While the US lags behind in the implementation of fintech there are signs that this is changing, which is good news for banks, their customers and their shareholders, writes Brett King
Fintech is a global industry successfully tackling every part of the financial services sector imaginable. Fintech unicorns include M-Pesa in Kenya, BAT in China, Xero in New Zealand, Housing.com in India. There's SoFi and Funding Circle for SMEs, TransferWise, Klarna, Square, iZettle and Stripe in payments, Lufax, CommonBond, Prosper, Lending Club and Jimubox in lending. But the fintech effect has not been felt equally across the planet. Most advanced is China, whose top eight unicorns are worth three times their US counterparts combined. Across Europe, Asia and even in Africa, banks have stepped up to the fintech challenge – modernising, collaborating and innovating.
Ironically in the US, home to many cutting-edge industries and the recipient of vast sums of fintech investment, fintech adoption lags woefully behind the rest of the world. This is down to a combination of factors, including a banking culture that has never put the consumer first, a consumer wedded to the old ways and fearful of new technology, layers of federal and state regulation making it harder to change the way things are done, and the hangover from the 2008 financial crisis, which left banks little time to focus on much apart from short-term survival.
There is some talk that US banks could get left permanently behind. As global rivals take advantage of fintech to bring down costs, revolutionise marketing, speed up product development and improve anti-fraud and compliance procedures, their high-cost models, legacy systems and poor customer experience will leave them vulnerable to competition.
But I don't think that's likely and here's why. Some banks – Capital One and BBVA come to mind, and now TD Bank with the Moven partnership – really are ahead of the game. They have a truly commendable approach to innovation. While many banks are hiring and promoting more of the same white-collar bankers, perpetuating the old-school culture, these pioneers have embarked on a recruitment drive to attract a totally new type of employee – the "post collar". These people have no interest in traditional banking – they're techies, innovators. They come in with no preconceived ideas about how it should be done. They just want to get it done. And they want to get it done better. The result: the Capital One wallet, for example, a mobile phone app that combines all the customer's bank accounts and credit cards, connecting transactions to give an up-to-the-minute financial position.
For a bank to be a success, it must show a willingness to do things differently, accept a degree of cannibalisation, collaborate with competitors and put the customer at the centre of the product.
Other banks also offer me hope. Goldman Sachs, for example, holds the most fintech patents in banking and last year launched Marcus, a retail bank running on a digital platform with open APIs – although admittedly Goldman has yet to incorporate many of its patents into its business model. Citigroup is similarly active, while JP Morgan Chase is funding an accelerator to help fintechs working in financial inclusion as part of its corporate social responsibility programme.
In fact, all six of the major US banks are investing in fintech in one form or another. But they are still a long way behind the likes of Capital One and international rivals such as Santander and BBVA in implementing fintech.
The argument that US customers aren't ready just won't wash. The banks cannot afford not to embrace this technology. They need to pull the consumer along to improve their own businesses, their reputations and the customer experience. Yes, in some areas, it will be an uphill struggle – between the two coasts vast swathes of my countrymen have never used a debit card, let alone are thinking about electronic transfers. Cheque accounts are still prevalent, and we don't even have chip and pin.
It was these factors that initially made me believe that fintech would break the banks – they would provide such compelling services that consumers would flock to them. But today it's these same factors that have made me realise that the fintechs and the banks can only succeed by working together to bring innovation to market. The cost of customer acquisition is far too high for the fintechs and the cost and spread of innovation too high and wide for the banks for each to go it alone.
The key – taking the best from the other and collaborating to create modern solutions to old problems, such as payments, savings and loans. Go back to first principles and innovate, don't reiterate.
Brett King is an author, commentator and the founder and CEO of Moven, the New York-based mobile banking start-up
At the close of 2016, some 80 fintech unicorns had a combined market value of more than $200 billion – pretty much equivalent to ICBC, the world’s largest bank. Fintech has arrived.