Banks and fintechs should be friends, claims CFA study

By David Tuckwell on Tuesday 11 July 2017

Alternative LendingDigital Banking

There is no compelling reason that fintechs and banks cannot get along

Bankers should not fear the fintech reaper as banks are fintechs themselves, CFA claims.

Banks and fintechs are not competitors and banks avoid peer-to-peer lending because it is insufficiently profitable. And while some bankers are scared that fintech will steal their jobs, these fears are usually based on misunderstandings, a new report by the CFA Institute has claimed.

The report, titled ‘Fintech 2017: China, Asia and Beyond’, sets out to bust myths about the threat that fintech poses to banking. Chief among which is the idea that banks and fintechs are locked in a competitive death spiral.

“Why would a bank do P2P? Their funding cost is 1%, 2%, 3% on the deposit side, and the credit card APR is 18%. They are making 15–16 point in gross margin,” the report said.

“If [banks] went into a peer-to-peer model, they may have to give the investors 5% or 6%. So, they’ve lost a couple hundred basis points of profit.

“The quarter [banks] decide to move from a balance sheet model to a peer-to-peer model, [they] are going to lose profitability.”

Another myth is that banks and fintechs are different things. On the contrary, the report argues, banks are fintech companies, using both finance and technology. Answering where the myth comes from, the report suggests that cultural differences were a major culprit and if these differences could be reconciled, banks and fintechs had much to gain from cooperating. 

“The most ideal development for FinTech firms is to collaborate with banks

“However, there are few successful cases, mainly because of the corporate cultural differences.”

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