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As marketplace lenders, robo-advisers and other startups nibble away at the profitable, customer-facing parts of banking, executives at last week's Digital Banking Summit discussed how banks can defend against "unbundling."
June 15 -
Digital upstarts are out to steal traditional banks' customers by taking the hassle out of everything from account opening to borrowing. Its tough to compete with banks' resources and brand recognition, but these new mobile competitors are adamant that they can win on customer experience.
April 27 -
Investment in London fintech firms is soaring and young companies are being drawn to the area, especially the Canary Wharf district, thanks to the efforts of incubator Level39, a vibrant social scene, and close proximity to large banks.
June 5
Bankers and Silicon Valley types are fond of framing their rivalry over the future of financial services as a winner-takes-all game.
But that construct may be too simplistic, according to a growing number of people on the front lines of digital innovation.
As
These days the big questions are which party will
"Banks are recognizing now that the only way forward is with tech companies that own the customer experience,"
As proof, King pointed to the advent of the mobile money transfer service M-PESA in Kenya. While Kenyan banks initially tried to shut down M-PESA, he said, they have since accepted that they need to partner with it in order to access customers. In the U.S., mobile wallets Apple Pay, Android Pay and Google Wallet are also shunting banks to the sidelines, according to King.
"That pattern will repeat over and over with core payments, core credit, and savings and bank account capabilities," he said.
Siding with King was Robert Tercek, a former media executive who consults with companies on digital strategies. He suggested that just as digital disruptors like Netflix and Amazon forced television companies to alter their distribution models, so will tech companies increasingly require banks to go through them in order to reach customers.
"Something similar is bound to happen," he said. "Companies today are developing a mobile habit of use with consumers on payments and transactions. The web is [a] transactional space, and banks don't operate in it."
But there is also plenty of evidence to suggest that banks will remain customers' main point of contact, according to Ron Shevlin, director of research at bank and credit union consultancy Cornerstone Advisors.
While digital wallets, peer-to-peer lending and other recent inventions may propel the financial industry in new directions, Shevlin argued that only banks have the resources and scale to pull together wide-ranging financial services and tie them neatly into one customer-facing package.
Tech companies may be pioneering better digital customer experiences, he admitted. But "that leads to the need for customer support," Shevlin said.
"Fintech companies are not well-staffed and suited to deal with consumers' financial services needs," Shevlin elaborated in a follow-up conversation. "Sure, they may have desks to deal with technical-support issues. But to displace banks, it will take a lot more than just technical support."
Banks also have a major edge over startups when it comes to cybersecurity, Shevlin said. He quoted Cathy Bessant, Bank of America's global technology and operations executive, who recently said she has "unconstrained resources for cyberdefense." The implication is that since smaller tech firms cannot afford to make that kind of investment, they will remain beholden to banks.
Such arguments constitute banks' primary defense against the prospect of
But King contested the idea that younger customers have a predilection for one-stop shopping.
"Today's customers don't think like that," he said, pointing to the widespread popularity of peer-to-peer payment service
King readily admitted that fintech firms will work with banks well into the future. But that is only so they can leave the big guys to deal with infrastructure and regulatory issues, freeing up money and resources to concentrate on developing new technology.
"We need banks to enter into markets," said King, acknowledging Moven's partnerships with
Shevlin agreed that banks and fintech firms are settling into a pattern of mutual dependence. But he had a different read on the power balance between the two, noting that financial institutions are pouring investments into
"Don't be a fool," Shevlin declared, "Fintech don't rule. / No doubt they're cool. / But they're just a bank's tool."