Banks don't have to fear fintech

For some years now, we have been hearing about the fintech threat to banks, including large banks. It was said that these banks would use the internet or mobile to gather deposits and make loans. Thereby, they would dispense with the need for expensive brick and mortar branches. Moreover, they would provide a vastly superior customer experience- lightning fast transactions, bill payments and shopping that would work far more smoothly than anything the big bank had to offer.

Nothing of the sort has happened thus far, as this article makes clear in the case of the UK. (The UK experience is not unique; fintechs have not unseated banks anywhere). Very few fintechs make money, most of them are burning investor cash in garnerning customers. The three leading fintech ventures in the UK have been Revolut, Monzo and Starling. Ten years  after they started off - and ten years is a long time- only Starling  has turned a profit in the year ended March 2023. The other two hope to make profit in the next accounting year.

These three fintechs may have brought in a decent number of customers but they customers use them only to put through transactions on which the banks make a fee. The fintechs have yet to register a meaningful presence in the core banking functions, namely, making deposits and loans. People are not ready to place their savings in a meanginful way with the fintechs- one sure sign: the fintechs have a very low share of salary accounts. Large banks with their brick and mortar visibility inspire more confidence than fintechs. 

If you cannot take care of the funding side, you can't do much on the lending side either. Without low cost deposits, there is little competitive edge to lending. The ones they can lend to are customers whom the traditional banks won't entertain, that is, high-risk customers. Some fintechs claim to have cracked the problem with analytics and stuff but their high level of non-performing assets tells its own story. 

Finally, banks have not been idle in the face of the supposed fintech threat. They have invested hugely in technology and improvements in the customer interface. Some have got into collaboration with fintechs whereby the banks get the benefit of fancy technology and the fintechs collect a decent fee. 

The bottomline: the threatened disruption of the banking industry has not happened at all. If I were a depositor, I would go with a large bank for a simple reason: I know the authorities will not allow it to fail, so my money is safe. With a fintech, I have no such assurance. If the price I have to pay is that it takes more four seconds more to put through a transaction, I can live with that.