I was invited to a Fintech forum in London to speak on a regulatory panel with ASIC Chairman Greg Medcraft. I met with challenger banks, fintechs, the FCA and visited innovation labs of banks. I was involved in discussions from open banking to cybersecurity and what was happening in Europe. The momentum of change being driven by Fintechs is sobering.
The key differentiator is not technology; it is the business model. By changing the business model the Fintechs are avoiding many of the regulatory issues. Fintechs are then cherry picking the business they want and ignoring the rest. This is whilst incumbents are providing a broad base of services and products at a huge cost.
Whilst the incumbents are forcing the customer to fit an outdated banking model. The Fintech’s are adapting the business model to meet the changing customer’s needs. For instance, banks don’t know how to handle the flexible work force, the Fintech’s do.
In talking with co-operative banks in the USA, I raised the threat from Fintechs was not just loans, but more importantly deposits. For instance, Alipay (China’s paypal) raised $100B of deposits in under 12 months. Peer to peer lenders are offering deposit rates at 7% above what retail banks are offering because they are cherry picking business.
Aggressively shrinking the Regulatory Footprint to compete
When the incumbents largest operating cost is compliance and the new competitors don’t have it, then something is going to break. Retail banks across the globe are spending $200B on RegTech to tackle their regulatory footprint. They are looking for software focused on driving down compliance costs, driving productivity in the back office and delivering critical information to decision makers.
To date, the investment in compliance has just been to get the job done. Tick off the box for regulators and get on with the real business. There has been no focus on cost savings, productivity or adding value to the business. This is changing because of the competitive disadvantage of the compliance bureaucracy that has built up over the last 15 years.
Solutions4Strategy is disrupting the compliance model. We are focused on driving down the costs, increasing productivity and delivering critical information to drive growth and profits.