Fintech: Not Really Disruptive

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Fintech is a real danger for the traditional banking business – or is it? The approach of the banking industry suggests that they're not overly worried.

It promises to be a breakthrough for the Blockchain technology: 15 big banks, amongst them UBS of Switzerland, have successfully tested two prototypes of the «distributed ledger technology» (DLT). They were used in trade financing and the processing of claims and credit letters.

Invoicing in traditional banking remains a business that still involves the use of plenty of paper, making it prone to error and inefficient. The DLT prototypes were both faster, more secure and saved money.

R3 – a Joint Venture

The prototypes are the product of R3, a fintech firm in which banks such as Credit Suisse, UBS, J.P. Morgan and Goldman Sachs are holding stakes.

R3 believes that the use of Blockchain in the trade financing will lead to efficiency gains of 10 to 15 percent and that using a Blockchain-based trading platform may boost volumes by 15 percent.

No More Disruption Then?

The question is: where's the disruption to traditional banking in all this? The fintech gurus of this world long have postulated that Blockchain will end banking as we know it and hailed it as the most important innovation since the Internet.

But banking doesn't seem to be ready for burial soon – thanks to themselves and to the fintechies. Because today they are working hand in hand.

Among 210 banks surveyed in 24 countries by UBS Evidence Lab, some 38 percent have already agreed to a partnership with fintech firms. UBS itself is one of them, using a cooperative style on its way forward.

Cooperation Pays

It looks to be the most importance legacy of the former chief investment officer Oliver Bussmann who left the bank in March and has taken to drum up support for a cooperative style.

The UBS study authors believe that come next year, more than half of all financial-services institutes will have implemented fintech and innovative products in a cooperative style.

The reason for cooperating from a banker's point of is straight-forward: The companies themselves are too slow and held back by tradition to make an internal culture of innovation work. It is more efficient and much faster to tap into the potential of outsiders.

Speeding Up Innovative Ideas

That way the banks are able to speed up innovation and make the fintech applications an operative success.

With the cooperative approach, the banks also can avoid a damaging confrontation. Taking fintech onboard keeps the potentially disruptive danger at bay. R3 is a good example for this: the dominating technologies in banking remain under the control of the banks.

Cooperation – not Revolution

It is worth mentioning that R3 is a joint venture of power players in the global financial market – while Blockchain as such was an idea of open, borderless and democratic technology.

Cooperations like R3 create a level playing field, giving the partners equal access to technology.

Rewarding Innovators

And the result of all this? Fintechs are getting the financing to proceed and startup entrepreneurs the reward for their courage. It also opens up the access to the banking system which otherwise is tough to acquire by way of making fintech applications available, for instance through robo-advisers or credit platforms.

If the fintech applications work, the banks get happy customers too. A bonus for them.

The other side of the coin of course is more prosaic: from the lofty heights of the big ideas, the fintech innovations through the cooperation with banks end up as simplifiers of processes or modernized software solutions. The disruption forecast by many thus won't be more than an efficiency boost for the established financial companies.

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