“Fintech” is such an interesting term. It's rare to see both Wall Street and Sandhill Road agree on anything so quickly. I'm still trying to sort out if it represents a recognition by banks that their tech lead has basically disappeared or a ploy by the VCs to recruit bank customers/partners.
There's good evidence to suggest that VCs are succeeding in a marketing campaign. "Fintech" exploded in use on Google in 2015
The term is increasingly paired with what would normally be non-notable business partisanships:
JPMorgan announced a partnership with the small-business lending startup last week
…
“It's a great example of the power the city's fintech sector can have,” said Maria Gotsch, chief executive of the Partnership for New York City's investment arm. “Fintech” is the preferred term for startups that use innovative software to provide financial services.
And, banks are right to want to increase their technical chops. ACH is just one example of how far behind banks are on technology. A few years ago, big banks had better security than most governments and were leading the world in artificial-intelligence related fields. Now, they're behind and falling fast.
The pace of change will be slow enough that the traditional players can co-opt, whether it's through building, buying or partnering, and acquire the technology disruption.
Perhaps true in the short-term, but go just slightly further out, and:
- The blockchain has the potential to reduce banks to simple miners. This would [dramatically simplify their business and require them to self-disrupt. Many good implementations allow the peer-to-peer exchange of money, circumventing banks.
- Companies like Wealthfront and Betterment show individual investors can get access to sophisticated algorithms and advice that used to be the domain of banks.
- Lending Club allows individuals to provide loans.
These are the three of the four services banks offer. Only complex derivatives (the type of financial products that have caused all economic recessions of the 100 years) are missing. Technology has yet to try to reinvent these, perhaps in part, because it dislikes complexity.
Long-term, history shows us that power tends to centralize. It's possible that banks are powerful enough to skip this medium-term phase of disruption by adopting new technology. Certainly the rapid rise of Bitcoin as a "blessed" technology is a promising sign.
At the very least, it sure seems like, "fintech" is a tacit acknowledgment by banks that they need help. That's both healthy and new.