Welcome back to our course on FinTech Foundations and Overview In this session, we're going to be talking about implications for businesses And specifically, why is FinTech a threat to existing financial service firms, like banks or insurance companies? As we think about why is FinTech a threat, it brings to mind a quote from Bill Gates Who said, we will always need banking, but we may not always need banks So we don't necessarily need the institutions that we're used to dealing with And this becomes very evident and painfully evident if you're in a country with rapid adoption of FinTech, such as China Early on, when we talked about FinTech for dinosaurs and we said, why are banks paying attention to this? Wernicke said the rise of FinTech is sometimes associated with the rise of China, why? Because China has over 60% FinTech adoption rates China has the world's largest money market fund owned by Alibaba, a tech company China has WeBank, and WeChat and WeWallets WePayment wallets, from Tencent, another tech firm that links and has become the primary interface to finance for many people across the nation of China More people are using Alipay or WePay or WeChat wallets, or some type of FinTech than are using traditional banking services This is amazing, and this is a revolution Now, what's interesting about that is you're not going to get people to go back from using Apple Pay or Alipay or WeBank, back to their traditional bank They're not giving up the convenience, the ease of use, the power the flexibility that they've gained with this new technology In western countries, like the US or Europe, we see slower adoption Because the banking infrastructure and capabilities are better And so the banks are less likely to be leapfrogged nearly as quickly But we see adoption, we see about a third of Europe and US moving into some form of Fintech application And those consumers are not going to be easy to get back into the old way of doing things And so if you're a bank, you've got to adapt, join or you're going to be threatened, your survival will be threatened You cannot ignore these new technological capabilities Much the same as banks found when dealing with Capital One and their innovations in the US You cannot run a credit card business the old way when Capital One is using data analytics and data mining They will cause you to face bankruptcy if you still ignore tech and do things the old way Which said, we can't really look at risk any better than we are we'll just look at a credit report Capital One does not just look at a credit report Nor do their competitors who have survived in the consumer finance industry Now today, most banks either are good at data analytics, or they're part of a group of banks serviced by a firm that's good in data analytics And so they're able to rival Capital One's capabilities It's not like Capital One is alone, they're not An so, it's not like banks are going to go out of business any more than they're out of business because the world's first internet bank developed a branchless banking system No, banks have online checking accounts, banks have capabilities New tech comes out, banks adapt But it is a threat when it moves too fast, when it becomes disruptive If the banks don't have time to respond, they may lose the customer And when Capital One got people to switch from Citibank or Bank of America or other banks to their Capital One card, getting them back is hard because Capital One got you to switch by giving you a technology innovation that said, we'll cut your price in half You can't do that again, you could say, well, okay, okay, but if you switch back from Capital One, we'll give you the same price Well, you can do that, banks are doing that And that helps them retain their customer and that stems the loss But getting them back for the same deal is not as easy as getting a customer to switch to save money And so it's harder to regain a customer once lost this is why FinTech is a threat FinTech is a threat because Alibaba, or Ant Financial, a subsidiary of Alibaba or WeBank, a subsidiary of Tencent in China, have gotten customers to switch They've gotten customers to switch to new services because of convenience, ease of use, trust, for a variety of reasons And it's going to be hard to get those people back, once you lose them you've lost a relationship And they may be happy with their new system And so getting customers on to new tech can make for a real challenge to get them back Now, for banks, for traditional banks traditional insurance companies, they have time FinTech is still young, but there are thousands of FinTech startups out there They're looking to take your customers And when those customers leave, they may be much harder to regain You might be able to gain them back and more by buying one of these start-ups And you may have enough capital to do that That is an option, but there is a bigger threat that you might be missing if you're an established bank And that is that, in the past, if you go back 10 years ago or 15 years ago, and you look at banks versus tech firms banks dominated the financial markets Banks had a capital asset value that was 50% or higher more than all the tech firms in aggregate Today, the tech firms' valuations stock market values, cash values exceed the large banks The banks have been through a difficult ten, years and the technology firms have been through an amazing ten years When you put those two factors together tech firms have more access to capital than banks That makes them very viable competitors to banks, and this is a bigger threat than bankers may realize Tech firms may be the banks of the future, or may buy banks in the future When Alibaba wanted to get licensed and regulated all they had to was buy a midsize bank, or partner with a midsize bank So you can buy banks as a tech company, you can also buy tech as a bank But you probably can't afford to buy Alibaba or Tencent no matter which bank you are in China, this would be hard You might be able to find new pioneering, innovative ways you might be able to win back the hearts and minds of consumers But you got a tough road to hoe, because people love Apple They love their phones, they love their providers They don't necessarily like their cable company or their cellphone companies but they do like many of the tech firms And so you're going to have an uphill battle to get the loyalty back And they're willing to trust these technology firms in ways that they may not trust banks Because the past ten years have been a little hard on banker credibility and trust And so why is FinTech a threat, because people like tech Because their hearts are shifted to tech Because tech has a lot of access to capital Because these new apps are convenient Because these new technologies are faster and better This is a threat like banks have never before faced in the history of banking and technology It's not because the tech firms are so good at finance It's because they're so good at tech and consumers like tech, and tech is profitable and powerful That is going to put banks at risk, and with thousands of small companies you don't need them all to win, you just need a few to win Now, let me wrap up by saying, is Fintech a threat? Well, I would draw an analogy to e-commerce, is e-commerce a threat? Many people looked in the heyday of e-commerce, the dotcom boom and the following bust And they were focused maybe in the finance market on valuations and how crazy valuations seemed at the peak of the boom Of course, for some of the winners values are higher now than they were at the peak of the dotcom boom And so there will be some winners that are big winners, but there was a lot of junk out there, there was a lot of noise Same with FinTech, there's a lot of junk and a lot of noise there's going to be a lot of failures There are going to be a lot of things on the side of the road that just didn't pan out Now that's a little risky if you're an entrepreneur, but that's the nature of a startup, that's going to be the nature of any new disruptive ideas I mean there were hundreds of car companies in the early part of the last century Three survived to today in the United States, that's not very many Lots of people said, cars are a big deal, but we've only got a couple survivors And we're not even sure all three of those are going to survive for the next 20 30 years But tech matters, and when we think about e-commerce we're now facing the impending bankruptcy potentially of Sears and the struggling of in and out of financial difficulty Toys R Us liquidation, Walmart growth slowing greatly Amazon capturing more and more market share There is no question that e-commerce has hit retailing hard There's no question that technology has hit the pharmaceutical industry hard Companies that have gotten good at biotechs or biologics are making much more than companies that are thinking in a traditional mode about biotech or the low tech of pharmacies You can't do business the old way Technology has transformed medicine has transformed retailing, is transforming the auto industry And if you're in banking and you think you can avoid that, think again You're going to adapt or struggle for survival, and so it matters That's my pitch to banks, why is FinTech a threat Couple of reasons, but it is a threat, and you need to adapt or dissolve, thank you [MUSIC]
