Fintechs are hardly challenging incumbent banks

We so often see how fintech startups are disrupting the industry by leveraging technologies to do what banks struggle with, and we label these fintech players, ‘challenger banks.’ But we fail to take into account the quantum of the challenge they pose to traditional banks.

CEO of The Finaser Chris Skinner, “After centuries of history, can incumbents keep up with the fundamental transformation brought about by digitalisation? “The real question is, what is a challenger bank? Because there are many fintech players that look like it, but are not,” Skinner said. This is one of many questions posed during a panel discussion titled, “Digital Bank: Rise of the challenger,” at MyFintech Week 2019 at Sasana Kijang.

Fintech banks are Not making money?

Looking at fast, agile, convenient services offered by fintech players like Monzo and Goldman Sach’s Marcus, it all looks very good on paper. But, once again we are ignoring important key metrics.

For example, these fintech players (that are hardly startups) spend millions on marketing and ‘interest-rate bribes’, to achieve billions in deposits. “But they are not making money,” Skinner said.

For example, Satander in the UK, has achieved USD46 billion in deposits and 4 million accounts. But their share prices can drop as much as 46-percent. “The banks are not challenged,” Skinner aptly pointed out, adding that Monzo at best is a lifestyle bank, that consumers use to pay their utility bills. But they are not primary accounts, where monthly salaries go into.

Skinner said, “’Challenger banks’ in the UK are becoming lifestyle, and incumbents are becoming boring with primary accounts. So, Monzo, isn’t a challenger bank, and by the time that they are able to challenge banks, they will probably get boring, too.”

The ‘neo-bank’ fintech

Skinner invited the audience to consider the neo-bank, a category that fellow panellist, Henry Ma’s WeBank actually belongs to. “They are reaching people who previously could not be reached, with a physical distribution model. In fact, the unbanked segment has dropped to less than 2 billion now, because of digitalisation,” Skinner said.

Henry Ma, WeBank’s CIO attributed this to them being able to bring new elements (of service) into the market, and bring a better business model, better efficiency to reach the market. He also admitted that partnerships play a huge role.

Definition of a Digital Bank/Virtual Bank

Now, for the digital bank. All three panellists had different ideas about what a digital bank actually is.

For CIMB’s CEO, Tengku Zafrul, a digital bank means a bank that is mobile-first. “CIMB is a hybrid (of traditional and digital) whereby we continue to digitise our services, and mobile is one of the many access channels.”

WeBank’s CIO thinks it’s about making products that are affordable and accessible and timely, in a way that is sustainable for business as well.

“This is the core meaning. Digital is the way to get customers, and it’s a more efficient way to do business,” Ma said.

Skinner however had a more holistic view of a digital bank, meaning that it is born on the Internet and is built on the Internet. “A traditional bank moving to the digital model, would have to get rid of (legacy), unburden themselves and reinvent themselves.”

But the main key element of a digital bank, is its fundamental core structure, otherwise, ‘you are just applying tech onto an old bank.’ This is important to ensure there isn’t fragmentation, and technologies like cloud and blockchain can be easily deployed and taken advantage of, Skinner concluded.