Traditional banks are so slow to change that they risk being left behind by the nimble fintechs, which are creating a new financial ecosystem, writes Chris Skinner.

Before 2010, I was writing a lot about technology, but it was all heavily geared towards regulation. It was pretty dull, to be honest, but worthy. The Markets in Financial Instruments Directive, or MiFID, and the Payment Services Directive were at the top of the agenda, along with Basel III and other global, European and domestic regulations. I wrote a lot about regulation.

Then at the start of this decade it pivoted, and I started writing a lot more about real innovations with technology and the surge of start-ups and new ideas that were coming out. Since 2010, there has been a surge of fintech unicorns – $1bn value start-ups – from giants such as Ant (latest valuation $74.2bn) to Stripe ($9.2bn).

Pace of change

What struck me is how fast fintech changes compared with the snail’s pace of banks. Banks talked about the Single Euro Payments Area and Target2-Securities for more than a decade in Europe before they were finally realised. They tell me it takes this long because all parties have to agree on everything before anything can start. All the government regulators, central banks, European authorities and industry lobbyists must strike into law an exact vision of what is to be implemented before it is implemented. That takes a long time.

Meanwhile, over the same period we have seen the libertarians create a democratised global currency and ecosystem that was just done. The billions flowing into initial coin offerings, digital currencies and the companies riding on those rails are creating a new ecosystem outside bank and government control, and it is fascinating to watch.

At some point, I guarantee the two waves of fast fintech change and slow regulatory change will crash together and then we will see what is really happening. In fact, those waves are already colliding when you see Zopa, Klarna and SoFi all moving to open banks with full bank licences. These are mature fintechs that have been around for more than a decade and are now morphing into financial platforms. Some of these have global ambitions, and it would be interesting to see some of these upstart start-ups collaborating to create a full financial system.

Open to all

This is something I’ve realised as I’ve mused on these areas. What is to stop me, you or anyone from opening a full-service universal bank based upon a curated set of apps, application programming interfaces (APIs) and analytics from the best-of-breed global fintechs? Nothing. In fact, for all this bluster about industry agreements, standards and harmonisation in the banking community, the open-sourced world of fintech is just creating plug-and-play services without the hurdles of getting sign-off from governments and central banks. They are just doing it. 

This was a point I made to a senior banker from Asia who questioned how Ant Financial could have created a full set of bank APIs when it is not a bank? Answer: it just did it.

Nothing in the old world can guard the old world against the new world onslaught any more. Not regulations, capital requirements, geographic differences or technology. It’s just getting done. So wake up and smell the coffee, guys – before the big, bad giant smells you.

Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.

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