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The disruption taking place in the financial services industry has reached a new level of maturity – now things are getting interesting.

We all know that 2020 was a funny old year, but things didn’t shut down completely. Banks kept running, fintech kept going, investors kept investing and the world kept spinning. I mention this as, late in the year, we saw some interesting moves from Stripe and Revolut, Goldman Sachs and JPMorgan.

If you didn’t catch it, Stripe teamed up with Goldman Sachs, Citibank, Barclays and a few other providers to connect merchants to bank accounts; Revolut moved into merchant acquisition; JPMorgan and Lloyds Bank started sniffing around Starling Bank, the UK challenger; and things kept going. Keep calm and carry on, as they say.

In other words, the world may have paused for a year, but financial markets stop for nothing. Things carried on and it got interesting. In fact, what is most interesting is that fintech grew up in 2020.

Coming of age

Sure, we all know that everything became digital in 2020 – how else can you work from home? – but fintech moved from being a challenge to banks to being a partner with banks on a scale not seen before. Fintech is maturing.

And ‘big tech’ is maturing too. Google is now partnering with Citi, BBVA and many more to offer chequing accounts; Apple and Amazon have partnered with Goldman Sachs; and more companies are moving into financial services by working with banks, rather than against them.

It’s time for people to realise that banks exist to provide banking. In fact, I find it quite disturbing how many companies thought banks were irrelevant. Many have argued that banks are not needed and, in some areas of finance, this is true. Banks are not needed for payments or lending but – and this is the critical point the fintech world has grown up to realise – banks are needed for banking.

The reason for this is that banks are intermediaries of trust. They are the broker of trust between government and society, society and business.

It’s interesting, as I have argued at length with the cryptocurrency community, that banks are needed to store and exchange currencies across borders. The cryptocurrency advocates claim that banks are not needed at all. They can exchange value across borders using the network. You can distribute, decentralise and democratise the network. That’s all well and good in theory but, in practice, it doesn’t work.

When these crypto fans find their assets are lost, they cry. They don’t know where to go. They don’t know what to do. They don’t know who to report it to. There’s the issue. What’s Bitcoin’s helpline number?

And this is why banks will exist forever.

A new game

However, banks must not be complacent in this space. There are lots of big banks who want to acquire smaller banks. But banks will always be around because there are few intermediaries who are truly trusted. And it’s not about trust in a bank’s brand, but trust in banking as a licensed industry that can be trusted to intermediate and store value.

This is what fintechs are learning and something most of us in the industry have known for years. Yet, what is intriguing today is how the internet is forcing banking to evolve. For example, Stripe’s announcement of treasury services in partnership with banks has made Stripe a platform for finance. In fact, its ambition is to be an Amazon for payment services on the internet.

It may sound confusing, but you basically have all the incumbent banks offering application programming interfaces (APIs) for banking services, as banks are needed to do banking; but you then have platforms like Stripe on top of the internet in front of the banks, integrating those APIs through open banking into platform services. You then have another layer on top of Stripe, like Shopify, which links merchants who need to sell services to consumers connecting to payment services through Stripe, who connect the consumer to the merchant via Shopify to the bank via Stripe.

The platform of platforms. The Amazon of finance. The integrator and aggregator between consumer, merchant, payment and bank. It’s the new four-pillar model. And it’s starting to get very interesting. Are you keeping up?

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


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