A financial services industry luminary writing in the venerable Financial Times has just declared that fintechs make people’s lives too complicated. And that a “proliferation of products” creates confusion, not clarity.
Banks and fintechs stand accused of creating a “…bewildering array of financial products.”
With all due respect, what rubbish!
I can see his point, even though I would argue when it comes to fintechs, its wrong. And wrong for a number of reasons, but first let me take you down memory lane.
I’ve been around the block a few times, so I can remember back when we had three television channels in the UK: BBC1, BBC2 and ITV. So if you didn’t want to watch Panorama, the snooker, or Bull’s Eye, you were screwed. Getting TV via a satellite, or down your telephone line, was science fiction
What a load of trabant
Now, I have limitless choice. In fact, I’ve been watching James May: The Reassembler (he of Top Gear and Grand Tour fame). He reassembles things, like lawn mowers and electric guitars. It’s so niche, I’m even uncertain as whether I should to admit to watching it. Now, think that would have been commissioned in the good old days of three-channel television? Not in a month of Sundays.
Also, think about good old East Germany. When you wanted to buy a car, and you were one of the favoured ones, you could choose between a Trabant 500, a Trabant 600, a Trabant 601, or a Trabant 1.1. And the colour, well, you had communist white, or communist grey.
Think about how many cars you seeing driving around what the old East Germany now. Trabants are few and far between thank goodness.
You get where I’m going with this of course.
The big four banks
Back to my formative years in the UK when you had the choice , if you wanted to bank your monthly stipend, between the National Westminster, Barclays, Lloyds, or the Midland (yes, before it was bought by HSBC).
I remember one day wanting to check if a client had paid me for some freelance work – in fact, they were so late paying, that eating was about to be a problem. I left the house at 6am, drove from my remote countryside home and parked in a dark car park behind the bank. That ATM didn’t work. The next ATM, a long hike away, did work, but the piece of paper it spewed out showed it was nul points – my balance was as sick as ever. The drive back home featured a lot of wailing and moaning.
Fast forward to now and I can check my balance every second if I wish. Indeed, my smartphone tells when I’ve been paid. I don’t even have to ask any more. And sometimes it will tell me when I’m about to be paid, and allows me to divide it up into nice little spaces, or send it around the world in nano-seconds.
Fintechs have made finance so much easier. And here’s the thing, it can be as simple (money in, money out) as you like, or as complicated. I have one legacy account (like most people) and use three fintech accounts because one handles my UK cash, the other my Spanish cash (where I live) and third, I use because it gives the best forex rates out there – and I mean the best. Why would anyone go to a high street bank to exchange money – its beyond me!
Legacy financial services industry
The central thing here though is choice.
We now have choice and choice comes about from lots of people offering the best service, or product, they can. To survive, the service provider has to offer features that customers want. The legacy financial services industry never thought like that and never will.
The banks are so big that they don’t have to care about individual customers. The legacy system was built for them, not you – they like customers from the super prime, or prime categories, from whom they can make money. They don’t like the great unwashed.
And you get the reason why. Legacy banking infrastructure is built on systems brought over by William the Conqueror. Thus, it costs them around 30 dollars to run an average current account. A digital native fintech can do it for a few cents, so they can have an open door policy. The main thing that worries fintechs is not whether you have the money, but are you who you say you are. Fraudsters unfortunately like fintechs.
Regulators
The Government and regulators also, perversely, prefer the legacy players – they are seen as pillars of the establishment, where money is safe and everyone knows the rules of the game. That of course is all smoke and mirrors, witness the 2008 crash when nearly the whole pack of cards came down and as for proprietary, that’s a joke.
When you ask Google how much UK banks have been fined over the years, the amounts are simply eye-watering. Yahoo! finance reckons that since the 2008 crisis, banks have had to cough up over £28bn in fines. In 2019 alone, the amount was £10bn. Any other industry with such a record would face the chop – banks are Teflon-coated.
And yes, finance is complicated. Life is complicated. That’s a fact and its getting worse. But you can’t do a King Canute and order back the tide.
The central desire for simplification has merit, but ironically its one supported and provided by the fintechs, not the banks. If you want an app that will manage your money, help you trade crypto, micro-invest in the latest home brews and measure your heart rate when the stock market tanks, you can get one. If you want one that acts as a simple bank account, then the world is your oyster.
Fintechs simplify
Fintechs are all about simplification and the customer journey – they have to be, otherwise they don’t survive.
The current danger is not that we have too much choice, but that the choice might start dwindling again. With pundits gleefully pointing out that fintechs who have been stuffed with VC money over the last five years are now hitting the buffers, the legacy players are rubbing their hands.
So I say lets have more fintechs. Because only then will the system help the unbanked and underbanked.
If we go back to the supposed good old days, then financial inclusivity will once again be a far-off dream.