Banks have learned that when it comes to fintech, if you can't beat them, join them, says Chris Skinner.

Three generations of fintech developments have taken, or are taking, place so far.

The first generation – Fintech 1.0, if you like – was when the first wave of start-ups appeared in the mid-2000s. I saw them as falling into four camps: renewers, wrappers, replacers and reformers. 

Renewers were the fintech start-ups that offered improved access to existing bank services, and their target clients were the banks themselves. Wrappers were very similar to renewers, as in they wrapped themselves around existing bank structures, but instead of working with banks, chose to work against them. Replacers wanted to get rid of banks. 

Finally, there were the reformers. They were an extension of the replacers but had broken free of even looking at the banking system, as they saw themselves serving new markets. 

So the renewers, wrappers, replacers and reformers that made up the first generation of fintech start-ups have made a dent on the banking system but, in most cases, they have been since been absorbed by the system or act outside it.  

The second wave

This led to the second generation of fintech – let's call it Fintech 2.0 – which appeared at the start of the 2010s, as banks woke up to the fintech opportunity and started to engage with these companies. Banks began to invest in fintechs, by partnering with them and helping them grow.

Banks saw that the development of new services around cloud, analytics and blockchain was worthwhile but didn’t have the bandwidth or technical talent to deal with this, so they opened incubators and accelerators, and ran hackathons. 

Equally, many of the larger banks decided if there were going to be new fintech start-ups that might eat their lunch, then they might as well feed them, so they have created venture capital funds of their own to provide seed money to those with the best ideas.

Within months, a whole new ecosystem has arisen where the banks themselves were at the centre of creating the new generation of financial system, investing and working with start-ups globally. 

The third way

This, then, is leading us into the third generation of fintech, or Fintech 3.0, if you like – a hybrid system that integrates traditional banking with the internet. In doing so, banks become renovated and refreshed with technology, and use the fintech joiners to the party to renovate their in-house systems. 

Legacy hardware gets its data cleansed in the cloud and, by making content and processing separated, allows the banks to replace their processors. Cloud-based data is heavily analysed and leveraged through artificial intelligence to create digital relationships in the front office that are automated and personalised. 

Bank processes are packaged through APIs [application programming interfaces] such that any third party can plug a financial transaction into their operations. And branch-based advice and service, mainly for corporate and small business clients, allow banks to retain a physical presence, albeit a much smaller one than before. For every five branches a bank operated in 2005, only one will be required in 2025.

In Fintech 3.0, banks have become fintech firms themselves, but massive ones. Transitioning millions of customers and centuries of operations to the internet age has not been easy, but a two-decade change cycle enabled by fintech partners has enabled this to happen.

Together in harmony?

In conclusion, fintech developments have moved from destruction and disruption in its first phase; to partnering and mentoring in the second; to a whole new world of finance and trade in its third. 

Banks and fintech start-ups are working hand in hand to generate that new world. On the one hand, banks’ archaic back-office systems and structures are being regenerated by Fintech 3.0; on the other, markets and citizens that could never be serviced or reached are being served by Fintech 3.0.

It’s a whole new world of trade, and a better one for all. Welcome to the age of internet-based financial service. It’s fast; it’s free; it’s direct; it’s one to one and peer to peer; and it’s here and now. 

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


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter