The “Uber of banking” buzz word has been employed too many times. Please don’t use it anymore, no simple financial app will emerge tomorrow to instantly replace banks.
Let’s consider Uber and Airbnb, two of the most successful unicorns. They didn’t invent a new business. Nothing new in offering car rides or rooms for accommodation, it existed before. However they are successfully challenging the transportation and accommodation markets, with the following features:
- They offer simple and user-friendly services, based on web and mobile technologies;
- They are unconstrained: they have limited assets (mainly their workforce) and are not regulated;
- They unlock the access to untapped commoditized resources: unused car seats and unused bedrooms.
Like Uber and Airbnb, Fintech firms in the banking industry also offer mobile-based user-friendly services, without having the banks’ constraints (heavy regulation, branches network, IT legacy, etc.). However, there are three major differences between them:
- The primary objectives of the Fintech startups are to create new convenient services (e.g. pay with electronic wallet instead of credit card or cash) or to offer cheaper services (e.g. transfer money abroad for a lower fee). Tapping into unused financial resources is only a secondary objective for some P2P lending or low-cost investment service, where you probably tap into unused savings.
- The banking industry is a much more complex business. It is not just about requesting a ride from point A to point B, or booking a room for X nights. Banks serves many types of clients (individuals, investors, institutions and corporates clients) and offers a wide set of services from the simple to the most complex: deposit account, personal finance management, payment cards, money transfer, mortgages, investment products, M&A, etc.Fintech startups usually focus on specific services they can deliver efficiently, challenging banks on individual sources of revenues. It is the Fintech ecosystem as a whole who is a threat to banks, because together they cover all the existing sources of revenues.
- The barrier to entry is much higher in the banking industry.
* In terms of regulation: in several countries Uber and Airbnb are facing issues in regards to personal transport & accommodation regulations, and tax & employment laws, but it is nothing compared to what banks have to do to comply to the huge corpus of banking rules and regulations, under the supervision of powerful public entities like SEC, FSA, ECB, etc.* In terms of competition: there is no doubt that banks can be much more powerful than Taxi and Hotel associations/unions to protect their interests… Also you don’t care to get a random driver as long as the drive is safe and direct to destination, but you won’t give your money easily to the next random Fintech, there is a higher trust barrier.Consequently, it is very difficult for a startup to compete at a full scale against existing banks. Digital banks are getting licenced (Atom, Fidor, Starling, etc.), but they will not catch up soon with the established banks.
Because of these differences, Fintech ecosystem will remain fragmented. We will not see “the Uber of Banking”, several unicorns will emerge along the various segments of the financial services. This is already happening with Square, Stripe, Credit Karma, etc.
In the meantime, the strongest Banks won’t disappear, they will change and adapt. “Transformation of banking” is the right term to describe what is happening in our industry.