Jeff Judy

Jeff's Thoughts - March 9, 2016

Does "Fintech" Matter?

In my conversations at conferences, training workshops and consulting engagements, the term "fintech" seems to be popping up more and more. It is usually a "by the way ..." kind of topic. It's not the first concern on the minds of participants at these events, but they bring it up, wondering what I am hearing about it, and what I think about it.

In a nutshell, what I think about it is that fintech has the potential to produce a major disruption of the financial services industry, and sooner rather than later.

"Fintech" as a term can be a bit vague, used differently by different people and in different contexts. I think of "fintech" as the delivery of financial services entirely (or almost entirely) through technology. I'm talking about things like someone applying for, receiving, and maintaining a mortgage entirely on-line, without ever meeting anyone or entering a building. By definition, there is no brick-and-mortar component to a fintech firm.

Most of the people I talk to in our industry are aware of some of the best known fintech companies. They might mention, for instance, Quicken Loans. With their marketing reach, they are a truly national competitor for local institutions, one that reaches every home and business in any community. Or consider entirely on-line savings accounts that offer significantly better interest rates on deposits, taking advantage of their low overhead. Discover can reach every one of their credit card users with an offer to open an account.

It is important to understand that a few well-known names in fintech are just the tip of the iceberg. There are, not just a few, not dozens, but hundreds of fintech firms offering various kinds of credit and other financial services. And barriers to entry are not that high, so you can expect this source of competition to continue to grow at a rapid rate.

Nor are these your traditional competitors. When we talk about competition, we are usually referring to other institutions that operate much as we do. A customer may have a better experience with you, compared to a rival, as they go through the process of, say, getting a loan. But the underlying process, the steps and actions and sequence, is much the same.

Fintech companies start with the same customer needs and desires you do. But the experience the customer has is different not just in degree, but in kind. Unlike your traditional rivals, they are not trying to be better at doing things the same way you do. They are fiddling with the process. And they can change customers' expectations for future interactions with their financial services providers.

Are there actions you can take to reduce the impact of fintech on your business? Certainly! And I will address some strategies for dealing with fintech in later issues of Jeff's Thoughts.

But the first action is to recognize the magnitude of the threat, and the speed with which it is growing. It is high time to take "fintech" out of the "by the way" part of the conversation, to move it up much higher on the list of challenges and strategies that guide your institution on a daily basis.