3 KEY FORCES SHAPING FINTECH MARKET

We know that a slew of tech enablement and mass adoption triggered a sort of 'renaissance' for Fintech companies. But what drove us to seek alternate financial services - both from a consumer and investor standpoint? What benefits do they bring? Other than expecting a financially sound, secure and stable system, these market forces is reshaping the financial services landscape:

1. Push towards 'costless' transactions
   
2. The appetite for timely intelligence and actionable information 
3. Expectation that funding/investment is customized for each individual customer

To understand why the tech enablement caused this let us first outline the value that banking intermediation offers. The average consumer benefits from the following intermediation services in exchange for a fee: 

1. Provide banking infrastructure necessary for customer to carry out transactions 
2. Act as broker of information
   
3. Undertake and manage risks 
4. Offer liquidity and funding 

Or put it another way, we as customer are willing to pay for banking services in order to: 

1. perform financial transaction with another party 
2. gain access to financial-related information 
   
3. lower or manage our risk exposure
4. gain access to funding/investments opportunities

As technology shifted downstream to end user such as yourself, it created a shift in lifestyle and mindset. This in turn triggered a market shift in that consumer is now demanding the level of services not offered by traditional banks. Growing number of banking customer is now demanding timely access to quality and highly customized information (at no cost); expect services to be centered around his/her needs; compares banking fees unfavorably to that of the 'freemium' services; expects banking services to be available at their own convenience.

TOWARDS ZERO-COST TRANSACTION
Although it is generally understood there are cost associated to enabling transaction (i.e. infrastructure investments, labor, payment services, etc.) customer do however expect the average cost per transaction to continue to fall or gets abolished. This is on the basis of lower cost technology availability, market pressure and shifting industry practices. This gave rise to a steady movement towards zero-cost transaction. Already evident in payment solution  offerings and remittance business, the trend is now spilling over to traditional banking line: In March 2015, European Parliament have voted in favour of a bill to cap the fees at 0.3 per cent of the value of transactions on credit cards and 0.2 per cent for debit card payments across borders. Some  comparison of the  cost per transaction can be found in the following: 
https://www.formstack.com/payment-gateway-comparison

DEMOCRATIZED INFORMATION SERVICES
Secondly, You can generally observe that there is some information element in each and every service that we seek. For example:

1. We need information about the best way and option available to lower or manage our risk exposure
2. We need to know where and how to gain access to funding/investments opportunities
3. We need information to verify the transacting parties when we perform financial transactions
4. We want to gain access to financial-related information in a timely manner

Therefore, the second key driver is "delivering the right information to the transacting parties'. There is the fundamental pursuit of a democratized financial information system long even before Fintech emerged. I've in earlier article showed how innovative Fintech share information with end users through a combined Value Stream approach along the traditional Banking Value chain. The emergence of Peer to Peer markets and technology that will continue to empower end-users will continue to proliferate and force traditional bankers to compete in an unfamiliar market.

ALTERNATE FUNDING AND INVESTING PLATFORM
Thirdly, banking is also about making funding available in ways that was not possible by traditional bankers. Think insurance for instance, the key driving need is risk management by having the right information and emergency funding in case of incident. This have traditionally been dependant on third-party specialist we know as insurance companies. With the rise of GPS, early warning systems,  telemetry, IoT and other technology enablements, it is becoming increasingly possible to actively manage risk and relook at cost of managing risk differently. As to funding, there are multiple alternatives too ranging from peer-to-peer to reinsurance funding to trust funds. As Schumpeter wrote about Friendsurance, a website that is now considered the pioneer of what one day may be called “social” or “person-to-person” (p2p) insurance in Economist: “Isn't an insurance essentially a social network to share risk?” 

SHOULD I BANKS OWN A FINTECH?
Other than frantically trying to gobble up Fintech startups (which may not lead to much synergies), bank should challenge itself in working towards (given that financial system stability is still a priority): 

1. Lowered or costless transactions and supplement it by alternate revenue options - mostly through value-adding to end customers.
   
2. Delivering the right information to the transacting parties
3. Provide alternate and tailored funding/investment

Our fundamental need for banking services does not change. But by applying technology and challenge unproductive practices, we will be able to make for a much more productive economy through the use of a less--taxing and more value-added financial intermediary system. 

A BETTER FINANCIAL INTERMEDIARY 
It is not then not a pursuit to disintermediate bank but an effort to strengthen the intermediary role of financial service providers - be it bank or fintech. Bank's role in most of these financial services should be justified not institutionalized. And yes, banking needs to be regulated - that includes Fintech and banks too.

NOTE: The "Fintech Ideation Canvas" has been updated with additional guiding info on customer needs.