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The banks have the clients – so far at least. Fintechs have a more versatile IT. Four questions that bankers will have to answer if they want to prevail in the race.

The first wave of attack dissipated as the established banking industry stood up to it with aplomb. The clever app and innovation galore won’t win the race if there’s simply no customer base. The startups that succeeded were those that found themselves a strong banking partner.

Two years ago, finews.asia concluded that the much-cited disruption hadn’t taken place. A conclusion that we at a specific point and that may not stand the test of time. The fintech industry has expanded very strongly since then. In the first half of 2018, the global fintech world attract $58 billion in financing. One example for the rapid growth stands out: Germany’s Wirecard is now worth more than Deutsche Bank.

Up Against the Old Might

The rate of growth is pitching fintech against the old might of big banks and the rivalry will intensify in future. The new kids have a trump card they’ve held all along – systems free of legacies.

The advantage of more agile IT systems is that the fintech firms can offer their services at half the price of what established finance companies can do, according to a study compiled by Morgan Stanley.

The authors conclude that banks will have to reinvent and disrupt themselves very quickly or risk losing the fight for business. European banks in particular seem vulnerable because they have been weakened by years of ultra-low interest rates. Their survival hinges on four factors:

1. Cobol to the Museum

Innovation is much easier to implement in a modern IT environment. It is crucial to get as many applications onto one platform as possible and to bring it up to scratch. A costly experience for sure: a new core-banking system for a big bank costs an average $1 billion.

Many hard-pressed companies have chosen a middle-way, presenting a modern client interface at the front, which is linked to the old core-banking IT that often works with ancient programming languages such as Cobol.
It is questionable how long the old-new IT sandwich will suffice with the advent of new tech solutions in the coming decade.

2. Step Forward Through Merger or Acquisition