their car fleet (as car leasing was Leaseplan’s core business);
  • Sell Small and Medium Business loans, if one is willing to take the risk;
  • Offer a certain range of financial services to corporate and wealthy private customers.

However, the big point is: there is no fintech company yet, as far as I’m concerned, which can do it all and which can do those things better, quicker, more efficient and especially cheaper than the classic banks can! 

The simple fact that one's company swims in a stockpile of cash and investment money does not make one a better entrepreneur in the banking industry automatically.

And especially the American entrepreneurs and shareholders prefer a mindless share buyback program above an awkward and risky investment in a finance company, when it is not their core business. Share buybacks keep the shareholders happy and lift the obligation of thinking about profitable investments much longer and harder.

Wonder why for instance Apple and Cisco chose to enter the path of clueless, multi-billion dollar share buyback programs in 2016 and not chose for starting a fintech bank, when it is indeed so easy and prosperous as the fintechies always say?! Go figure! It is definitely not a lack of cash within these companies.

It is rather this: the current bank strategists and employees are not just “a bunch of pathetic losers and nitwits who blatantly fail in thinking out-of-the-box and just maintain doing the things that they had been doing for ages, with the techniques and infrastructure of ages ago”.

People like Ralph Hamers (CEO of ING) and Peter Jacobs (CIO of the same bank) are really some of the smartest, brighest and most visionary people of their breed and they are both darn capable of envisioning the future in the banking industry, as well as of acting to enable this future they envision within their bank. 

And they both sit on nearly hundreds of years of experience in the financial industry, as well as on very trusted computer and software systems that were improved and optimized during decades of ICT projects, without neglecting the modern developments. These guys are extremely hard to beat, even if you have billions and billions of available cash money to beat them, as they are simply masters in THEIR line of business: the finance industry and everything that comes with it.

And also the other large Dutch and most modern European banks are generally very good in what they do and how they do it, making it very hard to beat them on their own turf.

To be frank: I don’t see it happen that suddenly a fintech company emerges that takes the rest of the financial industry by storm. Can I be wrong? I can be wrong! But probably I am not!

I am certain that some fintech companies will do their amount of cherry picking with respect to some of the most lucrative parts of the banking industry. And I’m sure that they will be fierce competitors in their respective areas for the classic banks. I am also sure that these companies could become very successful in their new line of business and make a lot of money in the process. 

But will these companies make whole banks obsolete and push them out of business?! No way, José!

And now that the Dutch banks (and many other European banks too) have shrunk their personnel base to much smaller (sometimes even skeleton) levels, making their operation much cheaper and more efficient, they will be even harder to beat.

In the end, when you have inherited a large heritage of your parents or you earned the revenues of a large company stock sale and you want to invest that in order to put the money to good use. 

Would you then go to a company of which the experience lies in whole other terrains than banking and investing? Like a phone company, or a virtual book store, or even a payment service provider, like Paypal?!

Or would you still go to your trusted bank, as you have known them for ages and you know they were always careful with your money?!

To make a comparison: when your car breaks down and an expensive repair is looming. Would you go to the Walmart, because they just started a car repair and overhaul service? Or would you just visit your trusted dealer, because you know what he is doing and you know he won’t mess up your car even more? 

You can do the math! Also with respect to the emerging fintech companies that are not emerging so fast as you perhaps expected, you can do that!

1 comment:

  1. I have read your blog,its very useful ,Thank you very much