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FinTech vs FinFakery: a reality check for banks and startups

Philippe Gelis, CEO and co-founder at FinTech enterprise Kantox, explores the cosmetic use of FinTech within some firms.

The first use of the word ‘FinTech’ was, rather surprisingly, back in 1972 – decades before it became a mainstream term, and even before the internet existed. Fast forward 44 years and the term now receives in excess of 13 million results through a simple Google search. Having grown as a concept exponentially in 2015, we’ve seen a raft of new entrants to the finance market claiming all to have a solution that will disrupt and revolutionise the sector through technology, and the banks are standing up and taking notice.

However, whilst some banks are taking a genuine interest in the possibility of FinTech, such as BBVA acquiring a stake in Atom Bank or JP Morgan partnering with a number of startups, there are some banks that are purely looking at FinTech in a cosmetic sense. These banks embark on schemes such as accelerators and hackathons in a bid to appear as though they are embracing FinTech, as opposed to adding genuine value.

Differences in approach

Up until now some banks have been able to get away with making minimal effort to appear as though they are embracing FinTech. This is because the impact of FinTech firms on the banks’ profit and loss has been minimal, so they haven’t needed to make major changes to their business. Building an attractive website, using the word ‘FinTech’ on most of the pages and leveraging social media to appear as a tech leader isn’t enough without providing a new, innovative product. Doing this is what I like to refer to as ‘cosmetic banking’.

However, this idea of ‘cosmetic’ banking will be exposed in the coming years. Innovate Finance, for example, has already pledged to begin a ‘lobbying blitz’ for FinTech, meaning that whichever way the exit from the EU goes, FinTech will thrive. With this in mind, banks will need to change their DNA when it comes to approaching FinTech. Some non-UK banks, such as BBVA are already beginning to change their approaches, and the Chairman, Fransisco Gonzalez discussed how “pressure from technological advances will be the main factor driving the consolidation of the finance sector” and “those who don’t change, will be left behind.”

The driving force

FinTech firms have successfully taken one area of banking, such as FX or payments, and optimised it, offering a better, and more specialised service. Companies that have selected their niche and are challenging the banks in that particular area head on are proving themselves as being able to provide a far superior service.

However, as the market becomes increasingly competitive, there is no room for FinTech fakery across the traditional banks, or even amongst the FinTech companies themselves. Following the Brexit decision, investment will inevitably be tougher to come by, and ultimately, only the strongest business models will survive. Some FinTech companies have invested extreme sums of money into marketing efforts to gain market share, but the actual product or service itself is poor.

Banks and FinTechs are experiencing a reality check. For banks, they need to be actively making real businesses changes to work with FinTechs, for example, investing in startups. For FinTechs, it is clear that ensuring that they have a genuinely disruptive product that brings real value to customers, is vital.

This reality check will ultimately make the industry healthier as it forces FinTech companies to build unique and disruptive technologies, whilst encouraging them consider collaborations with existing players. This is where the banks come in – they need to ensure that they are collaborating with these genuinely exciting FinTech companies in order to thrive and enhance their offerings. It’s no longer a case of making bold empty claims that bash the competition – if FinTech and banks are to excel, they need to put their money where their mouth is.

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