The next stage of fintech: war or peace?

Fintech is at a crossroads. On one hand, you have large traditional banks and a financial services industry with annual revenues of $5trillion; on the other, exciting young fintech firms looking to shake-up the financial industry, worth just $20billion, but growing fast.

Legacy players cannot avoid the fact that fintech businesses are growing their share of finance markets globally. As they seek to keep pace, a battle for consumers and revenues – the establishment versus the disruptors – is seemingly unavoidable, with the finance industry as a whole becoming a more competitive sphere.

There can be no doubt that the finance industry needs to change and is going to change. This can happen in one of two ways - large players being genuinely transformed by the adoption of fintech innovations or an all-out war for the hearts and minds of consumers.

Fintech startups may be dwarfed by comparison to the traditional banks, but the big names are taking notice. Recently, Goldman Sachs’ head of fintech Jeff Gido stated that the next stage of development in financial technology is going to be partnerships between big banks and startups, where “incumbents use their brands and infrastructure to remain competitive with the startups.”

If a move towards greater collaboration were to happen, there may be benefits in the short term. Large institutions, often resistant to change, can take advantage of the innovative edge that a startup can give them, while the startup owners receive a boost from increased investment in their platform.

But where does this leave consumers? People want more control. Distrust of large institutions, from banks and governments to tech firms and retailers, permeates through the public consciousness.

As the social revolution takes hold, technologically empowered citizens continue to oust out-of-date elites and institutions. They are less likely to view fintech firms joining the mainstream in a positive light.

There are other pressures on the big banks, too. Recently, the UK Competition and Markets Authority set out a plan to introduce open data sharing across all banks, handing disruptor startups a wealth of consumer information with which to go on the offensive. Incumbents are looking for ways to stem the tide against them.

In a collaborative outcome, fintech startups who are assimilated into the larger entities will simply disappear into the fold, while those on the outside of the ‘establishment’ will continue to thrive.

Only businesses most attuned to this new social mood, which empower consumers to make their own decisions, rather than impose solutions upon them, will succeed.

The best startups – those with a truly innovative product which dials into the social revolution – have an opportunity to turn a centuries-old industry on its head, much in the same way that online did for retail, or streaming did for music.

While change on that scale may be some way off, it is inevitable. A more competitive banking sector would be particularly beneficial for the consumer, with innovation being underpinned by the need for brands to work harder for custom and loyalty.

While peace continues to hover in the air, it seems that, for now, the war will continue. That can only be a good thing for consumers.