Banking, Financical and Insurance: Competing in digital world

The maturing of digital technologies (Internet/Web, Mobile, and Blockchain) continues to disintermediate traditional banks, and have led to growth of ‘fintech’ firms. Many fintech companies start-up with little or no regulatory/government oversight-costs, no legacy business processes, and consume third-party API’s for many traditional back-office functions, resulting in lower cost of service/fee to consumers.

Banks revenues are falling due to:

• lower net interest margin (near zero fed rates)
• Allocate more reserve capital / Basel II..III..
• fintech chipping away on their fee based incomes

To keep their margins, banks have to increase fees, and drop customer service (no face banker). This is resulting in customers easily adopting fintech companies. When Millennia’s need a financial service, by habit they ‘Google’ and guess which companies show up in search results – fintech.

Segments of financial services and representative fintech companies are:

Money Transfer / Payments

• Use of non-banks to transfer money (Venmo/Paypal)
• Overseas remittances (Transferwise)
• Cross border payments (Ripple-Blockchain based direct settlement)
• Merchant services for mobile commerce (Square, Stripe)
• Mobile wallets (Apple, Google, Starbucks, Walmart)
• Digital currency marketplace (Coinbase)

Savings / Investments

• Online stockbroking (E-trade)
• Online investments (Betterment, Motif)
• Crowdfunding (Realtyshare)

Insurance

• P2P Insurance (lemonade)
• Car insurance
• Claims (Claimable)
• Robo Brokers (Goji)
• Just-in-time/Telematics (metromile)

Borrowing

• Borrowing marketplace (LendingClub, Prosper)
• Online lenders (Cashcall)
• Student loan/refi (SoFi)

Small business lending

• Small loans /LC’s (Ondeck, Kabbage)
• Invoice factoring (Bluevine, Amazon Lending program)

Today no fintech product comes close to matching the security of a checking (insured) account of a traditional bank. However days of universal bank may sunset. Surely most of the banks will invest / acquire / partner with fintech companies to stay relevant for their consumers. This may also be good for fintech companies, as they have not seen a full recession/financial crises and may need strong partner/capital to ride it.