Dawn Of The Neobank: The Fintechs Trying To Kill The Corner Bank


The sky is the limit,” gushes MoneyLion founder and CEO Dee Choubey as he strolls into Manhattan’s Madison Square Park, the oak and ash trees turning color in the October sunshine.

Choubey, 38, is taking a midday constitutional from MoneyLion’s cramped offices in the Flatiron District, where 65 people labor to reinvent retail banking for the app generation. He ticks off a couple businesses he looks up to—ones that have fundamentally changed the way money flows around the world—putting his ambitions for his six-year-old startup into sharp relief. “PayPal,” he says. “Square.” Two companies worth a combined $150 billion.

“The promise of MoneyLion is to be the wealth manager, the private bank for the $50,000 household,” Choubey says.

At last count, MoneyLion’s app had 5.7 million users, up from 3 million a year ago, and a million of those are paying customers. Those people, many from places like Texas and Ohio, fork over $20 per month to maintain a MoneyLion checking account, monitor their credit score or get a small low-interest loan. In all, MoneyLion offers seven financial products, including unexpected ones like paycheck advances and, soon, brokerage services. Choubey expects revenue of $90 million this year, triple last year’s $30 million. His last round of financing, when he raised $100 million from investors including Princeton, New Jersey-based Edison Partners and McLean, Virginia-based Capital One, valued the company at nearly $700 million. By mid-2020, he predicts, MoneyLion will be breaking even. An FDIC-insured high-yield savings account will be rolled out soon, while credit cards are on the schedule for later in 2020. To retain customers, he says, “we have to be a product factory.”

Like most other entrepreneurs, Choubey thinks his company’s potential is essentially unlimited. But having spent a decade as an itinerant investment banker at Citi, Goldman, Citadel and Barclays, he’s also a guy who knows how far a horizon can realistically stretch. And he is far from the only one to see the opportunity for upstart digital-only banks—so-called neobanks—to transform retail banking and create a new generation of Morgans and Mellons. “I just heard a rumor that Chime is getting another round at a $5 billion valuation,” he says.

Leading the Neobank Pack

In 20 years, these VC-backed startups could dominate consumer banking, but they’ll face plenty of competition. Fintech companies that originally offered investing are rushing to add bank services.


Sources: the companies, CB Insights, PitchBook.

Globally, a vast army of neobanks are targeting all sorts of consumer and small-business niches—from Millennial investors to dentists and franchise owners. McKinsey estimates there are 5,000 startups worldwide offering new and traditional financial services, up from 2,000 just three years ago. In the first nine months of 2019, venture capitalists poured $2.9 billion into neobanks, compared with $2.3 billion in all of 2018, reports CB Insights.

Underlying this explosion is new infrastructure that makes starting a neobank cheap and easy, plus a rising generation that prefers to do everything from their phones. While it can take years and millions in legal and other costs to launch a real bank, new plug-and-play applications enable a startup to hook up to products supplied by traditional banks and launch with as little as $500,000 in capital.

“Now you can get your [fintech] company off the ground in a matter of a few months versus a few years,” says Angela Strange, a general partner at Andreessen Horowitz, who sits on the board of Synapse, a San Francisco-based startup whose technology makes it easier for other startups to offer bank products.

Using such middleman platforms, tiny neobanks can offer big-bank products: savings accounts insured by the FDIC, checking accounts with debit cards, ATM access, credit cards, currency transactions and even paper checks. That frees fintech entrepreneurs to concentrate on cultivating their niche, no matter how small or quirky.

Take “Dave.” Dave (yep, that’s its real name) is a little app that rescues folks from the pain of chronic bank overdraft fees. Created by a 34-year-old serial entrepreneur named Jason Wilk who had no prior experience in financial services, Dave charges its users $1 a month and, if they seem likely to overdraw, instantly deposits up to $75 as an advance. Nice little business, but nothing to give Bank of America jitters.

Betterment cofounder Jon Stein at his New York City startup. It took a decade to get 420,000 clients for its robo-advisor business managing stocks and bonds; as a neobank newcomer, Betterment already has 120,000 on a waiting list for a checking account.

But then Wilk decided to turn Dave into a neobank. In June, using Synapse, Dave rolled out its own checking account and debit card. Now it can make money on “interchange,” the 1% to 2% fees that retailers get charged whenever a debit card gets swiped. These fees are split between banks and debit-card issuers like Dave. Wilk optimistically predicts Dave will bring in $100 million in revenue this year from its 4.5 million users—up from $19 million in 2018, the year before it transformed itself into a neobank. Dave was recently valued at $1 billion.

Established fintech companies that didn’t start out in banking are getting into the game too. New York-based Betterment, which manages $18 billion in customers’ stock and bond investments using computer algorithms, recently rolled out a high-yield savings account. It pulled in $1 billion in deposits in two weeks. “The success has been unprecedented. In our history we’ve never grown this fast,” marvels Betterment CEO and cofounder Jon Stein. Now he’s launching a no-fee checking account with a debit card, and credit cards and mortgages might be next, he says.

Neobanks are swiftly emerging as a huge threat to traditional banks. McKinsey estimates that by 2025 up to 40% of banks’ collective revenue could be at risk from new digital competition. “I don’t believe there’s going to be a Netflix moment—where Netflix basically leapfrogs Blockbuster—where fintechs basically put the banks out of business,” says Nigel Morris, a managing partner at QED Investors, an Alexandria, Virginia-based VC firm specializing in fintech. “[Traditional banks] are really complicated businesses, with complex regulatory issues and consumers who are relatively inert.” But, he adds, “If [neobanks] can get people to bundle, [they] can get more of a share of a wallet of a consumer. [The] economics can move dramatically. It changes the game.”

Diwakar (Dee) Choubey was supposed to be an engineer, not an investment banker. Born in Ranchi, India, he came to the U.S. at 4 when his father was finishing a graduate degree in engineering at Syracuse University. The family ended up in New Jersey. Choubey’s mom taught autistic children, while his dad worked as an engineer at Cisco—and plotted his son’s future.

When Choubey started at the University of Chicago in 1999, he signed up for a bunch of computer science classes picked by his dad. But after earning a couple of B-minuses, “I cried uncle,” Choubey says. He became an economics major, strengthening his grades and job prospects by taking corporate finance and accounting courses at the business school. After graduating with honors, he went into investment banking, where he remained for the next decade.

From an insider’s vantage point, he saw that traditional banks were excruciatingly slow to respond to the preferences of their customers and exploit the power of smartphones. That, plus a never-ending series of bank scandals, convinced him that there was an opening for a digital “private banker.” In 2013 he walked away from his near-seven-figure salary to start MoneyLion.

Choubey raised $1 million in seed funding and started out offering free credit scores and micro-loans. But he struggled to raise more money. Forty venture investors turned him down, deeming his vision impractical and unfocused. “I was laughed out of a lot of VC rooms in our early days,” he recalls.

While Choubey banged unsuccessfully on VC doors, MoneyLion putt-putted along, bringing in a little revenue from loan interest and credit card ads and collecting a bunch of data on consumer behavior. Finally, in 2016, he persuaded Edison Partners to lead a $23 million investment. That enabled MoneyLion to add a robo-advisor service allowing users to invest as little as $50 in portfolios of stocks and bonds. In 2018, it added a free checking account and debit card issued through Iowa-based Lincoln Savings Bank.

Managing rapid growth, while striving to keep costs low, has proved tricky. MoneyLion was hit with a deluge of Better Business Bureau complaints over the past spring and summer. Some customers experienced long delays transferring their money into or out of MoneyLion accounts and, when they reached out for help, got only computer-generated responses. Choubey says the software glitches have been fixed, and he has bumped up the number of customer-service reps from 140 to 230.

Other neobanks have had operational growing pains too. In October, San Francisco-based Chime, with 5 million accounts, had technical problems that stretched over three days. Customers were unable to see their balances, and some were intermittently unable to use their debit cards. Chime blamed the failure on a partner, Galileo Financial Technologies, a platform used by many fintech startups to process transactions.

Tim Spence, Fifth Third’s chief strategist, in the regional bank’s downtown Cincinnati headquarters. Most of his neobank competitors are losing money, but “the lesson . . . learned from Facebook and Amazon and Google . . . is that the internet is amenable to a winner-take-all market structure.”

On a warm fall day Tim Spence speed-walks his 6-foot-3 frame through the towering, 31-story Cincinnati headquarters of his employer, Fifth Third, a 161-year-old regional bank with $171 billion in assets. Clad in a plaid sport jacket with no tie, Spence doesn’t look like a traditional banker. And he’s not.

A Colgate University English literature and economics major, Spence, now 40, spent the first seven years of his career at digital advertising startups. He then moved into consulting at Oliver Wyman in New York, advising banks on digital transformation. In 2015, Fifth Third lured him to Ohio as its chief strategy officer and then expanded his mandate. He now also oversees consumer banking and payments, putting him in charge of $3 billion worth of Fifth Third’s $6.9 billion in revenue. Last year, he brought home $3 million in total compensation, making him the bank’s fourth-highest-paid executive.

Fifth Third has 1,143 branches, but today Spence is focused on Dobot, a mobile app the bank acquired in 2018 and relaunched this year. Dobot helps users set personalized savings goals and automatically shifts money from checking to savings accounts. “We reached 80,000 downloads in a matter of six months, without having to spend hardly anything on marketing,” he says.

Scooping up new products is one part of a three-pronged “buy-partner-build” strategy that Spence has helped devise to combat the neobank challenge. Partnering means both investing in fintechs and funding loans generated by the newcomers. Fifth Third has a broad deal with Morris’ QED, which gives it a chance to invest in the startups the VC firm backs. One of Fifth Third’s earliest QED investments was in GreenSky, the Atlanta-based fintech that generates home remodeling loans (some funded by Fifth Third) through a network of general contractors.

The best of these partnerships provide Fifth Third access to younger borrowers, particularly those with high incomes. In 2018, it led a $50 million investment in New York-based CommonBond, which offers student-loan refinancing to graduates at competitive interest rates. Similarly, Fifth Third has invested in two San Francisco-based startups: Lendeavor, an online platform that makes big loans to young dentists opening new private practices, and ApplePie Capital, which lends money to fast-food franchisees.

Funding Bonanza

Global venture capital funding for digital banks is exploding. This year, it’s on pace to exceed 2017 and 2018 combined.


Source: CB Insights 

“The thing I’m most envious of, when it comes to the venture-backed startups that we compete with, is the quality of talent they’re able to bring in. It’s really remarkable,” Spence says.

But while Spence envies them sometimes and partners where he can, he isn’t convinced the neobanks will make big inroads into traditional banks’ turf. “None of them have shown that they can take over primary banking,” he says. He also argues that having physical retail branches is still important for building long-term relationships with customers. In a recent Javelin survey of 11,500 consumers, an equal number rated online capabilities and branch convenience as the most important factors when deciding whether to stick with a bank.

Fifth Third has been reducing its overall number of branches an average of 3% a year, but it’s opening new ones designed to be Millennial-friendly. These outlets are just two thirds the size of traditional branches. Instead of snaking teller lines, there are service bars and meeting areas with couches. Bankers armed with tablets greet customers at the door—Apple Store-style.

That raises the question of whether any of the neobanks will be so successful that they’ll eventually open physical outposts, the way internet retailers Warby Parker, Casper and, of course, Amazon have done. After all, it’s happened before. Capital One pioneered the use of big data to sell credit cards in the early 1990s, making it one of the first successful fintechs. But in 2005 it started acquiring traditional banks, and today it’s the nation’s tenth-largest bank, with $379 billion in assets and 480 branches.

Cover photograph by Franco Vogt for Forbes.

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I cover fintech, cryptocurrencies, blockchain and investing at Forbes. I’ve also written frequently about leadership, corporate diversity and entrepreneurs. Before Forbes, I worked for ten years in marketing consulting, in roles ranging from client consulting to talent management. I’m a graduate of Middlebury College and Columbia Journalism School. Have a tip, question or comment? Email me jkauflin@forbes.com or send tips here: https://www.forbes.com/tips/. Follow me on Twitter @jeffkauflin. Disclosure: I own some bitcoin and ether.

Source: Dawn Of The Neobank: The Fintechs Trying To Kill The Corner Bank

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Dear banks, Game Over. Disruptive challenger banks are here to wipe the floor with traditional banks, who have, according to Chad West, head of comms and marketing at challenger bank Revolut, failed to make their offering open and transparent to customers, and failed to give them control over their money. Digital bank alternative Revolut has scaled to 1.8 million customers in three years – and now offers cryptocurrency processing. ABOUT WIRED SMARTER Experts and business leaders from the worlds of Energy, Money and Retail gathered at Kings Place, London, for WIRED Smarter on October 9, 2018. Discover some of the fascinating insights from speakers here: http://wired.uk/V29vMg ABOUT WIRED EVENTS WIRED events shine a spotlight on the innovators, inventors and entrepreneurs who are changing our world for the better. Explore this channel for videos showing on-stage talks, behind-the-scenes action, exclusive interviews and performances from our roster of events. Join us as we uncover the most relevant, up-and-coming trends and meet the people building the future. ABOUT WIRED WIRED brings you the future as it happens – the people, the trends, the big ideas that will change our lives. An award-winning printed monthly and online publication. WIRED is an agenda-setting magazine offering brain food on a wide range of topics, from science, technology and business to pop-culture and politics. CONNECT WITH WIRED Web: http://po.st/WiredVideo Twitter: http://po.st/TwitterWired Facebook: http://po.st/FacebookWired Google+: http://po.st/GoogleWired Instagram: http://po.st/InstagramWired Magazine: http://po.st/MagazineWired Newsletter: http://po.st/NewslettersWired

As Buffett Looks To Increase His Stake, Bank of America Beats Earnings Expectations

Topline: Another major U.S. bank beat earnings expectations on Tuesday, showing that despite ongoing tariff pressures, interest rate cuts and slowing trading revenues, Wall Street had a solid quarter.

  • Bank of America reported profit and revenue that came in higher than analyst estimates—with a net income of $0.56 per share compared to $0.51 expected—thanks to strong consumer and advisory businesses that helped counter declining trading revenues.
  • Shares of Bank of America rose over 2% in early trading; the stock has now risen almost 17% so far this year.
  • The bank is the second-biggest lender in the U.S., making it especially sensitive to interest rate cuts—but despite the Federal Reserve’s recent slashing of rates, Bank of America grew loans by 7%.
  • Three out of four of the bank’s main divisions saw revenue gains: an 8% increase in its global banking business, a 3% increase on consumer banking revenue and a 2% increase in wealth management revenue.
  • While revenue fell 2% in the bank’s trading division, total company revenue was largely unchanged from a year earlier at $23 billion, beating analysts’ $22.8 billion estimate.

Tangent: Bank of America is one of billionaire investor Warren Buffett’s favorite stocks. Through his holding company, Berkshire Hathaway, Buffett recently asked the Fed for permission to raise his stake beyond 10%, according to a Bloomberg report.

Crucial quote: “In a moderately growing economy, we focused on driving those things that are controllable,” CEO Brian Moynihan said in a press release.

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I am a New York—based reporter for Forbes, covering breaking news—with a focus on financial topics. Previously, I’ve reported at Money Magazine, The Villager NYC, and The East Hampton Star. I graduated from the University of St Andrews in 2018, majoring in International Relations and Modern History. Follow me on Twitter @skleb1234 or email me at sklebnikov@forbes.com

Source: As Buffett Looks To Increase His Stake, Bank of America Beats Earnings Expectations

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Aug.16 — Bank of America Chief Executive Officer Brian Moynihan said this week’s bond-market turmoil has been driven by issues outside the U.S., and that recession risks are low in the country as consumer spending remains strong. He spoke to Bloomberg’s David Westin in New York.

Banks Around The World Face Significant Profits Pressure For The Foreseeable Future

Numerous indicators in the U.S. and around the world are signaling a slowing economy at best and a near-term recession at worst.  The slowing global economy, along with low interest rates, ongoing trade tensions, and intensifying Brexit uncertainty will weigh on banks’ profitability for the foreseeable future.  In the US, whatever benefits banks derived from Trump’s tax reform, if any, are long gone.

Global Macroeconomic Outlook for the G-20

Moody’s Global Macroeconomic Outlook, August 2019

Last week’s announcement from Coalition that American and European investment banks’ capital markets and advisory’s revenues hit a thirteen-year low is likely to be the beginning of more challenges to come.  Even before that announcement, Moody’s Investor Services had changed its positive outlook on global investment banks to stable precisely due to slower economic growth and lower interest rates.

Today In: Money

Drivers of Moody’s Stable Outlook for Global Investment Banks

Moody’s Investors Services

As a recession comes closer, bank risk managers, investors, regulators, and rating agencies will be monitoring banks’ loan impairments carefully.  According to the Fitch Ratings’ Large European Banks Quarterly Credit Tracker – 2Q19, released last week, “The economic slow down in Europe has not resulted in material new impaired loans yet, but the substantially weakened economic outlook has increased the likelihood of an at  least modest increase in impaired loans.”

Impaired Loans/Gross Loans

Fitch Ratings, Large European Banks Quarterly Credit Tracker

Banks’ high holdings of leveraged loans and below investment grade bonds and securitizations, especially those that are less liquid and harder to value, will also weigh on their earnings as the global economy slowdown intensifies.  Fitch Ratings’ recent ‘U.S. Leveraged Loan Default Insight’ shows that its “Top Loans and Tier 2 Loans of Concern combined total jumped to $94.1 billion from $74.5 billion in July. The Top Loans of Concern amount ($40.9 billion) is the largest since March 2017, with six names added to the list and nearly all bid below 70 in the secondary market.”  Unfortunately, underwriting continues to deteriorate. The Federal Reserve Senior Loan Officer Survey showed a modest loosening of lending standards on corporate loans for the second consecutive quarter.

Leveraged Loans of Concern Amount Outstanding

Fitch U.S. Leveraged Loan Default Index.

A slowing economy and low interest rate environment are outside of bank managers’ control. Yet, cost efficiency, is something that banks can influence; it needs to improve for banks to be more profitable.  European banks’ median/cost income ratio, for example, is 66%. “The sector’s structural cost inefficiency will eventually have to be addressed given the persistently weak rate and revenue outlook. Improving cost efficiency faster and developing fee-generating businesses are crucial to sustain profitability in 2H19 and beyond.”

Cost Efficiency

Fitch Ratings, Large European Banks Quarterly Credit Tracker

Global investment banks will also have to be very attentive to what changes need to be made to their business models. While there will be demand for their advisory and distribution services, the demand will slow down in what is likely an upcoming recession.

Capital Markets Revenue Relative to Total Revenue, 2018

Source: Moody’s Investors

Moreover, as banks continue to lay-off front office professionals, some top latent to effect deals well will be lost.  Volatility from Trump’s multiple front trade wars and Brexit will put a lot of pressure on banks with capital market activities.

Aggregate capital markets revenue first-half 2009-19 (USD billions)

Moody’s Investor Services

Banks in emerging markets are also under profit pressure.  Many of the banks in Latin America already have a negative outlook by ratings agencies, particularly due to a slowdown in Mexico and recessionary pressures in Brazil. Asian banks are particularly sensitive to US-Chinese trade tensions.

Emerging Markets: Median GDP Growth by Region

Fitch Ratings

More than ever, to increase profitability, bank executives will need to find ways to diversify their revenue streams in all parts of their banks, commercial, investment bank, asset management as well as in custody and clearing services.  Banks need to be profitable to be liquid and to be well capitalized to sustain unexpected losses. What worries me is that a slowing global economy, coupled with increasing deregulation in the US, such as the recent gutting of the Volcker Rule, will embolden banks to chase yield even more and take excessive risks that could imperil depositors and taxpayers.  More than ever, investors, bank regulators, and rating agencies should remain vigilant so as to spare ordinary citizens the pain of when banks run into trouble.



Source: Banks Around The World Face Significant Profits Pressure For The Foreseeable Future

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The Future Of Banking: Fintech Or Techfin – Jim Marous


The banking industry is experiencing disruption at an increasing pace. Over the past few years, traditional financial institutions and non-traditional fintech firms have begun to understand that collaboration may be the best path to long-term growth. At the same time, big tech firms are offering financial services, creating techfin solutions.

The rationale for collaboration is the ability to bring strengths of both banks and fintech firms together to create an stronger entity than either unit could bring on their own. For most fintech organizations, the primary advantages are an innovation mindset, agility (speed to adjust), consumer-centric perspective, and an infrastructure built for digital. These are advantages that most legacy financial institutions don’t possess.

Alternatively, most banking institutions have scale, a stronger brand recognition and established trust. They also have adequate capital, knowledge of regulatory compliance and an established distribution network.

According to the World Fintech Report 2018 from Capgemini and LinkedIn, in collaboration with Efma, “Most successful fintech firms have focused on narrow functions or segments with high friction levels or those underserved by traditional financial institutions, but have struggled to profitably scale on their own. Traditional financial institutions have a vast customer base and deep pockets, but with legacy systems holding them back.”

The challenge will be the ability to establish an environment where collaboration can flourish as opposed to stifling the beneficiary attributes of either partner.

Fintech vs. Techfin

The difference between fintech and techfin is based on the origin of the underlying organization. Fintech usually references an organization where financial services are delivered through a better experience using digital technologies to reduce costs, increase revenue and remove friction.

A basic example of a fintech offering is the mobile banking services that most traditional banks offer. More commonly, fintech refers to non-traditional financial offerings such as PayPal, Zelle and Venmo in the U.S. and digital-only Starling Bank, Monzo and Revolut in the U.K.

Alternatively, techfin usually references a technology firm that finds a better way to deliver financial products as part of a broader offering of services. Examples of techfin companies include Google, Amazon, Facebook and Apple (GAFA) in the U.S. and Baidu, Alibaba & Tencent (BAT) in China.

A couple years ago, Jack Ma, technology visionary and co-founder and executive chairman of Alibaba Group, described the difference between Fintech and Techfin.

There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is internet finance, which is purely led by outsiders.Jack Ma

In both instances, success of these organizations in finance will be based on the ability for the institution to collect and analyze massive data sets, learn from the insights to improve personalization and digital engagement in real-time, and expand offerings in response to consumer needs.

A New Competitive Landscape

Even with the best collaboration, the ability for legacy financial institutions to compete in the future banking ecosystem will be challenged by the techfin powerhouses. Built on digital platforms, these huge technology organizations are efficient and have already found ways to reduce operational costs and monetize their business models.

According to Bain, “Many of the tech giants possess the ingredients of success: digital prowess, large customer bases, organizations well versed in improving the customer experience, and ample leeway to extend their corporate brands into banking.” More concerning may be that some of these firms are generating a level of trust previously reserved only for traditional banks and credit unions.

As a result, an increasing percentage of consumers are willing to use financial products offered from these non-traditional firms – especially where the experience is superior to that offered by legacy organizations. A potential to shift revenues from other businesses (such as retail) to enhance banking offerings can completely change the competitive equilibrium.

It is expected that demand for products and services from fintech firms and large tech companies will only increase as more consumers become familiar with new digital offerings. This is especially true for younger consumers, who have grown up with digital devices.

More and more, people will get annoyed when they’re forced by bank policies and processes to use non-digital channels for everyday banking business. Traditional banking organizations cannot rely on providing checking accounts and loans only. Competitors are already eating away at significant parts of the banking value chain with the potential of limiting banks to becoming nothing more than utilities.

The future of the banking industry will depend on its ability to leverage the power of customer insight, advanced analytics and digital technology to provide services that help today’s tech-savvy customers manage their finances and better manage their daily lives.

As financial and technology organizations embrace a broader view of banking, offering both banking and non-banking services, the ultimate winner will be the consumer regardless of which provider they select.




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