With the pandemic spurring an unprecedented, tech-driven
shift in financial services, top fintech executives and investors at Fortune’s
Brainstorm Tech conference on Wednesday discussed the “tension” between the
financial industry’s old and new guards.
Traditional banks, in particular, have been forced to reckon
with fintech firms that are delivering digitized services in a quicker, easier,
more cost-efficient fashion. That’s led to a “structural shift” in the industry
as banks have increasingly looked to partner and work with fintechs, according
to Victoria Treyger, general partner and managing director at Silicon Valley
venture capital firm Felicis Ventures.
“The growth in mobile adoption and penetration has been so
massive, especially by Gen Z and millennial [customers],” Treyger said. “They
are driving the demand by the banks for a better customer experience.”
It is a dynamic that is mirrored on the investment side of
the industry, said Eric Poirier, CEO of wealth management data platform
Addepar. “Banks are a huge client of ours—they know they need innovation,” he
noted.
The relationship between banks and fintechs is reciprocal,
however. Roy Ng, co-founder and CEO of fintech software platform Bond, pointed
to how neo-banks like Chime typically rely on established banks to hold
customer deposits. “Behind every large fintech like Chime, there is a bancorp,”
Ng said, noting that the dynamic at hand is more than just “banks versus
fintechs.”
“A lot of banks are jumping into the [fintech] fray,” he
added. “They’re innovating themselves, but also looking for partnerships.”
Immad Akhund, founder and CEO of SMB-focused banking fintech
Mercury, said that while traditional banks do play a key role in enabling
fintech services, it is customer-facing fintechs who are creating most of the
value in the industry. “Every fintech company does have a bank behind it—but
when the innovation is at the customer layer, that’s where the value is,” he
said.
Akhund noted that U.S.-based fintechs often need to partner
with banks because of federal financial regulations, whereas other countries
have “much better fintech banking charters” that provide startups more
autonomy. Ng, however, said he believes that gradually, “the rest of the world
will look more like the U.S.” in how they regulate fintech. “Over time, the
regulators will catch up and they’ll manage [fintechs] like banks.”
Eric Dunn, CEO of personal financial management software
provider Quicken, described card and payment processing fees as a “skunk in the
room” that is primed for disruption by fintechs. Akhund grouped banking fees
under that category; he noted that they disproportionately harm lower-income
customers and small businesses, and predicted that they will largely
“disappear” over the next five years. (On Wednesday, Capital One announced that
it is eliminating all retail overdraft fees, while the Consumer Financial
Protection Bureau said it is heightening its oversight of that practice.)
In turn, Akhund predicted that the next five years will see
the four largest banks in the U.S. “all be worth less than $100 billion” as a
result of tech-enabled competitive pressures. (JPMorgan Chase, the largest bank
in the country, is currently valued at more than $466 billion.) “All of them
are fighting in exponential ways against fintech—and in the next five years,
fintechs will become much bigger, and it’ll be hard for them to sustain market
cap,” he said.
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