2016 is the year of big changes in fintech. While VC investments have continued to rise in the first quarter of the year, many question marks remain on the real capacity of fintech startups to build enough critical mass and reach a long-term sustainable and scalable business model (see, for instance, the growing critics to pure web robo-advisers and the recent troubles of Lending Club).
Is the fintech wave in trouble? Is its disruption promise already dead? My own answer is that those who really thought that fintech startups could disrupt and replace banks got it all wrong. Yet, at the same time, those from banks who are thinking that resistance will prevail got it all wrong too.
Banking has undergone significant transformation since the arrival of the internet. Digital banking, born at the end of the last century in many geographies, is a reality and is here to prove that banks can transform and embrace the digital world, providing customers with the expected UX and solutions. There are so many examples of digital-first banks – especially in Europe, Poland and Turkey – leading the way, where they already enjoy millions of customers. Yet, digital banking is transforming itself and is coming into its second phase, converging with recent developments in fintech.
From one side, fintech startups are starting to collaborate and consolidate, inevitably moving to a more sustainable marketplace banking model (partnering with banks and/or among themselves).
On the other side, the rise of open API banking and a pro-market regulation (see PSD2) will also open the doors for banks, and especially digital banks, to a broader, fruitful collaboration with fintech companies. Digital banks are the best positioned to get the most of the second digital phase. New fintech aggregators will arise, too.
In a nutshell, fintech development will prove to be the new lifeblood to digital banking – a second, stronger, broader, faster stage where collaborations and partnerships will strongly increase (instead of disruption). M&A will also see strong hype (albeit not at the exit prices dreamed by investing VC just a year ago) not just between banks (needed for efficiency and regulatory constraints), but also between fintech companies, and from banks buying startups.
This isn’t disruption. It’s banking renovation on-the-go, and through the very strong impact of the technology and customer-oriented design (brought about by fintech) that will shape the financial services of the new century, and will transform banking. You may call it fintech banking or marketplace banking.
Fintech disruption is dead. Long live fintech.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Nihilart, Shutterstock.com