As I wrote in our previous blog post, financial technology (fintech) was a big theme at Slush 2016. The second day of the event placed further emphasis on the topic with a fintech-centered side event called “Fintechs and finance: Collaboration, not just competition”. The side event was hosted by Magenta Advisory’s Markus Huttunen who opened the event with a forward-looking presentation on how banking will evolve in the age of fintech.
According to him, banking is one of the last industries with full vertical integration, ie individual banks tend to have all functions from legal services to IT in-house. The European Union's upcoming PSD2 directive, which includes many interesting changes to banking, will force banks to open some of their interfaces up to the public so that third-party apps for eg online banking can be developed. PSD2 will be a major step forward in lifting the veil and opening the door for a subset of technologies in the financial industry. You can read about the effects of PSD2 in Magenta’s blog post.
PSD2 will revolutionise banks' strategies
The changes coming with PSD2 will most likely end up revolutionising banks’ strategies, as it will open doors for collaboration with fintech companies and hopefully direct the financial industry away from an “us-versus-them” attitude between fintechs and banks. Huttunen and Magenta predict that the new business models stemming from bank–fintech collaborations will be more formed around platforms and banking-as-a-service models. Furthermore, banks will probably be split in three general categories based on their relationship to fintechs: best partners, ecosystem orchestrators, or killer app competitors.
Banks adopting the first model might become fintech companies’ best partners for building their businesses by providing infrastructure that all fintechs will want to use, similarly to how Amazon Web Services is the go-to partner in cloud computing services and server space. There might be lucrative opportunities for banks in this model, as showcased by Amazon Web Services accounting for nearly half of Amazon’s overall profits.
The ecosystem orchestrator model on the other hand might see banks becoming something similar to what Apple and Google are in the mobile app space, aggregating and distributing services provided by fintech companies. However, some banks will surely choose the competitor path, producing their own products to battle with those made by fintech companies.
Banks will adapt to fintechs, and there will surely be many lucrative ways for fintechs and banks to coexist and co-operate. In many cases, it might even be a match made in heaven.
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