Fintech has been growing rapidly these past years and many in the industry are talking about the threat it represents to big banks. But banking is one of the most established industries, and more importantly, banks are protected by a maze of government regulations that restrict new entrants, making it really hard for them to have any type of competition. So with this in mind, the real question is how threatened should banks really feel by Fintech disruption? And where is this disruption coming from?
Nektarios Liolios addressed the subject at FINNOSUMMIT Bogota. The Co-Founder and CEO of Startupbootcamp Fintech explained that a lot of the problems startups are solving are not really things that banks care much about. For example, the reason peer to peer exists is because banks wouldn’t give loans to certain people and a solution had to be found; or the reason people invented cheaper cross-border transactions is because banks were charging too much for the service. The more undeveloped the country is, the more limited you’ll find with their options for formal financial services to be. What happens when you consider Fintech from this point of view is that you can no longer talk about disruption of the industry, but about innovations in sectors that have been left unattended to, and now are beginning to take their toll.
“You might not get somebody coming and chopping your head off, but a little cut here and a little cut there, and someday you wake up realizing that you are dying. Little changes are happening, and when all are combined, they can really be a threat. When we talk about startups are at the gate, we are not talking about literally one big organization that will come and take everything away from the bank; but instead, we are looking at many little things that are happening at the same time, and when they reach a stage of maturity, they can jointly pose a threat. Banks have to recognize this and start doing something about it.”
So the real question is not whether banks should fear Fintech, but what should they do about it?
“Entrepreneurs are only people who build solutions for genuine problems” said Nektarios during his keynote. He explained that Fintech was born by the hand of banking specialists who saw flaws and problems in the way banks worked and they came up with ideas trying to fix them. This revolution all started because banks offered services under archaic systems and nobody cared at first, because they had little competition, they were highly regulated entities and they were making money. But what these startups are now offering is an innovation of the system. The more archaic the system is, the more problems you’ll encounter. Just like Blockchain came to change the way information is recorded and can potentially have an impact in the entire industry, there are a lot of solutions for different problems that can possibly revolutionize the way banking is done. But in order to do so banks all over the world first must change their mindset to cope with this revolution.
“Banks look at startups like people look at animals in the zoo. They are intriguing, interesting, exciting, different and you want to take them home. But when they are home you don’t have any way of keeping it, you don’t know how to feed them, nor take care of them or even making them grow. With startups the same thing happens, every bank now has a startup program. They want to get excited and exotic, but the question is what do you do beyond consuming information and education, and how do they prepare themselves to really act?“
One of the main points where the head of Startupbootcamp Fintech made a lot of emphasis and should be taking into consideration when dealing with startups, is that they are not the same as a bank. Startups are different, they are lighter and they can change the direction overnight when something is not working right. They don’t operate the same way that banks do. Entrepreneurs can build all the exciting stuff because they move faster, they are not burdened by politics, legacy, regulations or size, they can change the direction of their business overnight. Financial organizations have to be aware that engaging in this new type of technology they have to change a few things, find new ways for the company and the startup to interact. It is important to evolve into an experimentation kind of mindset.
There is still a long way to go, and a lot of changes to undergo before banks and startups collaborate together building a new way of offering financial services, concluded Nektarios. Fintech will have an enormous impact over the industry, but it will not happen overnight, nor from the places we expect. The big success stories have come from all over the world, but more and more we see amazing propositions being built from entrepreneurs in developing economies. This goes back to the whole purpose of solving a problem. The pyramid is a problem, and the fact that a large amount of the population do not have access to financial services, 2 out of the 7 billion people in the world to be exact, is even a bigger one. This things need to be solved and the only ones who can solve them are the people inside the markets that experience the issues. As Nektarios said: “many of the changes that are coming will come from emerging economies.”