In his latest piece, “Sorry, but Disruptive Technology WILL Kill Banks,” JP Nicols takes issue with a Financial Times article that downplays the role of technology in banking.
Nicols asserts that innovations from fintech companies will collectively spell the end of a sizeable number of financial institutions that refuse to keep pace with disruptive technology. These banks and credit unions will be stuck in their old ways and won’t realize until it’s too late that account holders have moved on.
“No one will cite 'lack of innovation' or 'lack of technology' as a reason for selling their bank,” Nicols writes, “but as they fail to meet consumers’ (and businesses’) rising expectations, their stagnant growth will lead to more sales to more capable hand.”
In other words, innovations in fintech will continue the trend toward industry consolidation.
As proof of Nicols’s argument, we could look at USAA and their development of remote deposit capture technology — an innovation that brought them tremendous success. According to Neff Hudson, assistant VP of emerging channels, USAA saw their membership “more than double in the last five to seven years.” Hudson added, “It really took off when we solved that remote deposit issue.”
How many banks and credit unions can make the same claim — that their membership or consumer base more than doubled in five to seven years? Considering that USAA’s growth wasn’t due to acquisitions, it’s very impressive.
USAA’s story proves that the institutions that make banking more convenient for account holders are the ones that win market share. But it also means, again, that technology is consolidating the industry. After all, USAA’s growth in membership came largely at the expense of their competitors.
So what are financial institutions to do — especially if they don’t already have a team in place to lead their own innovations?
One answer is in a recent article from Collin Canright entitled “Why and How Banks Collaborate with Digital and FinTech Companies.” Canright says that the industry is at a turning point. “What’s changing,” he says, “is the realization by the smart fintech firms and banks that they need one another to thrive, if not survive.” That is, in order to succeed, fintech startups and banks should work together to build a richer customer experience.
Of course, this doesn’t mean that all financial institutions are safe. Like JP Nicols says, the banks and credit unions that fail to innovate — or partner with innovative fintech companies — risk losing market share to the USAAs of the world. Account holders will continue to go where they experience the least friction and (as shown by Apple) where they can be delighted.
The banks and credit unions that collaborate with the right fintech partners have reason to be excited. They’re the ones, like USAA, who will see higher growth than they previously thought possible — even as the consolidation continues.
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