There’s no doubt that the banking industry is ripe for disruption. This is particularly true from the perspective of us demanding millennials whose careers were birthed during the financial crisis. But it’s not just about being raised with a mindset ripe to distrust traditional big-name banks. We are also a generation that demands choice and assumes all those options come equipped with the highest level of mobile technology and convenience.
According to Accenture, besides being more demanding, our generation is basically fickle and disloyal, with a majority of retail banking customers viewing their banking relationships as ‘merely transactional’. We are long past the time of Bailey Building and Loan, no longer going to our trusted local banker for financial advice.
Not only has there been a dramatic shift in how consumers bank, there is a growing group of financial management start-ups, often called fintechs, that took the financial crisis as an opportunity to create some fresh competition, right when banks around the world were picking up the pieces, merging or totally shutting down.
In a white paper from last year, Deloitte outlines how ‘new, technologically-enabled forms of competition and the regulatory agenda limits banks’ privileged access to customers.’ This ‘Big Four’ powerhouse talks about how normally banks would react to growing online competition by simply consolidating and merging — which, of course, we still saw attempted time and again during the crisis — but Deloitte admits that habit doesn’t jive well with European anti-oligarchy laws. The bank argues that fellow financial giants need to prepare themselves for this world where people bank, invest and borrow in a very different way than ever before.
So, who are the Davids popping up to battle these Goliaths?
Completely online bank Fidor began serving German small businesses and individuals in 2009 in what their CEO Frank Schwab calls “the beginning of our interpretation of how social media meets banking.” With now more than 250,000 customers in Germany, plus growing bases in Russia and the U.K., Fidor offers the full range of traditional retail banking, like credit cards, loans and savings, as well as new banking, including crowdfunding, peer-to-peer loans and crypto-currency like Bitcoin.
From the start, Fidor customers could rate financial advisors and products. Schwab says they target people living what he calls the ‘digital lifestyle’, who don’t just have a Facebook profile, but are heavy users, shop on Amazon and ride with Uber. In order to keep up with this target consumer whose demands continue to change, Fidor has released new products and functionalities every two weeks for five years straight.
And Fidor is certainly not alone in disrupting retail banking. Hundreds of digital-only banks are breaking down their previously insurmountable barriers of brick-and-mortar counterparts. Cloud computing and mobile apps have made it relatively inexpensive to build a viable bank completely online, and social media and big data see start-up banks satisfying our need for social context and deeper insights into our financial lives.
Cyprus-based eToro is a three-and-a-half-million-user-strong social investment network, which actually crowd-sources financial advice and allows users to watch and then mimic the transparent actions of investors they like. In fact, social-based banking like eToro and Fidor is so hot that Facebook announced last year that it will eventually throw its hat into the fintech ring by adding electronic money and remittances to what the world’s largest social network already has to offer.
Of course, many of the biggest financial disruptors are found in London, Europe’s financial capital. Borro has digitized and upscaled the old fast-cash fallback of the pawn shop, where you can get short-term loans against luxury collateral like diamonds and Porches.
There’s no doubt that traditional banks still have a long way to go to build up trust again after the housing bubble burst, which is why start-up Landbay was founded to eliminate the banking middleman completely from the mortgage process. Then Zopa has essentially gotten rid of the traditional bank’s role altogether by enabling peer-to-peer lending online — with only a minimum of £10 — for a small transaction fee.
Perhaps the most revolutionary fintech is Aire, which offers what it calls ‘credit scores for humanity’. Hyper aware of the risk of drowning in debt, many of us born in the 80s and 90s are avoiding credit cards like the plague — a good idea in theory, but results in new borrowers getting a rotten credit score. Plus, more than two-thirds of the world’s population don’t even have credit scores. And, as founder Aneesh Varma says: “If you’re an expat like me, your financial passport doesn’t move with you — it’s a reset button”.
By redefining your data, factoring in things like your CV, bank records and paychecks, Aire is offering an alternative credit score that could help ‘credit thin’ folks finally gain financial approval. These are just a few of the dozens of new fintech entering the banking mix each month. Only time will tell how these financial newcomers can shake up stodgy, old, traditional banking.