Dr Andrei Kirilenko, Director of the FinTech Centre at Imperial College, talks FinTech and challenger banks.Perceptions of the financial services have evolved over the last few decades. Considered a glamorous – although morally dubious – elite in the 90s (imagine Leonardo DiCaprio in ‘Wolf of Wall Street’), the global crash of 2008 quickly characterised the sector as corrupt and dishonest. Bankers have still not really regained their integrity.
However, big steps in FinTech – notably, blockchain and automation – are pushing towards a change in finance culture, or at least the beginning of it. I met with Professor Andrei Kirilenko, Director of the FinTech Centre at Imperial College, to learn more about the big changes happening in finance and their potential to reshape their reputation.
A BRIEF HISTORY OF FINTECH
Andrei sped me through the last decade in FinTech.
‘In my opinion the FinTech revolution started around the time of the global financial crisis,’ said Andrei. ‘Three key digital technologies were released right around it: cloud computing in 2007, bitcoin/blockchain in 2008, and the iPhone in 2009.’
‘Cloud made it possible to deploy business models without investing in computing power and memory. They’re crypto-protected, you can run them and use it when you feel like using them: the costs have come down drastically. Blockchain enables the creation of financial assets; mobile phones enable connection to customers without brick-and-mortar infrastructure. So with these new technologies, business models that were not possible before became possible.’
The loss of trust in the finance sector following the 2008 crash is reflected by the trust-based marketing around challenger banks at the moment. They monopolise on the difference between them and the incumbents that have been branded untrustworthy. Should incumbents feel threatened by the new digital entrants to banking, such as Monzo and Starling?
Andrei didn’t think so. ‘Well, FinTech companies that were able to achieve size between 2008 and 2013/14 are probably going to stick around,’ he said. ‘The other ones entering now are going head-to-head with existing incumbents. They can’t compete – the cost of customer acquisition is just very high.’
‘Now incumbents can roll out something that’s 70-80% as good as what the challengers have to offer. It doesn’t have to be as good. It just has to be good enough so that their customers don’t switch. There’s a joke that people in the UK are much more likely to get divorced than to switch banks.’
‘But actually, the rhetoric in the last couple of years has markedly changed from destruction to collaboration. Prior to that, a FinTech startup would be saying “we’re going to disrupt this business, we’re going to take it away”. Now, they’re saying “we’re going to be providing the technology and work together to create a better customer experience”. In my view, it reflects the fact that it’s just really hard to compete with the established financial institutions now. The new trend is a collaborative approach to business, to using digital technologies.’
Challengers are too new to have, as of yet, caused a mass migration from incumbent bank accounts. Incumbents, fearful of such a migration, are still trying to monopolise on loyalty. Perhaps the next generation of account holders will tip the balance in a new direction.
The debate around challenger banks is one that won’t conclude anytime soon. More development around customer interaction and fintechs is needed before we can accurately predict where banking is going to go in the 21st century.
Andrei Kirilenko will be at our next summit, Chief Disruptor LIVE (18-19 March) to continue the discussion. He’ll be talking about modern banking and fintech – and is firing up for a debate.
Get your ticket below.