Fintech in early stages of mass adoption

Today, banks and fintechs are acting like comrades in innovation, not cutthroat competitors. But banks should be keeping tabs on the well-funded giants of the Internet; Google and Facebook have already gained the trust and loyalty of hundreds of millions of people.


Banks and fintechs just want you to know they’ve buried the hatchet.

At a recent panel discussion in Toronto, execs from Scotiabank (one of the biggest, oldest players in Canadian finance) and Facebook (one of the biggest, newest players in, well, everything these days) sat side by side, speaking of each other in almost gushing terms.

“We’re definitely in a different place. It’s a partnership that’s evolved,” said panelist Dubie Cunningham, VP of enterprise innovation and digital banking at Scotiabank. “These startups have entrepreneurial spirit and can move with great velocity and have fresh ideas about how to serve customers.”

Erin Elofson, head of financial services, retail and telecom verticals at Facebook Canada, was quick to volley her own compliment in the banks’ direction.

“Canadian banks are actually some of the most innovative in the world on the Facebook platform today,” she said, “and in a lot of ways they’re actually leading fintech innovation.”

Today, banks and fintechs are acting like comrades in innovation, not cutthroat competitors. Around the world, banks are launching fintech incubators, investing in fintech startups and developing new products and solutions with fintech firms.

Basically, banks are taking the stance that if you can’t beat ’em, join ’em. After looking at a new study from Ernst & Young, who can blame them? The EY 2017 Global Fintech Adoption Index found that more than one-third (33 per cent) of 22,000 people surveyed in 20 countries use fintech services on a regular basis.

“There is no doubt fintech has reached a tipping point,” the report concludes. “Fintechs are clearly gaining widespread traction across global markets and have achieved the early stages of mass adoption in most countries.”

In the face of this trend, banks “need to urgently reassess their business models,” the study warns, because “disruption is no longer just a risk — it is an indisputable reality.”

According to another recent EY report, the best way for banks to deal with fintechs isn’t to acquire them, buy up their technology or invest in them at arm’s length — it’s to partner closely with them.

“Our research shows that collaboration is the preferred engagement strategy. A collaborative approach enables a network of banks to jointly develop new technology standards that they can adopt in the future,” says EY’s study.

Many banks around the world — 51 per cent of them, based on EY’s research – are choosing this model, opting to team up with fintechs instead of going head-to-head or going it alone.

A new study shows consumers are already
using non-bank fintechs for more than just
mobile payments and money transfers.

It’s nice that banks and fintechs are getting along. But what will it all amount to? Will banks incorporate fintechs’ innovation into their operations and retain their historical dominance in financial services? Or will fintechs eventually usurp them?

One of the perceived stumbling blocks to the ‘fintechs will eventually win’ theory is trust. Consumers, the theory goes, will never fully trust fintechs with their money and financial future the way they’ve always trusted banks.

The EY study casts new doubt on that theory. It shows consumers are already using non-bank fintechs for more than just mobile payments and money transfers; 24 per cent of those surveyed use fintechs for insurance (insurance!) while 20 per cent use them for savings and investments. Ten per cent use fintechs for borrowing and another 10 per cent use them for financial planning.

Regulation is often cited as another insurmountable hurdle for fintechs. As EY notes, however, “policymakers are clarifying regulatory frameworks in previously undefined areas, paving the way for more (fintech) services.”

EY says regulatory bodies in the U.S., U.K., Australia and Asia are taking steps to “assess whether existing rules, policies and guidance are restricting innovation and the adoption of (fintech) solutions.” In Canada, the Ontario Securities Commission has created LaunchPad, a program to educate fintech startups and help them navigate the regulatory landscape.

LaunchPad’s website says it “aims to create more flexibility for innovative fintech business models to get to market while ensuring appropriate investor protections are in place.”

At the Toronto panel discussion, LaunchPad chief Pat Chaukos was more blunt. She conceded that while the OSC must safeguard investors, it also wants to make sure that “when it’s time to get out of the way, we’re getting out of the way.”

But all of this is focused on fintech startups: the proverbial little guys, the scrappy upstarts. In reality, as the CEO of RBC has warned, banks should be keeping tabs on the well-funded giants of the Internet. Google and Facebook don’t need banks to help them out with funding, thank you very much, and have already gained the trust and loyalty of hundreds of millions of people.

It’s great that most banks and fintechs offer mobile apps and transactions. But now that you can buy stuff on Amazon Alexa with simple voice commands, will younger consumers even bother to download and open a banking app? They want to use financial services where they already (and always) ‘live’ online. Where’s that? Amazon, Facebook, Google, and the like.

EY’s research suggests that the biggest fintech users (who are, says EY, millennials) “prefer digital channels to manage all aspects of life.”

Facebook clearly gets this. Facebook Canada’s Elofson said one of her company’s key principles is “being where people already are. You want to create experiences where consumers are.”

Thus, Facebook has given users the ability to do peer-to-peer money transfers via its Messenger feature. Users must first connect their Facebook account to their debit or credit card — for now. Who knows if technical or regulatory issues will even require that step in the future.

The way things are going, it doesn’t seem farfetched to one day buy insurance or get a mortgage on Facebook, right after ‘liking’ those photos of your friend’s cat.

Image: iStock

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