In 2012, $3 billion was invested in Fintechs. Three years later, this amount had reached $20 billion. In the first half of 2018 alone, it exceeded 27.5 billion. All sectors of the banking industry have since been disrupted: payments between individuals, international payments, corporate banking, loans, insurance and investment.
However, banks do not lack the resources to innovate. So why this enthusiasm for alternative financial services? Have the banks fallen too far behind to strike back?
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The economic crisis had two consequences that encouraged innovation
In practice, it is necessary to go back to 2008 to understand the Fintech tsunami that has since hit the old banking world.
The first movement is the reinforcement of rules towards banks, which are considered unreliable by legislators and the general public. New constraints have continued to rain down on traditional banks: procedures to combat terrorist financing or tax evasion... The requirements have become massive in terms of compliance and traceability. Even today, up to 40% of their IT budgets are still spent on setting up the systems necessary to meet their compliance obligations.
And, in the event of failure, justice does not have a light hand. According to BCG, nearly $350 billion in sanctions have been imposed on banks since 2009.
In the meantime, international and European authorities have created new directives such as PSD1 and PSD2. The declared goal: to open the market to competition.
Initiation of payment by a third party bank, sharing of information: progressively, the banks' monopolies and rents are falling, revealing the limits of the traditional players.
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Traditional banks: a DNA problem?
It would be wrong to say that traditional actors are not engaged in digitalization. Since 2018, in France, 64% of them have offered to open a remote account; half of them have offered to take out a credit online, compared to 16% in 2017.
Each bank has implemented ambitious programs and nominated "chief innovation officers" and "chief digital officers", or even invested in Fintechs. But are these efforts, real, enough?
Banks have not invested enough for... decades. Even American banks, known to be among the most innovative, spent on average 5% of their net banking income on "renewal" initiatives in 2018. GAFAM, world leaders in innovation - and serious competitors in payments - spent at least 9% of their turnover on Research & Development. For example, in other sectors, such as the pharmaceutical industry, innovation sometimes accounts for more than 20% of turnover.
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In fact, traditional banks face several serious structural problems.
Problem of financial investment, problem of regulatory and compliance issues that actually consume a large part of the R&D budget. But also a problem of culture: do they have the DNA of innovation?
Until now, they did not have a research and development department. Innovation was dealt with on a job-by-job basis. Compared to any other industry - biotechnology, automotive, agri-food, this may come as a surprise.
More broadly, all bank employees will tell you: the banking world is one of calm and stability.
It is difficult to make changes. Each department has its own area of expertise. Within this organization, individuals are confined to a role. This is the price to pay for security. But it is also a significant barrier to innovation. Caught between compliance, compartmentalization and risk management, employees are confined, forced to make extra efforts to think outside the box. And buying more agile companies doesn't solve much. Worse still, it often contributes to pushing innovation to the periphery of financial institutions, preventing it from reaching the heart of the company.
Free from certain legal constraints, because they do not claim to do all the banking activities, Fintechs rely on the promising alliance: digital combined with a real concern for the customer. This may seem commonplace, except in the banking sector.
Pierre-Antoine Dusoulier
CEO et fondateur d’iBanFirst
