If you stand and watch the waves recede, do you run or carry on playing volleyball? Chris Skinner explains the difference between fintech and techfin.

I’m relaxing and thinking. A bad combination. Just had several sessions with different conferences on Brexit, open APIs, PSD2, open sourcing, open banking, innovation and more … and it all seems like such drivel. One of the sessions was asking the question, Is it time to drop the curtain on innovation theatre? Yes, for gawds sake, yes.

I have that frustrated feeling of someone who can see the devil and the deep blue sea, as he’s standing in the middle of the two and screaming LOOOOOOOKKK!! OK, overly dramatic. What’s the problemo, Chris? It’s basically this: 20 years ago, we talked about disintermediation and object-oriented architectures, and the banks all went yes, very good, and didn’t do much. 10 years ago, we screamed about the internet age and mobile impact, and the banks all went yes, very good, and didn’t do much. Now, we’re all yabbering on about digital and blockchain and the banks all go yes, very good, and aren’t doing much. What does it take, guys?

I liken it to seeing a tsunami wave. It’s two miles away, or in this case two decades. You can see it coming and all go, that’s a bloody big wave. But then you go back to relaxing on the beach and playing volleyball. Then, some time later, you look again and go oh, that wave got bigger, yet carry on playing on the beach. Then the wave hits, smashes you to bits on the beach – like my poor dead fish who I blogged about recently – and you say … well, nothing … because you’re no longer here.

Gentlemanly, yet unproductive

This was the theme of another panel I was on that was talking about open banking, marketplaces, platforms, open APIs and suchlike. It was all very gentlemanly, with a dialogue around how banks are constrained by culture and leadership. I think most bankers were stuck in the vacuum of not being able to change the bank, of not being able to replace core systems, and so just twiddling their thumbs and watching all these startup marketplaces and going oh, look there’s a fintech startup that does what we do. Let’s watch it.

A few years later, they’re still watching it and they go oh look, that startup has got quite big. Interesting, and then they go back to doing what they’ve always done: whinging about legacy systems and wondering why the regulator is always on their case. Then they look around again and say oh, that startup is now a bit of a threat – let’s go buy it, and the startup says get lost you a-holes, I’m too big to mess with now!

This is what we’ve seen in so many other industries, and surely we’ve learned something by now? Tower Records cannot be iTunes, Barnes & Noble cannot be Amazon, and the People’s Republic of China couldn’t create Alibaba. Jack Ma did.

In this world of rapid cycle change – 10 years ago, no one knew what Facebook was, can you imagine? – banks that are just paying lip service to the ‘innovation theatre’ are going to fail. And that’s the point. That’s what the last two days of panel discussions brought home hard to me. Banks are just talking the talk in most cases. They’re dilly dallying with digital, they’re blustering over blockchain, they’re happy about API, and they’re learning about machine learning, but it’s all just talk. Stop talking the talk and walk the walk, guys. Start taking this seriously and start doing something seriously about it. After all, all these startups are taking it seriously and gradually moving from embryonic ideas to market dominance.

The Collinson brothers who created Stripe have just become the youngest billionaires around, PayPal is worth more than Barclays Bank, and after its IPO, Ant Financial is valued as being worth more than four Deutsche Banks. Things are changing and they’re changing fast, and just because your CEO says we’re committed and your CIO says hey, let’s do a hackathon doesn’t make you a fintech leader. You’re still just a bank.

After its IPO, Ant Financial is valued as being worth more than four Deutsche Banks Click To Tweet

The difference between fintech and techfin

I guess the real message is the phone call I got from a journalist asking me about the latest digital bank launch. They said: “What’s different about a digital bank to a mainstream bank with an app?” I sighed, and replied: “A mainstream bank with an app has just added the app to their old systems. That’s why it just tells you balances and transactions. A digital bank has been built from the ground up to use and leverage today’s internet-based technologies. It’s totally different. Perhaps the best way to illustrate this is to think about a big bank. They have buildings, staffers and history. They see a new tech and they try to shoehorn that new tech into their terribly complex structure. A startup digital bank begins with a clean sheet of paper and asks: “How can we take all this tech and apply it to financial services?”

The bottom line is the difference between fintech and techfin. A bank is a techfin firm: they see technology as something to apply to existing financial market structures and processes. A startup is a fintech firm: they take tech and work out how to use it with financial markets and structures. The former continues its focus on physical distribution, with buildings and humans, and works out how to add the tech on top. The latter starts with digital distribution of data through the internet, and then works out if it needs any buildings or humans on top. It’s a completely different view through the lens, and most banks don’t have this view because they have no one in a decision-making role who can take the gutsy decisions and realise that the emperor is wearing see-through clothes.

Oh dear. It’s Wednesday and I’ve just had one of my regular rants. Mind you, it feels so much better. Bring on Christmas.

READ NEXT: How apathy can affect financial services

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Tancha, Shutterstock.com

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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