Weak Arguments For Banks Failing To Innovate

Don't confuse the short-term dependency of Fintech on established financial services as a license for banks not to innovate.

Many articles over the last few months talk about banks versus Fintech, and how banks win as Fintech is still dependent on established financial services rails. They take examples of neo-bank debit card programs that still use payment networks and need issuing banks.

You see quotes from the early Fintech warriors who set out to bypass established financial models:

• “Time humbles you." – Ben Milne, co-founder of Dwolla.
• “If I get my way, we take over the entire mortgage business from them and do it the right way. But for now, 'we have to play in the sandbox until the day we get big enough and are able to bypass the banks completely.'" – Jason van den Brand, CEO of Lenda. (source: WSJ)

Complacency on the part of banks because (1) Fintech uses banking rails (established financial services) and (2) because banks have a lot of data and, therefore, can do a lot with it while most Fintech has not scaled, are both weak arguments for banks not to innovate today.

Fintech has smartened in the last few years. They are using banks, not fighting them.  This is a two-way street, and banks can play the same game. They can use Fintech innovation as their idea factories. Some have done this more effectively than others. Simple has doubled the number of customer accounts since it its acquisition by BBVA. Its no surprise that Dwolla also works with BBVA. Someone at BBVA is getting this right.

The first Fintech company that goes completely solo and achieves scale and success will rock the foundation of financial services. If I were an innovator at a bank, I would not wait and watch.

Originally published by Pradeep Ittycheria on LinkedIn.