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