For a long time, financial startups have been buzzing in the background. Major banks have been downplaying them as a threat to their market dominance — but not anymore.
Fintech is on a collision course with major banks and now they’re finally starting to feel the pressure. Multinational banks are trying everything to catch up, but the most powerful part of their arsenal remains cold hard cash. Major banks are spending billions to bring themselves up to the speed to the fast-changing digital world.
Just a few weeks ago, Spanish multinational bank Banco Santander SA announced that it would invest 20B euros ($22B) into digitizing its information technology over the next four years. In fact, across the board, tech spending by big banks dwarfs investments made in European fintech firms. VC investments in European fintech firms was around $3.2B in 2018 while banking giants like JP Morgan and Bank of America have spent $11.1B and $10B respectively in that same period.
Big banks are looking to ride off of the lack of trust the public still feels towards fintech startups and so-called ‘neo-lending.’ Digital banks like Revolt Ltd., Starling Bank Ltd., and others have attracted millions of clients with low-cost money transfers and pre-paid debit cards. However, most consumers are still nonetheless reluctant to let these new digital banks hold their retirement funds or mortgages.
Overall, the lack of trust has bought major banks what they need most: time. Some, like Santander and JPMorgan Chase, have been bolder than others in making sure they beat out fintech competitors.
Banks Play ‘Catch Up’
Major banks aren’t just throwing money at emerging technology and hoping it sticks either —they’re outright developing their own alternative systems which would rival fintech.
For example, Santander already operates Openbank, an online banking unit which allows for immediate money transfer services. Filled with snazzy features, it utilizes a platform known as One Pay FX which is a money-transfer service inspired by blockchain technology. Money can be sent abroad within hours, therefore taking out the benefits many fintech firms use to promote themselves.
JP Morgan has been even bolder in its dive into blockchain technology. The bank announced in February that it would be launching its own ‘JPM Coin‘ on a private blockchain network. The coin is pegged to the dollar and can be transmitted across borders instantaneously.
Fintech may be been booming in recent years, but there’s every indication that major banks are catching on — and they’re doing everything in their power to make sure they stay on top.
Do you think emerging fintech firms will eventually be able to overshadow some of today’s major banking institutions? Let us know your thoughts in the comments below.