Banking is what we do and technology is how we do it

an article written by Chris Skinner, the author of the bestselling book Digital Bank

A decade ago, we talked about the financial crisis, technology, regulations and compliance.

A decade later, we still talk about regulations and compliance, but the discussion has changed thanks to the explosion of thousands of start-up firms around the world, in every constituency, doing things differently with technology that is now known as the FinTech community.

A decade ago, there was no FinTech. No one referred to FinTech. No one talked about it.

A decade later, you cannot ignore it with many new business models and products creating companies worth billions and challenging the traditional banking system. The best illustration of this dramatic change is perhaps the stark difference in valuations of Stripe, a payments firm formed in 2010, and Commerzbank, a German bank founded in 1870. In October 2019, Stripe was worth seven Commerzbanks. The world has changed.

What will we talk about a decade from now?

My forecast is that we won’t talk about FinTech anymore as the ideas, products and models of the FinTech community will have been absorbed into the banking community. Banks will still be doing what they do, but they will just do it differently. Deutsche Bank summarised this well in a statement that said, “banking is what we do and technology is how we do it”. Spot on. The how of banking is technology and, a decade from now, this will be fully integrated into most banks business structures.

What this means in reality is that banks will imitate, emulate and integrate FinTech business models, products and services into the banks’ business models, products and services. A few banks are already doing this, with BBVA and Goldman Sachs being early movers. BBVA has made several significant acquisitions of FinTech start-ups like Simple and Holvi over the past decade, whilst Goldman Sachs has not only acquired firms like FinanceIt but launched their own challenger bank called Marcus.

What is now happening however is an escalation of such activity. Between 2010 and 2018, for example, there were less than 20 bank acquisitions of FinTech start-ups but, notably, six acquisitions took place in just the last of those years. Now, we are seeing many more. For example, Santander took a major stake in Ebury, a foreign exchange facilitator for SMEs, in 2019, whilst firms like American Express acquired Pocket Concierge, a restaurant booking app. We saw banks in America partnering with Amazon, Apple and Google to provide financial servicing and even saw a FinTech start-up called Raisin buying a bank, MHB.

The market is now getting even hotter as Visa just announced the biggest acquisition of a FinTech start-up since this new market explosion began a decade ago. In January, Visa announced that it had agreed to buy privately held software start-up Plaid, a payment processing firm, in a $5.3 billion deal. Plaid’s technology powers major mobile financial apps like Venmo, a PayPal company, and Chime, an American challenger bank. The price is what is notable. $5.3 billion is double the value of Plaid compared to its funding valuation of a year earlier but, more importantly, a multi-billion acquisition shows that traditional financial firms are moving from watching FinTech to acquiring it for top dollar. This is something I forecast a while ago and is the movement towards FinTech and banking coming together as one. No fear of each other anymore but more of a partnership.

This is why I believe we will see FinTech continue to boom through the next decade and, during that boom, see many more multibillion investments and acquisitions of start-ups by banks. After all, banks have the billions to do this. Banks also know they need to do this to keep up as their ailing internal technologies are out-flanked and out-stripped by new and agile firms.

The result is that, by the end of this decade, we probably won’t talk about FinTech anymore. We will just talk about banking powered by tech. After all, banking is what we do and technology is how we do it.

About the author

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…