‘Future of Fintech’ expert on next-generation finance

Innovation around financial technology is opening up financial services to unserved demographics and segments of the market, as well as changing the way people interact with finance. Last year, the World Economic Forum’s Global Agenda Council on the Future of Financing & Capital released a report, titled ‘The Future of Fintech – A paradigm shift …

by | April 12, 2016 | bobsguide

Innovation around financial technology is opening up financial services to unserved demographics and segments of the market, as well as changing the way people interact with finance. Last year, the World Economic Forum’s Global Agenda Council on the Future of Financing & Capital released a report, titled ‘The Future of Fintech – A paradigm shift in small business lending’. On the back of an interview with bobsguide at the #ExecFintech event in Frankfurt, Daniel Drummer, who works for an international consulting firm and was one of the contributors to this report, shares his personal views about trends in Fintech and what’s next for banking and finance.

Fintech is a huge umbrella, what does it mean to you?

Fintech has become a truly global phenomenon. To me, it means applying the best technology we have available today to the world of finance and banking. In a sense, fintech is the attempt to design banking services as if we could literally reinvent them today – from a clean-slate perspective, without any legacy. First and foremost, it means that new and disruptive companies are entering the field, challenging the established banking model at its core. At the same time, fintech does not necessarily mean putting banks out of business. In fact, more often than not nowadays, we see that fintech can also mean cooperation or some form of coopetition between banks and startups.

Everyone is talking about collaboration, how much is lip service?

Recently, I’ve seen see more and more true collaboration taking place. Fintech companies have understood that there is value in seeing banks as potential partners instead of the enemy. Similarly, most banks have understood that innovation is inevitable and even larger banks can learn and benefit from working together with more nimble startups.  

However, where the lip service within banks often begins is when it comes to making more substantive changes to their operations. It is fairly easy to launch an accelerator program and provide mentoring to a number of startups. It is not that easy to truly transform the business end-to-end. And it is infinitesimally harder to make the core banking system ready for real-time processing and open up APIs in order to seamlessly integrate with Fintech companies. Here, we see only a small number of banks leading the pack. Going forward, I expect the rise of more true platform banks such as solarisBank in Germany that make collaboration with start-ups the essence of their business model.

Do you subscribe to the view that some banks will fail and new entrants like Mondo, Atom will replace them?

Interesting question – I see this quite ambiguously. In a way, Mondo, Atom and other challengers have a major advantage. They are able to build mobile-first banking operations from the scratch, directly tailored to the requirements of Generation Y and Z, if you allow for some stereotyping. New entrants are not burdened by any legacy system and can move fast. However, so far the landslide move in terms of customer migration has not yet happened. This is even true in the UK where the current account switch service strongly facilitates this move. Overall, customers seem to be more hesitant to change their bank than some had expected.

world economic forum fintech

This gives the incumbent banks a chance to catch up – if they have the necessary determinedness to do so. And this is the crucial point; not every bank will commit to the internal efforts and resources required to go on this journey. As a result, the chasm between successful banks and the ‘laggards’ will become larger. Many of those banks who just rely on their existing customer relationships and hope for the best might not survive in the long-term. Yet those players who embrace change, set the right strategic priorities and follow up with consistent action, can remain successful.

And to do justice to the banks – in a similar way, this dichotomy will also be seen in the world of newcomers. Besides many examples of successful fintech companies there also a number of rather questionable start-ups out there, some of them speculating on a near-term exit and subsidised by cheap investor money. If they are not able to win enough customers and to develop a sustainable business model, they will also vanish over time.

What are you excited about in fintech right now?

I am quite positive on the potential that the ‘Blockchain’ technology may offer in the long run – beyond the hype, this technology could fundamentally alter capital markets, facilitate more effective regulation and become critical in establishing the concept of a digital identity. It is also an area where a lot of collaboration is taking place – across startups, financial institutions and public authorities.

In addition, one of the areas that is still underappreciated, yet has a tremendous potential for growth, is fintech for small businesses. Two thirds of all jobs worldwide are provided by small businesses. Yet in many countries, in particular in global growth markets, this is a group left behind by traditional financial services. For banks it is simply too costly or inconvenient to serve them. The ubiquity of smartphone access and the combination of big data with artificial intelligence is now changing the playing field completely. For the first time, hundreds of millions of small business clients could be served efficiently. As the World Economic Forum has pointed out in a recent report, this is an area where fintech has the power to become a real “game-changer”. My personal prediction is that we will see much more activity in this space going forward. Fundamentally, it is also a great opportunity for fintech to help the real economy thrive and not create another speculation bubble.

small business fintech

How different will finance look in 20 years?

The honest answer is I don’t know. I subscribe to the view that we always over-estimate the pace of change but under-estimate its magnitude. Last year, the World Economic Forum released the landmark report ‘The Future of Financial Services’. In this report, Fintech lead Jesse McWaters and his team provided a comprehensive overview of how disruptive innovation could reshape the way financial services are structured, provisioned and consumed. Personally, I have recently spent quite some time in New York, the Silicon Valley and Tel Aviv, spoken to Fintech evangelists and seen a number of ideas that could significantly change our current understanding of finance. I would assume that in 20 years from now the way we handle finance will have changed radically from what we could even imagine right now. But it is going to be a generational shift. Overall, I am passionate about fintech and the innovation we can still expect to see. It will be an exciting journey over the next 20 years, that for sure.

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