It’s possible of course that the incumbents are in denial. Entombed within their vast, gleaming offices and with considerable regulatory challenges hanging over them since the financial crisis, it will be hard to imagine a team of plucky Shoreditch startups eating their lunch. But even as the technology titans of Silicon Valley begin to lick their lips at a softening of financial regulation in Europe, the incumbents of the industry remain cool. With nearly two billion users (a billion of which access Facebook’s mobile app every day), the resources to buy a bank and a financial licence from the Central Bank of Ireland, Facebook must surely pose a serious threat?
I suspect most banks are speculating that it will be some time before the full impact of PSD2 legislation is felt. Having been involved in pushing the deregulation of the telecoms industry, I’m inclined to agree. Telecoms companies pleaded all manner of technical difficulties and played all manner of games in order to hinder the process. This bought them the time they needed to evolve their business models and build alternative revenue streams.
While the banks may appear open to change, there will be fierce resistance behind the scenes as they can only lose out from greater competition, especially if it comes from global technology brands. They will claim that providing access to customer data presents security challenges – despite there being no fundamental reason why startups should be any less secure than a bank.
They will also exploit anything that is open to interpretation within PSD2 and deliberately misinterpret requests – anything that will delay the process and make it as painful as possible for those seeking to compete.
This will give banks the time they need to protect and evolve their businesses. They will acquire startups that can help them create new efficiencies or value – whether in the back office or at the front end. We’re also likely to see larger acquisitions of app-only banks – for the simple reason that banks wont be able to develop this technology on their own. And as soon as the first neo-bank is acquired, others will likely be snapped up too.
In ten or fifteen years we can expect finance to work beautifully – with none of the agony or complexity of today. We’ll be able to move funds between products without any form filling and secure a mortgage at the click of a button. We won’t need to put our online shopping into virtual baskets or proceed through virtual checkouts. Indeed there will likely be all manner of other improvements and innovations that we simply cannot predict. With the deregulation of telecoms industry resulting in services such as Whatsapp, it will be fascinating to see how finance evolves.
And despite the industry changing beyond recognition, many of the dominant banks of today will be the major financial services companies in the future, even if companies such as Google or Facebook have also entered the fray.
Michael Jackson is a venture capital investor at Mangrove Capital Partners and an advisor to Blockchain and AXA. He was previously COO at Skype.