The Fintech revolution is on-going

“Be nice to nerds. Chances are you'll end up working for one.”  -- Bill Gates

Many bankers would not like this quote! Nevertheless the situation Bill Gates pictured is becoming quite tangible in the financial services industry today.

Figures tend to show that technology is becoming the main focus in the banking industry : in 2014, 2957 M€ have been transacted over alternative finance market representing a growth of 144% compared to 2013. Moreover, fintech have drawn in 2013 3B$ investments which tripled to 12.21B$ in 2014.

Even though the financial services industry is highly digitalized, its transformation pace cannot be considered as high as in other industries like music or film industries. In those industries for example, the distribution model has been changed many times over the last twenty years.

This situation is changing as fintechs are now starting to compete with the most established players as Netflix or Spotify did some years ago against the majors of the film industry.

Banks have difficulties to fight against those disruptive startups. A large number of players are entering this market, among those very big internet actors like Apple and Google which already have a strong connection with the customers. In such a case research says that existing mature corporations find innovation especially challenging.

Although none of these new entrants is competing with the established players on the whole value chain, the number of those entrants is making the big players nervous about their future as they feel attacked on every segment of their product offerings.

These new entrants have been competing with big players, first on low margin segments like transactions where the big actors are not competitive due to their legacy. Over time, those actors are now expanding in other areas where the value added is much bigger like wealth management. Using up to date technologies the fintechs are able to score their customers much faster than larger companies, aggressively competing against banks on traditional activities like financing.

The fintech startups are mostly inspired by the methods that have been summarized by Eric Ries in his book Lean Startup which advocates a completely different approach from the regular one used by most large firms.

Not only are those fintechs using agile methodologies but also disruptive technologies like “block chain”[1]  that are coming in the near future. This is likely to revolutionize the payments, both for currencies and securities getting rid of intermediaries. 
Another technology like Big data is now capable of digging into huge amount of transactions in order to extract patterns and predict behaviors. Thanks to their creativity startups will take advantage of those two technologies to create new services that exiting actors may not think of, bringing the competition to another area.

This period of time is very similar for the financial services to the one the entertainment industry faced 20 years ago with the raise of mp3 followed by other disruptive technologies which deeply transformed the industry landscape.

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[1] A blockchain is a public ledger of all Bitcoin transactions that have ever been executed