Will financial technology startups disrupt traditional banking?

Executive Summary

The surge of financial technology startups—or “fintechs”—is improving the speed and quality of customer service of lending, money transfers, wealth management and much more in the banking industry. As these firms become more prominent in the financial services sector, banks and regulators will have to adapt. Banks already are beginning to integrate these new services by investing in or partnering with fintechs and by developing similar technologies on their own. Regulators are rushing to understand the nature of these new firms and the potential benefits and threats they pose to the financial system. As the financial sector debates the future of fintech, here are some of the issues under consideration: Will fintech replace traditional banking? Are alternative lenders reshaping how people borrow? Is government capable of regulating the emerging fintech industry?

Resources

Bibliography

Books

Chishti, Susanne, and Jànos Barberis, eds., “The FINTECH Book: The Financial Technology Handbook for Investors, Entrepreneurs and Visionaries,” Wiley, 2016. Industry experts present a guide to some of the trends affecting “fintech” and the traditional banking sector.

King, Brett, “Breaking Banks: The Innovators, Rogues, and Strategists Rebooting Banking,” Wiley, 2014. The founder of mobile-banking service Moven explores how technology is disrupting the banking industry.

Popper, Nathaniel, “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money,” Harper, 2015. A New York Times journalist profiles the founders of the cryptocurrency bitcoin.

Vigna, Paul, and Michael J. Casey, “The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order,” St. Martin’s Press, 2015. Wall Street Journal reporters explain the rise of cryptocurrencies and why it matters for the economy.

Articles

Corkery, Michael, “As Lending Club Stumbles, Its Entire Industry Faces Skepticism,” The New York Times, May 9, 2016, http://tinyurl.com/zwguxm7. A journalist examines the allegations that brought down the founder of Lending Club, an online lending pioneer, and what the episode means for the broader industry.

Gandel, Stephen, “Here’s How Citigroup Is Embracing the ‘Fintech’ Revolution,” Fortune, July 1, 2016, http://tinyurl.com/jgd54wq. A reporter visits an innovation unit at Citigroup’s retail bank, designed to compete against fintech startups.

Marino, John, “Big banks shift fintech strategy,” CNBC, April 11, 2016, http://tinyurl.com/zom8arg. A reporter surveys how banks are shifting from investing funds in fintech startups to partnering with them or buying them outright.

Micklethwait, John, “Jamie Dimon on Finance: ‘Who Owns the Future?’” Bloomberg Markets, March 1, 2016, http://tinyurl.com/z2j6whf. JPMorgan Chase CEO Jamie Dimon discusses how banks can compete with fintech startups, downplaying the competitive threats to the traditional banking system.

Moyer, Liz, “From Wall Street Banking, A New Wave of Fintech Investors,” Deal Book, The New York Times, April 6, 2016, http://tinyurl.com/j23hsny. Several former bank executives are betting big on fintech by investing millions of dollars in new technology.

Rudegeair, Peter, and Telis Demos, “Slump Might Turn Anti-Bank SoFi Into a Bank,” The Wall Street Journal, July 12, 2016, http://tinyurl.com/hr2jjn8. Online lender Social Finance, which has focused on student loans, may seek a bank charter.

Sorkin, Andrew Ross, “Fintech Firms Are Taking On the Big Banks, but Can They Win?” The New York Times, April 6, 2016, http://tinyurl.com/pexsvl6. A New York Times columnist examines the fight between banks and fintech startups and how the competition might play out.

Reports and Studies

“Digital Disruption: How FinTech Is Forcing Banking to a Tipping Point,” Citigroup, March 2016, http://tinyurl.com/zhnp67b. One of the country’s biggest banks reviews how technology is changing banking across the globe.

“Fintech and the evolving landscape: landing points for the industry,” Accenture, April 2016, http://tinyurl.com/zrkyhbv. A consulting firm reviews the fintech landscape and the extent to which banks and startups are competing rather than collaborating.

“Opportunities and Challenges in Online Marketplace Lending,” U.S. Department of the Treasury, May 10, 2016, http://tinyurl.com/guv3883. This white paper reviews stakeholder comments on the state of alternative lenders and offers policy recommendations from the Treasury Department in conjunction with bank regulators.

Arner, Douglas, Jànos Barberis and Ross Buckley, “The Evolution of Fintech: A New Post-Crisis Paradigm?” University of Hong Kong Faculty of Law Research Paper, October 2015, http://tinyurl.com/heqrqys. Three law professors trace the history of financial technology back to the 1800s.

The Next Step

Government Regulations

“US Congress calls upon government to support blockchain and fintech,” EconoTimes, July 20, 2016, http://tinyurl.com/z92gkwa. A bipartisan House bill calls on the U.S. government to adopt a national policy expanding consumer access to financial technology to promote economic growth.

Kar, Ian, “A digital payments pioneer was fined by US regulators for data security flaws,” Quartz, March 3, 2016, http://tinyurl.com/hub7jmy. Payment startup Dwolla was fined $100,000 by the Consumer Financial Protection Bureau for financial security issues.

Shaban, Hamza, “Apple And Google Are Teaming Up To Lobby For FinTech,” BuzzFeed News, Nov. 2, 2015, http://tinyurl.com/h5b9btp. Five tech companies—Google, Apple, Amazon, PayPal and Intuit—formed advocacy group Financial Innovation Now to lobby members of Congress for business-friendly rules for fintech.

International Impact

Bateman, Joshua, “China is disrupting global fintech,” TechCrunch, Aug. 14, 2016, http://tinyurl.com/zf5633p. China’s adoption of mobile banking and fintech services is beginning to disrupt global banking institutions, according to industry experts.

Kelly, Jemima, “Britain and Korea form fintech investment partnership,” Reuters, July 22, 2016, http://tinyurl.com/z6oc9pd. The United Kingdom and South Korea established a cooperation agreement to make investing in the financial technology sector easier for both countries.

van der Beek, Wim, “Fintech isn’t disrupting Africa’s financial industry—it’s building it,” Quartz, Aug. 3, 2016, http://tinyurl.com/zoczjox. Fintech companies are helping to create a financial infrastructure in rural and underdeveloped regions in Africa.

Partnerships

“FinTech Group AG and Rocket Internet collaborate to launch strategic technology partnership,” EconoTimes, July 27, 2016, http://tinyurl.com/go8mc7z. German company Rocket Internet partnered with German-based FinTech to launch a strategic technology partnership, creating digital banking services in Europe.

Shen, Lucinda, “J.P. Morgan Is Bringing Some Fintech Startups In-House,” Fortune, June 30, 2016, http://tinyurl.com/j2vr2ce. Investment banking powerhouse J.P. Morgan Chase is partnering with fintechs through an “in-residence” program for financial technology start-ups.

Whitehouse, Kaja, “Fintech strikes again; Regions partners with start-up,” USA Today, Oct. 4, 2015, http://tinyurl.com/pvm99ct. Regions Financial teamed up with fintech startup Fundation to give Regions a new online banking presence by providing online loans to small businesses.

Technological Innovation

Desai, Falguni, “The Great FinTech Robo Advisor Race,” Forbes, July 31, 2016, http://tinyurl.com/zrkvhm4. Robo advisors, which provide automated and digital financial advice, are a major part of the growing competition in the fintech sector.

Kuznetsov, Nikolai, “How Fintech Is Changing The Way We Handle Money,” Huffington Post, July 28, 2016, http://tinyurl.com/zhevrck. Fintech is digitizing financial services in an effort to make money management more economical and convenient.

Wadhwa, Tina, “There’s a big misunderstanding about technology’s impact on Wall Street,” Business Insider, Aug. 10, 2016, http://tinyurl.com/gt5mqyg. Wall Street banks are modernizing their business models through collaborations with fintech startups, combining traditional networks and customer bases with innovative technology.

Organizations

American Bankers Association
1120 Connecticut Ave., N.W., Washington, DC 20036
1-800-BANKERS
http://www.aba.com
Trade association for the banking industry.

Consumer Financial Protection Bureau
1700 G St., N.W., Washington, DC 20552
855-411-2372
http://www.consumerfinance.gov/about-us/contact-us/
Government agency that oversees consumer financial products.

Electronic Transactions Association
1620 L St., N.W., Suite 1020, Washington, DC 20036
202-828-2635
http://www.electran.org
Trade association for the payments industry, including traditional banks and online small-business lenders.

Federal Trade Commission
600 Pennsylvania Ave., N.W., Washington, DC 20580
202-326-2222
https://www.ftc.gov
Government agency charged with stopping anti-competitive, deceptive or unfair business practices.

Financial Innovation Now
c/o Franklin Square Group 1155 F St., N.W., Washington, DC 20004
202-251-3322
https://financialinnovationnow.org
Alliance of tech giants, including Amazon, Apple, Google, Intuit and PayPal; the group’s executive director, Brian Peters, is a partner at Franklin Square Group, a Washington, D.C.-based tech lobbying firm.

Financial Services Roundtable
600 13th St., N.W., Suite 400, Washington, DC 20005
202-289-4322
http://fsroundtable.org
Financial industry trade group representing large banks, insurers, asset managers and credit card companies.

Fintech Innovation Lab
(No physical location available)
info@fintechinnovationlab.com
http://www.fintechinnovationlab.com
Accelerator program located in New York, London, Hong Kong and Dublin for fintech startups. The program is run worldwide by Accenture, a consultancy, and the U.S. program is also run by the Partnership Fund for New York City.

FinTech Sandbox
(No physical location available)
info@fintechsandbox.org
http://fintechsandbox.org
Boston-based non-profit that provides 6 months of access to data and support for eligible fintech startups.

FinTEx Chicago
(No physical location available)
info@fintex.org
http://fintexchicago.org
Non-profit industry association for fintech companies based in Chicago.

Independent Community Bankers of America (Washington office)
1615 L St., N.W., Suite 900, Washington, DC 20036
800-422-8439
http://www.icba.org
Industry representative for small and midsized banks.

Innovative Lending Platforms Association
(No physical location available)
Info@innovativelending.org
http://innovativelending.org
Trade association for three prominent small-business lenders: OnDeck, Kabbage and CAN Capital.

Marketplace Lending Association
Info@marketplacelendingassociation.org
http://www.marketplacelendingassociation.org
Trade association for three major online lenders: Lending Club, Prosper Marketplace and Funding Circle; it is scheduled to open a Washington, D.C., office soon.

Office of the Comptroller of the Currency
400 7th St., S.W., Washington, D.C. 20219
202-649-6800
http://occ.gov/index.html
Independent body of the U.S. Treasury Department that oversees national banks.

DOI: 10.1177/237455680218.n1