For hundreds of years banks have been secure from disruption. They’ve maintained economic moats that would make any company jealous, including their access to government liquidity, branch networks, favorable regulation, and credit expertise. Bar some near catastrophic disasters, they’ve managed the responsibility pretty well. However, now their hold on financial services is falling apart. Banks are under pressure by a new breed of financial technology companies, fintechs for short. They are unbundling banks by focusing on niche use cases that the banks have become to big to devote expertise to. McKinsey recently released a report, here, which looks at seven critical changes in banking as fintech matures. The best parts of the report, as usual for Mckinsey, are their great charts and graphs. Below is my favorite.
Think about a bank’s services as a pie, and each slice as a service. The chart above shows how vulnerable banks actually are. Fintech companies are aggressively targeting slices of the pie, and doing it with VC backing, intelligent solutions, and ambitious employees. I think this is a great step forward for banking. It’s a democratization of banking, where people can vote for services by selecting which company they deem best, not which bank they which they’ve used all their lives. Disruption has a habit of sneaking up on us, and in this case, the banks were caught with the bridge down.