fintech and banking - friend or foe?
TRANSCRIPT
Juan (Fred) Kelly
FinTech and BankingFriend or Foe?
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DISCLAIMER
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1. BANKING AND FINTECH
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• Have banks been hit below the waterline?
• Should banks be exiting certain businesses?
• Where is FinTech a friend to banks?
• Where is FinTech a foe to banks?
1. What will FinTech do to Banks?
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The answer depends on how far banks have strayed from banking
• Push factors - Banking• Bail outs.• Too complex to manage.• Public opinion / ethics.• Lack of positive innovation.• Regulatory pressures.• Corporate culture.
• Pull factors – FinTech• Dexterity.• Culture.• Economics.• Supply of investment capital.
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1. FinTech and Banking – Friend or Foe?
• What do banks do?• Banks perform an essential function in a modern economy.
They act as financial intermediaries between lenders and borrowers.
• Banks have leveraged balance sheets (Risk Asset Ratio).• Banks conduct maturity transformation (use short term
borrowing to fund long term assets).• Banks are supported by state guarantees (deposit
compensation schemes).• As a result of the above, banks offer a plentiful source of low
cost funds to promote economic growth.
1. Banks. Who Needs Them?
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Banks remain essential to a functioning
economy.
2. HORIZONTAL DISRUPTION
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• Banking ≠ Banks• Banking is deposits and loans. • A banking licence is a deposit taking licence.
• How have banks changed?• Grown horizontally from deposit and loan model in the search for better returns on regulatory capital.• Investment banking (M&A, ECM, DCM, trading), payments, fx etc.
2. The Difference between Banks and Banking.
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Deposits &
LoansPayments
Foreign Exchange
Mergers and
Acquisitions
Equity/Debt Capital Markets
BankingNon-BankingNon-Banking
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2. Horizontal Disruption will be Profound
Expect less disruption here because banks
have an in-built a competitive
advantage (cost of funds).
3. VERTICAL DISRUPTION
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3. Banks are Vertically Integrated
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Banks mine their own raw material
Banks manufacture their own products
Banks distribute their own products
Banking is own of the few vertically integrated industries left (for now)
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3. Vertical Disruption – Greatest in Distribution
Distribution
Production
Supply
FinTech has been most disruptive in distribution
driven by social media
In execution FinTech is often a supplier to banks rather
than a disrupter
FinTech has been least disruptive in supply because a banking licence is a source of
competitive advantage
4. THE FUTURE
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• Banks will continue to have a central role in the economy, but:• End of ‘too big to fail’ – removal of implicit taxpayer guarantee
and move to a regional banking model.• Higher regulatory capital levels required to absorb risk (Basel
III).• Smaller banks with less complex business models.• Reduction of big banks’ dominance over distribution and
payments.• Demise of ‘One-Stop-Shop/ Universal Bank’ ethos.• FinTech will be both friend and foe.
The further a bank moves from its in-built competitive advantage, the greater the threat from FinTech
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4. Banking’s Future
About the Author
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Juan Fred KellyDriving positive change in banking as Managing Director of Conister Bank Ltd a rapidly growing FinTech-friendly bank focused on the UK SME and retail markets. Also Executive Director of MFG PLC, the AIM-listed holding company that owns Conister Bank Ltd, Edgewater Associates and Conister Card Services.Background includes M&A, capital-raising, and debt at a variety of institutions including ABN AMRO, SG Hambros and AIB across a number of countries including Australia, Chile, the UK and the Netherlands.
Cornaa, Isle of Man