I remember talking to Anthemis
founder Sean Park
at his home in late 2011, as we were preparing his speech on reinventing finance that became one of Lift’s most watched talks of all time (video
He was sharing with me his vision for the future of finance, and something was unusual in his discourse: oftentimes when you talk to an entrepreneur trying to disrupt an industry, they will tell you that the future is made of new players kicking the butt of clueless incumbents who become totally irrelevant. Sean’s vision was more subtile, that the future would be a blend of new and old players.
That’s why, from day one, Anthemis has been a company investing in fintech startups while, at the same time, advising the largest financial institutions in the world on how to create smart digital strategies. This raised - and still raises - a few eyebrows here and there, but let’s look back a bit. Did music startups kill the majors? Did digital distribution kill hollywood studios? Not really isn’t it…
Today, it seems this balanced vision of the world is getting a bit of traction, and one of innovation’s important rule is sinking in: very often, innovation complements more than it replaces. Incumbents move late, but have key assets (in banks’ case: reputation, regulation, track record, clients’ access, capital, data) and have a real shot at being relevant in the new world if they make the right decisions.
Although it’s calling it “an uneasy symbiosis”, the Economist has a great writeup of the financial industry’s current situation:
The best thing anyone can say about banks is that they will always be around. “People like to whinge about them but they will never leave,” says Neil Rimer of Index Ventures, a fintech investor.
And why would they? Day-to-day banking is not such a bad deal. Customers can store their money safely and get at it instantly, usually even from abroad these days if an ATM is to hand (remember travellers’ cheques?). They can cash in their pay cheques and settle bills. This costs them little or nothing, and everything is backed by a government guarantee. […]
Moreover, banks have done fairly well with moving their services onto the internet and then to mobiles. These are two major transitions that have fundamentally changed the way people handle their financial affairs: few industries successfully manage even one. Given their size, banks are perhaps not as incapable of evolution as their fintech critics make out.
So it may not be surprising that fintech has failed to break through in what most people would recognise as day-to-day banking. No startup has successfully made a play for the centrepiece of people’s financial lives, the current account. Banks are making a good-enough job of this in a highly regulated environment unappealing to many outsiders. […]
The threat the startups pose is not that they will topple banks as linchpins of the economy. Most fintechers are not interested in the complicated, regulated bits of banking. The threat they pose to incumbents is that they might just seize the profitable add-ons, from loans to payments services and investment advice—anything that generates fees. It now seems increasingly likely that they will manage to “unbundle” at least some of these extra services banks offer their clients. […]
Incumbents are likely to copy, license or buy many of the innovations served up by fintech once they have proved popular. Banks did not invent the ATM but they co-opted it efficiently. Wealth managers will do the same with robo-advisers if they keep attracting new money. For any large financial firm, it would not take more than a few weeks’ worth of profits to gobble a fintech star.