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Cutting through the Fog: Finding a Future with Fintech
Then comes a strange moment, the sort of thing that happens often at Microsoft, which seemingly within moments
turns disaster into salvation. Talk has turned to broader trends in banking. Where’s it going, what’s in it for
us? Banks are dinosaurs, says Gates. We can “bypass” them. The Raptor is unhappy with an alliance involving
a big bank-card company. “Too slow.” Instead he proposes a deal with a small—and more easily controllable—
check-clearing outfit. “Why don’t we buy them?” Gates asks, thinking bigger. It occurs to him that people
banking from home will cut checks using Microsoft’s software. Microsoft can then push all those transactions
through its new affiliate, taking a fee on every one. Abruptly, Gates sheds his disappointment with Money.
He’s caught up in a vision of Microsoft at the center of the “transformation of the world financial system.” It’s
a “pot of gold,” he declares, pounding the conference table with his fists, triumphant and hungry and wired.
“Get me into that and goddamn, we’ll make so much money!”1
Carolina Costa was a consultant at Florida Optimum Group (FOG), which, funnily enough, aimed to “help
our clients cut through the fog.” She was working on engagement, advising a large global bank.
The weather had turned and after leaving the client’s office at 7:00 p.m., Costa was able to enjoy a walk to
both clear her head and synthesize her thoughts. To many, fintech was still a buzzword with foggy definitions
and an unclear path forward. Luckily, Costa had caught the itch to learn more about fintech during the second
year of her MBA at a major business school. She had been asked to lead a team to advise Alex Linger-Turpin,
a senior managing director, on the strategic path that the bank should take in the wake of fintech growth.
A few choices were becoming clear, though she wanted to make sure she analyzed the various options. She
also wanted to make sure she had the right context to share with her client—Linger-Turpin and his colleagues
knew something was bubbling beneath the surface, but they could not quite figure it out. Costa was ready to help
them put their finger on fintech.
1
Newsweek staff, “Culture Club,” Newsweek, July 10, 1994, http://www.newsweek.com/culture-club-189982 (accessed Oct. 27, 2016).
This public-sourced case was prepared by Kayla Cartwright (MBA ’16); and Yiorgos Allayannis, Professor of Business Administration and Associate
Dean for Global MBA for Executives. The assistance of Daniel Gavino is greatly appreciated. It was written as a basis for class discussion rather than
to illustrate effective or ineffective handling of an administrative situation. Copyright © 2016 by the University of Virginia Darden School Foundation,
Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced,
stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the
permission of the Darden School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to
[email protected].
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The Fintech Landscape
In the aforementioned Newsweek quote, Bill Gates forecasted the convergence of technology and the
financial-services industry in 1994.2 Over 20 years later, fintech had become an industry segment of its own,
garnering global funding of more than $11.2 billion for fintech start-ups in the first three quarters of 2015.3
Despite becoming a more common term, the definition of fintech was still nebulous. A few sources, however,
began to paint a more vivid picture:
“As a definition, Fintech is usually applied to the segment of the technology start-up scene that is
disrupting sectors such as mobile payments, money transfers, loans, fundraising and even asset
management.”4
“The answer seems obvious at first: technology that relates to conducting financial services activities,
with the end client/user being a financial institution. But after many, many meetings, I’ve realized that
the currently held definition of fintech is not only stale, but also unrepresentative of the opportunity
in this industry.”5
“It’s time for a new definition of fintech: technology that serves the clients of financial institutions,
covering not only the back and middle offices but also the coveted front office that for so long has
been human-driven.”6
“Use of technology in finance is not new, nor are many of the products and services that are offered
by new entrants to the sector. Rather, it is the novel application of technology and its speed of evolution
that make the current wave of innovation unlike any we have seen before in financial services.”7
“Fintechs have two unique selling points: better use of data and frictionless customer experience.”8
This amalgam of definitions showed that the horizon of fintech was indeed foggy, though it tended to be much
easier to say what fintech was than what fintech was not.
Take the breadth of organizations that occupied the fintech space. Figure 1 shows the wide distribution
of fintech companies across markets and service offerings. In addition, Exhibit 1, a sample list of fintech
companies, could span tens of pages if all-encompassing given the rise of new start-ups.
http://www.newsweek.com/culture-club-189982.
Steve Davies, Manoj Kashyap, and Joerg Ruetschi, “Meeting the Fintech Challenge,” strategy + business, April 18, 2016, http://www.strategybusiness.com/article/Meeting-the-Fintech-Challenge?gko=bd900 (accessed Oct. 27, 2016).
4
Jens Munch, “What is Fintech and Why Does it Matter to All Entrepreneurs,” Hot Topics: Tech Stories,
https://www.hottopics.ht/stories/finance/what-is-fintech-and-why-it-matters/ (accessed Oct. 27, 2016).
5 Karl Antle, “The New Definition of Fintech,” ValueStream, September 30, 2013, http://www.valuestreamlabs.com/blog/2013/the-new-definitionof-fintech (accessed Oct. 27, 2016).
6 http://www.valuestreamlabs.com/blog/2013/the-new-definition-of-fintech.
7 World Economic Forum, prepared in collaboration with Oliver Wyman, “The Role of Financial Services in Society,” April 2016,
http://www3.weforum.org/docs/WEF_FS_RoleFinancialServicesSociety_Stability_Tech_Recommendations_2016.pdf (accessed Oct. 27, 2016).
8 Maria Aspan, “Why Fintech is One of the Most Promising Industries of 2015,” Inc., September 2015, http://www.inc.com/magazine/201509/mariaaspan/2015-inc5000-fintech-finally-lifts-off.html (accessed Oct. 27, 2016).
2
3
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Figure 1. Percent of fintech companies by product and customer segments.
Overall
Insurance
Capital Markets
Lending
Savings and Investments
Payments
0%
10%
20%
IB/Markets
30%
40%
Corporate
50%
60%
70%
80%
90%
Personal/SME
Data
source:
Citi
Global
Perspectives
Solutions,
“Digital
Disruption,”
Citi,
March
https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D
(accessed Nov. 1, 2016).
2016,
A December 2015 Forbes article spoke to the abundance of companies in the fintech domain:
The number of fintech start-ups is difficult to pinpoint, but data sources and industry watchers estimate
that Asia has approximately 2,500 fintech start-ups while the U.K. and the U.S. have a combined total
of 4,000. Even these estimates are best guesses and underestimate the true count, since fintech startups that haven’t received funding are likely not to be documented in any database.9
The Evolution of Fintech
It was not quite known when exactly fintech started. Some analysts said that the first fintech start-ups began
in 2005,10 however, the New York Times reminded the public that PayPal, the first major fintech company, was
founded in 1998, paving the way for others to disrupt the financial-services industry.11 Records from Mountain
View, California, technology incubator Y Combinator indicated that the first significant wave of fintech
innovation began in 2005, with the creation of the incubator’s first fintech company, TextPayMe, a service that
enabled payments through SMS. TextPayMe was quickly acquired by Amazon in 2006, and the acquisition
served as an early indicator of how the industry might evolve over time.12
Since 2005, with the exponential growth of mobile technology and the 2008 crash of the financial markets,
the environment ripened for the emergence of fintech. One indicator illustrated the growth: between 2013 and
9
Falguni
Desai,
“The
Fintech
Boom
and
Bank
Innovation,”
Forbes,
December
14,
2015,
http://www.forbes.com/sites/falgunidesai/2015/12/14/the-fintech-revolution/#1fb09ef336da (accessed Oct. 27, 2016).
10
Ryne Landers, “How FinTech is Changing Business (and Bank Accounts),” Business.com, January 7, 2016,
http://www.business.com/finance/how-fintech-is-changing-business-and-bank-accounts/ (accessed Oct. 27, 2016).
11
“Ranking
the
Top
Fintech
Companies,”
New
York
Times,
April
6,
2016,
http://www.nytimes.com/interactive/2016/04/07/business/dealbook/The-Fintech-Power-Grab.html?_r=0 (accessed Oct. 27, 2016).
12 “Amazon/TextPayMe,” crunchbase.com, October 1, 2006, https://www.crunchbase.com/acquisition/6a387c3d81a66c7f7590f28ec3034fe6
(accessed Oct. 27, 2016).
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2015, the number of fintech start-ups emerging from Y Combinator doubled, and fintech became the trendiest
idea in Silicon Valley.13 Maria Aspan, senior editor at Inc., set out to describe the conditions that allowed fintech
to be the darling of the start-up world in 2015:
Long seen as a highly technical, highly regulated industry dominated by giant banks that resist
disruption—other than the occasional global meltdown—finance is now riding an entrepreneurial
wave. Demand for upstarts’ services is strong, piqued by widespread frustration with big banks; supply
is growing, fueled in part by financial types itching to do something other than toil inside those same
megacorporations…And low interest rates have made capital, the raw material for many money-related
startups, cheap and plentiful.14
In that same September issue of Inc., Pat Grady, a partner at Sequoia Capital, described the broader conditions
that allowed fintech to flourish:
The world is far more connected today than it was 15 or 20 years ago. The tools that are available—
cheap storage, cheap computing, and wonderful analytics—have changed, the regulatory environment
has changed, and people are way more comfortable managing their money and business online.15
The history made sense, and naturally the next question was “Where were we in this cycle?” Rob Frohwein,
of the online lending platform Kabbage, stated, “We’re just at the beginning of this renaissance in alternative
lending—and I look forward to the day it’s not called alternative.”16 On the other hand, Ryne Landers, of digital
marketing agency Reap Marketing, suggested that fintech was beyond its infancy and that companies would
come to maturity in 2020.17 Given the actual growth rate of the market for fintech, the aforementioned
suggestion of maturity seemed to be a more pessimistic outlook than many analysts suggested. An article by
analysts from PricewaterhouseCoopers (PwC) stated that “global funding of fintech start-ups in the first three
quarters of 2015 reached $11.2 billion, nearly double the funding of the full year before, according to CB
Insights.”18 Goldman Sachs also offered an optimistic view of market cap growth: “Goldman Sachs estimates
that upstarts could steal up to $4.7 trillion in annual revenue, and $470 billion in profit, from established
financial services companies.”19 The room for growth was there, as noted in Inc.’s coverage of the changing
world of fintech:
Even a fraction of a point of market share represents significant business, so investors are eager to
back new entrants. Or to get in themselves: Goldman has embraced fintech and is launching its own
online lending operation.
Venture capitalists invested $23.5 billion globally in fintech in the past two years, according to estimates
by Santander, Oliver Wyman, and Anthemis Group.
The financial-services “industry is currently the second-biggest target for disruption, after health care,
according to a survey of this year’s Inc. 500 CEOs”20
Citigroup, Inc., (Citi) also put itself at the optimistic forefront of fintech, and believed that the industry was still
in its infancy. Its March 2016 Global Perspective & Solutions report on Digital Disruption showed that, when
13 Jim Bruene, “The 85 Fintech Graduates of Y Combinator (YC): 2005 to 2016,” Finovate (blog), April 18, 2016, http://finovate.com/51295-2/
(accessed Oct. 27, 2016).
14 http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html.
15 http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html.
16 http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html.
17 http://www.business.com/finance/how-fintech-is-changing-business-and-bank-accounts/.
18 http://www.strategy-business.com/article/Meeting-the-Fintech-Challenge?gko=bd900.
19 http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html.
20 http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html.
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measured by transaction value, P2P transfers (i.e., transferring money from one person to another) dominate
mobile money usage and that when measured by volume, airtime top-up (i.e., purchasing prepaid mobile phone
airtime) dominates mobile money usage (Figures 2 and 3). These were relatively basic transactions, suggesting
that mobile money’s potential had yet to be fully tapped.21
3%
AIRTIME TOP‐UP
1%
Figure 2. Global mobile money product mix by value, 2014.
3%
REMITTANCE
8%
MERCHANT PAYMENT
12%
BULK DISBURSEMENT
73%
BILL PAYMENT
P2P TRANSFER
Data source: https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
Figure 3. Global mobile money product mix by volume, 2014.
Remittance
0%
Merchant Payment
2%
Bulk Disbursement
2%
Bill Payment
9%
P2P Transfer
25%
Airtime Top‐Up
62%
0%
10%
20%
30%
40%
50%
60%
70%
Data source: https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
Citi, like Goldman Sachs, also believed that the current wave of fintech was just the tip of the iceberg, and
that by 2023, 17% of U.S. consumer bank revenues could be based on fintech and digital business models.22
Figure 4 shows the breakdown over time.
21
22
https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
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Figure 4. North American consumer bank case study on potential
market disruption as percentage of the total market value.
2016
Total Digital Disruption
Total Market Value
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
50%
60%
70%
80%
90%
100%
50%
60%
70%
80%
90%
100%
2020
Total Digital Disruption
Total Market Value
0%
10%
20%
30%
40%
2023
Total Digital Disruption
Total Market Value
0%
10%
20%
30%
40%
Data source: https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
Data suggested a positive outlook for the growth of fintech. This opened the door to another question—
who would capture this growth? Fintech start-ups, evolving technology companies, or adaptive incumbent
financial institutions?
Who Will Win the Battle?
Though there was much room for growth, one wondered who would emerge as the winner and take the
biggest piece of the pie—fintech start-ups that remained autonomous, massive technology companies that
acquired or built their own fintech services (as suggested by Bill Gates in 1994), or large financial institutions
that overhauled their IT infrastructure and created or acquired fintech products and companies. Given the rapid
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growth since 2014, fear seemed to be rising, though panic from at least the big U.S. banks was probably not as
justified as one would think, given a miniscule 0.7% penetration rate of fintech in the U.S. financial-services
market.23 However, there were three areas that banks might begin to feel fintech’s impact: loss of data from
payment transactions, loss of customer depth, and fee revenue reductions.24
One of the key ways banks developed new products and services was by using data generated from
payments and other primary transactions. The proliferation of payment-based fintech companies (see
Exhibit 1), resulted in data loss that made an immediate impact on banking operations. Reuters cited Richard
Eldridge, CEO of Lenddo, a fintech company “which provides credit scores using non-traditional data in the
developing world.” Eldridge described, “a few years ago big banks were ‘stand-offish’ about fintech. Now they
are embracing it to serve more people and the industry is experiencing ‘exciting times.’”25
Would banks be put out of business, or would they evolve into fintech companies? For example, would
robo-advising (automated computer algorithm–based investing advising), which grew significantly over the last
decade, overtake the investment-management space? Citi argued that robo-advisors would not replace personal
relationship–based advisors for private wealth clients; robo-advisers would be better employed for new or
smaller-asset investors who wanted diversification and nearly automatic rebalancing of portfolios.26 PwC
identified three trends of responses from traditional institutions:
The first group has adopted a wait-and-see approach, conserving resources until clear technology
winners emerge. These firms risk being caught unprepared when the threat to their business becomes
more imminent. The second group has acquired fintech firms to gain access to new technologies. But
they have often had trouble with integration. The third group includes companies investing significant
time and money in fixing their own existing IT landscape, which is typically fragmented and
complicated by legacy systems that are hard to maintain, upgrade, and improve.27
Incumbent banks had three advantages as they pursued the second and third options—they knew the space
deeply, had access to large amounts of data, and possessed sizeable capital. PwC described how several financial
institutions were creating internal innovation teams to create new products and services in response to
consumer trends. However, it also mentioned that “these internal teams are saddled with decades-old
infrastructure, regulatory burdens, and entrenched interests.”28
Rather than pursuing a significant restructuring of their IT, should big banks instead pursue fintech
acquisitions? With hundreds of start-ups, there was certainly supply. Inc. reported: “Still, the fintech world is
signposted with start-ups that were swallowed by bigger fish (Mint, Venmo, Braintree) or sank.”29 To further
illustrate the size of the pool of fish to be swallowed, Grady of Sequoia Capital said, “If you want to dream a
little, the entire financial system could be remade with these companies.”30
https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
25 Lisa Lambert and Bill Trott, “Political, Business Leaders Size Up Stability Risks from Fintech Growth,” Reuters, April 19, 2016,
http://www.reuters.com/article/banking-fintech-idUSL2N17M01X (accessed Oct. 27, 2016).
26 Julie Verhage, “Citi: Robo-Advisers Will Never Take the Place of Traditional Investment Managers,” Bloomberg, March 31, 2016,
http://www.bloomberg.com/news/articles/2016-03-31/citi-robo-advisers-will-never-take-the-place-of-traditional-investment-managers (accessed Oct.
27, 2016).
27 http://www.strategy-business.com/article/Meeting-the-Fintech-Challenge?gko=bd900.
28 http://www.strategy-business.com/article/Meeting-the-Fintech-Challenge?gko=bd900.
23
24
29
http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html.
30
http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html.
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Regulation
Given a pattern of bubbles, including the dot-com bubble in 2000, and the fall of the financial system in
2008, one wondered, would there be a fintech bubble/ crisis? U.S. senators described the ingredients that could
lead to a crisis once again: “As we saw during the crisis, gaps in understanding and regulation of emerging
financial products may result in predatory lending, consumer abuse, or systemic issues.”31
After flying under the radar for some time, fintech caught the eyes of government officials. On April 18,
2016, political leaders and members of the private sector convened at the World Economic Forum in Davos,
Switzerland. They issued a position paper arguing “that there is an ‘urgent need’ to do more to ensure the rapid
growth of fintech does not become a risk to ‘systemic stability,’” especially prompted by fear that “traditional
finance companies will take excessive chances as they race to keep up with newcomers.”32 Three overall desires
emerged from the report: “[There needs to be a] new forum for the public and private sector to prioritize the
most promising fintech areas…A debate on the ethical use of financial data [for commercial purposes]…and a
set of industry standards for fintech.”33 Would standards, regulations, and a watchdog mentality hamper the
agility and growth of fintech?
As an example of a laissez-faire approach, government support and less regulation had made a significant
impact on fintech growth in China, Kenya, and the United Kingdom.34 Pro-regulation constituents raised
concerns about the risk of data abuse and lack of transparency, citing “how fast and obscurely money can
move.”35 Additionally, they described that “lending is always likely to carry the danger that borrowers won’t be
able to pay…Insufficient regulatory oversight could allow mountains of bad debts to pile up. The risk could be
compounded given that the vast majority of these startups launched during a period of historically low default
rates.”36 These risks, along with those listed in Figure 5, could cause investors to think twice before investing
in fintech. To assuage such concerns, the World Economic Forum encouraged self-regulation by fintechs, since
they had the best insight into the direction of the technology and user needs.
Figure 5. Additional concerns raised at the World Economic Forum.
Alternative sources of finance could shift risk to the consumer and have damaging ripple effects
Market electronification/appropriate use of trading algorithms
Security of data
Industry conduct (“For example, the line between enhanced risk analysis and use of data to deny
service to a particular customer must be defined.”)
Payments effectiveness (typical clearinghouse payment system versus blockchain)
Regulatory arbitrage (since regulations are not consistent across countries)
Adapted by author from: http://www3.weforum.org/docs/WEF_FS_RoleFinancialServicesSociety_Stability_Tech_Recommendations_2016.pdf.
Given the benefits for the consumer, the evolution of the financial service industry, and the potential
market size, banks would need to make decisions about their operating model going forward. Which model
should they embrace? This was most certainly a question without an easy answer.
http://www.reuters.com/article/banking-fintech-idUSL2N17M01X.
http://www3.weforum.org/docs/WEF_FS_RoleFinancialServicesSociety_Stability_Tech_Recommendations_2016.pdf.
33 http://www.ft.com/intl/cms/s/0/0e992e84-056d-11e6-a70d-4e39ac32c284.html.
34 https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
35 http://www.reuters.com/article/banking-fintech-idUSL2N17M01X.
36 Dominic Elliott, “Fintechnicalities,” BreakingViews.com, April 19, 2016, http://www.breakingviews.com/finance-wakes-up-to-fintechs-systemicdangers/21243895.article (accessed Oct. 27, 2016).
31
32
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The Menu of Choices
The changing landscape had left legacy banks, including Costa’s client, with choices to make. After enjoying
her evening recharge time, she realized that there were many options that she could present to her client. She
began to compile insights to guide the decision making. From her perspective, there were four choices she
could advise her client around: do nothing, acquire fintech firms, overhaul the bank’s current IT and strategy
to become a fintech company, or partner with fintech companies to create an ecosystem for customers.
Option 1: Do nothing
Costa knew that the simplest option to advise would be for her client, the large global bank, to do nothing—
to continue with its current business model. History pointed to the need for adaptation, but Costa wanted to
be thorough before ruling out this option. She sought out perspectives from big banks and was happy to find
a bit of disconfirming evidence: Citi described that branches were a key presence and necessity for attracting
new clients and also wanted to keep branches open but make them more advisory focused and lounge-like.37
She found this surprising, given an article from Reuters that included this point; “Citigroup Inc. in China is
looking to expand its digital platform after data showed 95% of its clients’ transactions are not made through
a branch.”38 Beyond the decision of whether branches should stay open or close, Costa wanted to compare the
profitability structures of banks to see if there was overlap with where fintechs were most likely to disrupt
legacy banks. Figure 6 shows analyst estimates for profit breakdown across segments of big banks.
Figure 6. Global banks’ profit breakdown by product and customer segments.
60%
50%
40%
30%
20%
10%
0%
Personal/SME
Corporate
IB/Markets
Payments
Savings and Investments
Lending
Overall
Capital Markets
Data source: https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
In her research, Costa continued to find data suggesting a downturn in the number of employees, even in
cases in which banks did not say outright that they would become more digital. An article in Fortune described,
“Antony Jenkins, the former CEO of Barclays, said in a recent speech in London; ‘I predict that the number
of branches and people employed in the financial services sector may decline by as much as 50% over the next
37
38
https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
http://www.reuters.com/article/banking-fintech-idUSL2N17M01X.
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10 years, and even in a less harsh scenario I expect a decline of at least 20%.’”39 She wanted to compare this
type of forecast and other data she had collected with information about how the consumers of today interacted
with their bank. Figure 7 shows the spread and quantity of interactions clients have with their bank.
Figure 7. Number of interactions with main bank every month by channels.
12
10
8
6
4
2
0
Internet Banking
Cash machine/ATM
Mobile/Tablet banking
Branch
Social media
Telephone call center
Other digital banking**
Data source: https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
Finally, Costa wanted to combine this data with data she discovered comparing banks’ various business
lines against their potential and likelihood of disruption (Figure 8). She hoped all of this information would
help her form an opinion on this first option of “doing nothing.”
39 Ian Mount, “Your Neighborhood Bank is About to Have Its ‘Uber Moment,’” Fortune, March 31, 2016, http://fortune.com/2016/03/31/citibank-staffing-uber-moment/ (accessed Oct. 27, 2016).
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Figure 8. Next big disruption: impact of digital disruption by business line.
Extent of Potential Disruption
(Which products will cause the largest disruption?)
Mortgage
International
Remittances
In‐store
payments
SMB loans
Wealth
Management
Digital
Payments
Deposits
Personal
Loans
Projections: Which Products Will Disrupt the Market First?
Personal Loans
Deposits
Digital Payments
Wealth Management
SMB loans
In‐store payments
International Remittances
Mortgage
Data source: https://ir.citi.com/D%2F5GCKN6uoSvhbvCmUDS05SYsRaDvAykPjb5subGr7f1JMe8w2oX1bqpFm6RdjSRSpGzSaXhyXY%3D.
Option 2: Acquire fintech firms
Although doing nothing would be the easiest for her client, Costa’s research had revealed that banking as
a consumer experience was evolving and that banks were going to need to become more technology driven.
The next option would be for her client to acquire fintech companies to better serve customers. Banks could
choose to acquire companies with either technology or financial roots.
There were indeed technology companies that were developing products and services in fintech. The
human capital that technology companies had to offer could be a great incentive for banks to acquire
technology-based fintechs. What Costa quickly discovered was that many pure technology companies—as in
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those that did not set out to be fintechs, but instead set out to serve customers in other ways—were also the
largest companies and were likely too big to be bought even by the world’s largest banks. According to PwC,
five of the largest tech companies—Google, Apple, Facebook, Amazon, and Samsung—had all begun making
plays in the fintech space.40 Not only could banks not acquire pure technology companies due to costs and
regulations, they also needed to watch out, as the big four (Google, Amazon, Apple, and Facebook) could be
in banks’ blind spot as competitors in the fintech evolution. Business Insider described the context best, saying,
“But it’s not just banks that are trying to conquer the fintech space. Amazon is about to try its hand in this
market, as the e-commerce giant’s head of payments, Patrick Gauthier, recen
