How do Fintech Startups and a Changing Consumer Behavior Reshape the Financial Services Industry?

Bachelor Thesis, 2015

62 Pages, Grade: 1,3



List of Figures and Tables

List of Abbreviations

1 Introduction
1.1 What is Fintech and why does it matter?
1.2 Purpose of the Study
1.3 Methodology

2 The Changing Consumer Behavior
2.1 InternetPenetration
2.2 Mobile Penetration
2.3 Recent Trends in Banking
2.4 The Role of the Branch

3 Fintech Startup Landscape Analysis
3.1 Different Types ofFintech Startups
3.1.1 Lending Platforms
3.1.2 MobilePayments
3.1.3 EquityFinancing
3.1.4 Remittances/FX
3.1.5 ConsumerBanking
3.2 Threats and Weaknesses ofFintech Startups
3.2.1 Regulatory Challenges
3.2.2 Fintechs vs. Banks
3.3 Opportunities and Strengths ofFintech startups
3.3.1 Cooperation instead of Disruption
3.3.2 Fintech Hubs and Clusters
3.3.3 Attractiveness of the UK Market
3.3.4 Benefits ofhaving a Fintech Cluster close to Home

4 Finance
4.1 Digital Economy and Structural Change
4.2 mBank as a Role Model for other Institutions
4.3 The Über Effect

5 Conclusion and Recommendations



List of Figures and Tables

Figure 1: Share of Internet users in the United States in 2014, by age group

Figure 2: Proportion of online - banking users in Germany in the years 1998-2014

Figure 3: Rapid Jump in Online Sales

Figure 4: Global Fintech Financing Activity

Figure 5: Cumulative Amount of funding pledged to Kickstarter projects as of January 2015 (in millions U.S. dollars)

Figure 6: Top 5 European Regions for Fintech Investment Activity. Bubble: Tot. Deal Vol.

Figure 7: Five-Year Growth in Fintech Investment ($M)

Figure 8: Innovations Submitted to EFMA

Figure 9: Global Fintech Investments reach unexpected heights

Table 1: Five-Year Compound Annual Growth Rate, Investments and Deals

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

Since the early 2000s many companies and industries have been exposed to disruptive digital change as a result of emerging Internet infrastructures. Industries that have been most notably affected by the digitization process are the music and movie industry as well as the publishing industry. Companies like ITunes, Spotify, Netflix, Amazon or Twitter have already revolutionized the way we deal with media.

Instead of buying CD’s we are now listening to music on Spotify or ITunes. Similarly, instead of renting movies at a video rental store we are now watching movies and television on Netflix or other online streaming websites. The same goes for books. Rather than visiting a brick and mortar location, many of us are today buying books through e­commerce websites like Amazon. Newspapers are also increasingly being replaced through smartphones and tablets but also blogs, podcasts and social networks like Twitter or Facebook. These new Internet based channels have simply brought new, more convenient and efficient ways for people to consume products and services.

In the financial sector however not much has changed except for increasing regulatory interventions. It is only now that similar disruption is starting to hit the financial industry. New and innovative market participants are increasingly exploiting the financial sector’s sluggishness and are challenging banks and other financial institutions by providing sophisticated software solutions. Most financial institutions have started to realize that they need to change something. Nonetheless many do not yet seem to recognize the seriousness of the situation and rather choose to ignore that the foundations of the banking business are exposed to serious disruption by so called Fintechs.

1.1 What is Fintech and why does it matter?

The collective term Fintech stands for financial technologies and includes all technologies applied to financial services and products. Generally the term refers to young and highly innovative IT companies, who want to change finance, as we know it. The Deutsche Bank describes the Fintech movement as follows: “Fintech is the term that has now become established to describe the digitization of the financial sector. Fintech is a catchall used for advanced, mostly internet-based technologies in the financial sector. The term describes modern technologies for enabling or providing financial services, such as internet-based technologies in the e-commerce field, mobile payments or early-stage crowd-based financing of startups (crowdfunding, crowd-investing).”[1] The Fintech sector is experiencing rapid growth globally and is starting to have an escalating impact on how financial services are delivered and experienced by consumers. A recent study conducted by Accenture predicts that the worldwide financing activity will rise from 3 billion US$ today to 6-8 billion US$ by 2018.[2] These numbers clearly seem to demonstrate that Fintech is playing and will be playing an important role in the upcoming years.

1.2 Purpose of the Study

The purpose of this study is to illustrate how Fintech startups and other non-financial institutions reshape the finance industry as they take advantage of recent technology trends and lifestyle shifts affecting customers’ expectations. The thesis aims to show how the competitive landscape changes and to what extent digital attackers grab parts of the value chain. The study also maps out the Fintech landscape, highlights important growth trends and gives an overview of the services and products with which Fintech startups are currently edging into the market. Moreover the study points out the specific drivers and barriers relevant to Fintech companies. A further objective was to find out whether Fintech startups pose a serious threat to traditional providers and if so, which generic approaches exist to deal with these attackers. Apart from that the aim was to identify how peers address digitization as well as what strengths traditional banks can rely on. Last but not least the study demonstrates what banks and other institutions can learn from Fintech startups and how the future of finance could develop and look like in 2020.

1.3 Methodology

To begin with, a profound literature research has been conducted to gather information and create a theoretical foundation and structure of the topic researched. In addition, in order to receive more accurate first-hand information and to gain an even better understanding of the topic several face-to-face interviews have been conducted with business professionals, experts and leaders in the Fintech area. The majority of interviews were conducted with managing directors from CommrezVentures in Frankfurt and mBank in Poland.

CommerzVentures is a venture capital firm founded in 2014 by Commerzbank, Germany’s second largest bank, and aims to identify and invest in innovative and promising Fintech startups.[3] The mBank was Poland’s first online-only bank back in 2000 and has since gained global recognition for banking innovation.[4] Only within the last 1.5 years mBank has received 11 top global awards for their innovative financial technologies and banking model. Among others mBank has been voted “Best of Show” at the Finovate 2013 in London and 2014 in New York. The Finovate is the biggest conference showcasing the future of financial and banking technology.[5]

Furthermore mBank has received the Efma (European Financial Management Association) innovation award in 2013 in Paris and 2014 in Barcelona. On top of that mBank has been honored by several major newspapers and scientific journals such as The Wall Street Journal, the Forbes Magazine and the Harvard Business Review for their outstanding innovations. According to a research report conducted by Forrester Research, mBank has also topped this year’s European rankings in terms of functionality with a score of 82 out of 100.[6]

The five main interview partners included:

- Patrick Meisberger, Managing Director at CommerzVentures (Venture Capital & Private Equity). Frankfurt am Main, Germany.
- Michal Panowicz, Managing Director at mBank (Marketing and Business Development). Lodz, Poland.
- Robert Hibner, Vice-Director at mBank (Retail Banking and Internet Marketing Development). Lodz, Poland.
- Mateusz Zelechowski, Deputy Director at mBank (Retail Banking Marketing) Lodz, Poland.
- Cezary Kocik, Vice President of the Management Board and head of Retail Banking at mBank. Lodz, Poland.

The thesis itself is divided into 5 logically and successively structured parts. After a brief introduction to the topic, chapter 2 will deal with major developments in society regarding digitization and examine fundamental changes in consumer behavior. The digitization analysis is based on latest statistics and data obtained from professional scientific studies and research projects that have been initiated by well-known consulting firms such as Accenture and McKinsey.

Subsequently, in chapter 3 an in depth text analysis has been conducted and used to map out the Fintech Landscape. The analysis will show that there is a myriad of potentially disruptive innovations of emerging digital attackers. Following this insight, the nature and extent of their impact on traditional providers will be explored. For a better understanding of how the Fintech trend could possibly develop within the next few years, Fintech specific barriers and opportunities will be discussed.

Since Fintechs have only recently become highly topical the analysis is partially based on news articles but also professional scientific journals, reports and literature. The majority of journals and reports have been found and obtained from research databases like LexisNexis, EBSCO Information Service, JSTOR and Google Scholar. Fundamental terms and theories have mainly been obtained from literature.

Following this part, chapter 4 will give an outlook on expected future developments in the finance sector. Possible developments and scenarios will be evaluated and discussed. The chapter will also explore how banks should and most likely will react to the digital transformation in the upcoming years. This part will also create a common understanding of the implications that the financial digitization trend will have on our lives.

The last part of the thesis will summarize the most significant findings and give appropriate recommendations for traditional players and newcomers on how to approach the following years.

2 The Changing Consumer Behavior

The persisting digital transformation is universal, ubiquitous and changes the market, people, environment and society. Technologies such as social media as well as cloud computing change peoples demands and expectations considerably. Simultaneously companies are forced to fundamentally rethink their business models. Whether those are banks, media companies, food or automotive manufacturers, companies worldwide and across industries are affected by the digitization process.

As the successor generation of the so-called Generation X and Y the Generation Z, people considered to be born 1995-2012, will grow up in a world of abundant connectivity.[7] Yet, Generations X and Y as well as the even earlier Baby Boomers Generation, people born 1946 - 1965,[8] are also highly affected by the digitization trend.

2.1 Internet Penetration

Latest data unveils the tremendous level of Internet adoption rates that have been reached in 2014. Figure 1 shows that the share of Internet users, aged 18 to 49, is well above 90 % in the United States. What might seem even more surprising is the comparatively high average Internet adoption rate of nearly 90 % for U.S. citizens aged 50 to 64 and almost 60 % for the 65 years and older population. However, it is not only the U.S that displays high Internet adoption rates, the number of Internet users in most industrialized countries are almost identical. These numbers clearly demonstrate the wide spread Internet and therefore technology acceptance among all parts of the industrialized population.

illustration not visible in this excerpt

Figure 1: Share of Internet users in the United States in 2014, by age group[9]

With an average adoption rate of less than 50 % for most developing countries there is still a need to catch up. Nonetheless Internet growth rates in 2014 of more than 15 % for African states as well as 14 % for India and close to 10 % for most central and southern American states indicate that there is a high demand for online services and platforms. [10]

2.2 Mobile Penetration

While we see an increasing Internet growth among developing countries and extremely high Internet adoption rates across all industrialized countries we can also observe a significant increase in the adoption of mobile devices such as smartphones and tablets. The CTIA Wireless Association states “As of June 2014, 172 million Americans owned a smartphone, while 93 million reported having a tablet.”[11] With a current U.S. population of about 315 million, the portion is quite significant. According to a prediction by the International Data Corporation in August 2014, “ more than 1.25 billion smartphones will be shipped worldwide in 2014, representing a 23.8 % increase from the 1.01 billion units shipped in 2013.”[12] While current smartphone subscriptions are said to vary around 2.6 billion, Ericsson, a multinational provider of communication technologies, projects that total smartphone subscriptions will reach 5.6 billion by the end of 2019. Although tablets and mobile PCs will likely also experience an upward shift, smartphones will certainly remain and be the dominant players on the market [13] Traditional PCs on the other hand are already being deployed much less than mobile devices.[14] These numbers evidently bear witness to a rapid smartphone adoption and diffusion into society and show how consumer demands are shifting.

According to the Ericsson Mobility Report, one of the primary reasons for the rapid smartphone growth is that the majority of people in developing countries such as Africa or India will be changing their basic feature phones for smartphones.[15] It seems that mobile devices are becoming increasingly desirable, thus playing a central role in our everyday life. The need to be connected is therefore universal and does not only apply to the wealthier nations and people.

As digital mobility and connectivity grows, people’s habits, demands and expectations start changing considerably. The Mobile Behavior Report conducted by reveals some interesting findings on the average mobile behavior of 470 tracked and surveyed consumers. According to the study the average smartphone user spends 3.3 hours a day on their device. The younger generation aged 18-24 even spends a staggering 5.2 hours on their mobile devices daily, while the average for people aged 55+ lies at around 2 hours. Activities performed most often is accessing mail, text messaging, searching on the internet, social networking as well as playing games and listening to music. It is notable that most of the social network platforms such as Instagram, Pinterest, Facebook and YouTube are almost exclusively accessed via mobile apps rather than the mobile web.[16]

The report also provides information on why consumers download business specific apps. 65 % said that they provide more convenient access to information while 51 % thought that apps provide quicker access to information. 41 % perceive that apps provide more meaningful content. 92 % of respondents that downloaded business specific apps claim that apps are useful and help them be more efficient.[17]

Although the study might not be representative for the entire smartphone user community, it still gives us a good idea as in what direction we are moving. People seem to appreciate the convenience that mobile devices and their connectivity bring along. Smartphones as well as tablets act as connecting hubs to all sorts of daily activities, through which many tasks can be accomplished more efficiently. People are becoming used to getting their daily chores done on the go, whether it is shopping, arranging appointments or writing e­mails. The abundance of better and faster information available further changes the way we make decisions. We are more in control and better informed when making decisions and transactions since we can compare prices, check customer reviews and get to know about all the details without any assistance of a person. In return this allows us to make better deals and save money. Most active Internet and mobile device users already seem to take those things for granted and would generally never choose to perform those activities in a less efficient way e.g. (going to the library to find out about some historic events, if he or she could do so in a minute through his mobile device while on his way to work).

2.3 Recent Trends in Banking

The increasing digital transformation also has a profound impact on how we settle payments and interact with our bank. Through online and mobile banking, money order forms have almost become irrelevant. In addition, the simplicity of offering financial services via the Internet led to a rapid growth of online banks, insurance providers and brokers. Especially classic and simple products such as current accounts, savings accounts and term deposits, are increasingly being managed online. Apart from the often better terms, many customers appreciate the convenience (24/7 availability and speed), simplicity and comparability, which lead them to deal with contracts online.

As Figure 2 illustrates, the proportion of online banking users in Germany has constantly
increased throughout the years 1998-2014. Except for 1 or 2 outliers we have experienced
a rather consistent growth of 2-3 % up to the year 2010. From years 2001- 2009 the total
increase lies at 17 % while the increase only within the last 4 years lies at 19 %. Since last
year more than half (54 %) of Germany’s population uses online banking regularly.

illustration not visible in this excerpt

Figure 2: Proportion of online - banking users in Germany in the years 1998-2014[18]

illustration not visible in this excerpt

Compared to other EU countries, Germany only represents the EU average. Most northern
EU countries with Denmark leading the way display online banking user rates well above
80 %.[19]

Simultaneously we can observe a notable trend evolving in terms of mobile banking.

While the online banking movement is generally considered a fairly new phenomenon among large parts of society, many people have already switched from online to mobile. A few countries in Europe already display mobile banking user rates of up to 50 %. In Turkey the user adoption rate of mobile banking has actually reached 56 %, which makes Turkey the frontrunner in terms of mobile banking in Europe.[20] Analysts expect the global user rate to exceed 1.75 billion by the end of 2019. That would equal more than 30 % of the worldwide adult population.[21]

According to predictions by the Federal Reserve, we are also facing a drastic decline in the use of physical cash. For the first time in 2014 U.S. consumers have made use of their debit and credit cards more often than cash. By 2018 the U.S. cash transaction volume is expected to decrease by $60 billion US.[22]

Apart from the traditional debit and credit cards, linked to the users bank account, reloadable prepaid cards seem to enjoy ever increasing popularity. In the U.S prepaid cards are issued by and linked to one of the major card networks from Visa, Mastercard, Discover or American Express. As opposed to normal debit and credit cards, prepaid cards are not linked to any bank account. Nonetheless, consumers can enjoy most of the key benefits and advantages that any general debit- or credit card offers. Users can even have their paycheck directly deposited onto their prepaid card. Latest available reports suggest that retail purchases performed with prepaid cards in U.S. have topped $200 billion dollars in 2014, which would equal 5 % of all retail spending in the U.S.[23]

Reusable contactless stored value smart cards like the Octopus card in Hong Kong or the Oyster card in the UK additionally add to the trend of cashless payments. Although the cards are primarily intended for use within the city’s subway network, increasingly also local grocery stores have started accepting them.

Moreover we have seen a worldwide decline in the use of cheques. According to a study by the House of Commons “ Cheque usage has declined at an annual rate of about 12% a year since 2008”[24] in the UK. In Australia the daily volume of cheque payment transactions has halved since 2008.[25]

The partly very high existing and growing online banking user rates as well as the increasing use of debit-, credit- and smart cards and therefore declining volume of cheque- and cash payments further underscores the radical digital shift that we are experiencing across society. We can observe a clear worldwide shift from paper based payment methods to electronically based payment methods.

Apart from the previously discussed fairly basic financial instruments and products, consumers have also increasingly started shopping online for more sophisticated products such as consumer credits, mortgages and insurances. A recent survey conducted by Accenture shows that between the years 2012 and 2013 online sales of loans in the U.S. have increased substantially. Figure 3 illustrates that online sales of mortgages as well as auto, personal and home equity loans in the U.S. have reached a new all time high in 2013. Personal and Home equity loans have seen a 16 % and 24% increase.

illustration not visible in this excerpt

Figure 3: Rapid Jump in Online Sales[26]

Online sales of insurance products, especially non-life products such as motor- and home insurances have likewise seen a continued growth within recent years and are expected to continue to grow for the foreseeable future.[27]

2.4 The Role of the Branch

Due to the increasing number of digital products and communication channels, the traditional branch is becoming a less attractive and important channel for the consumer’s day-to-day banking. Unlike the times where people were dependent on the physical presence of a branch to settle their bank transactions, they can now use the web or their mobile device to do most of the banking much more efficiently. A Survey by found that 30 percent of respondents hadn't been in a bank or credit union branch in six months or more.[28] As a consequence we see a transnational decline in bank branches but also customers.[29]

Within the U.S. market many common customer activities previously performed in a local branch have seen a sharp decline in 2011. Buying products has at that time decreased by 13 %, resolving any issues -17%, transferring funds -26 %, checking balance -16 %, researching for products -28 %.[30] By today these numbers are likely to have seen a substantial further drop.

Close to 10 % of the U.S. population does not even have a bank account (unbanked), while another 20 % have a bank account, however received some financial services from alternative financial service providers (under-banked).[31] Most common answers for not or only partly opting into the banking system were a lack of money, dislike or distrust of banks as well as unpredictable account fees.[32]

One could expect the majority of this group to constitute the lower income class that is unable to meet a minimum account balance. However data proves differently. The international best selling Author, Brett King, points out that this is not entirely true and that half of the so called un- and under banked actually have college degrees while 25% even have a prime credit rating and would therefore actually be attractive to banks. He further calls to attention that of the worldwide population only 30 % own a bank account, which leaves 70 % of the entire population unbanked.[32]

According to data provided by the Fed, the percentage of unbanked consumers in the U.S. rose from 9.5 % in 2012 to 10.5 % in 2013. Although a 1 % increase does not seem a lot at first glance it still comprises more than 1 million households that use alternative financial products rather than a checking account.[33]

On the one hand these statistics show that it is not indispensable to own a bank account or deal with a bank at all, as the number of alternative financial products and service providers increase. On the other hand people, part of the banking system, are experiencing a constant decline in the branches utility. Many customers simply do not see any added value that the branch can provide. Why would people drive to their bank, find a parking spot, wait in line for an adviser to hand in a cheque to receive money and then drive back home, if all this could be done with three clicks via the mobile phone? Increasingly digital natives will not understand why they would have to drive to a local branch and deal with any paperwork if they have a mobile phone at hand that is theoretically able to perform everything online anywhere, anytime and significantly faster.

It stands to reason that the purpose of the typical branch as we know it will change as a result of changing consumer demands and expectations. The decline in customer branch visitation raises the question of whether it still makes sense for banks to operate the branches as they have been. Ultimately it will be a cost-benefit question that banks have to deal with.

In Poland the mBank observes a similar customer behavior in terms of the branch utility and relevance. Customers are visiting their local branch only few times a year. Surveys however have revealed that mBank’s customers are not willing to go without the physical banking presence. As Mr. King puts it “ I may not intend to visit your branch, but knowing that it is there in the case that I have an issue comforts me”.[32]


[1] Dapp, T. F., Slomka, L., AG, D. B., & Hoffmann, R. (2014). Fintech-The digital (r) evolution in the financial sector.

[2] KPMG. 2014. Unlocking the Potential: The Fintech opportunity for Sydney. intech-opportunity-sydney-oct-2014-full-report.pdf Accessed 20 February 2015

[3] Commerzbank. 2014. Pressemitteilung. Commerzbank gründet auf Fintech fokussiertes Tochterunternehmen CommerzVentures. quartal_3/presse_archiv_detail_14_04_ 46666.html Accessed 20 February 2015

[4] Hibner, R. 2014. mBank. New mBank. Digital sales and engagement. P.3 ( mBank internal document)

[5] Hibner, R. 2014. mBank. New mBank. Digital sales and engagement. P.3 ( mBank internal document)

[6] Walker, S. 2014. Forrester Research. 2014 European Online banking Functionality Benchmark. P.7

[7] Schroer, W. J. Generations X,Y, Z and the Others Accessed 12 January 2015

[8] Schroer, W. J. Generations X,Y, Z and the Others

[9] Pew Research Center. January 2014. Share of Internet users in the United States in 2014, by age group. Accessed 12 January 2015

[10] Internet Live Stats. 2014. Internet Users by Country (2014). Accessed 13 January 2015

[11] CTIA Wireless Association. 2014. 97 Percent of US Households Have Mobile Phones. infographics/archive/97-percent-of-us-households-have-mobile-phones Accessed 13 January 2015

[12] International Data Corporation. 2014. Smartphone Outlook Remains Strong for 2014, Up 23.8%, Despite Slowing Growth in Mature Markets, According to IDC. Accessed 13 Jan 2015

[13] Ericsson. 2013. Ericsson Mobility Report. Accessed 13 January 2015

[14] Halleck, T. 2014. We Spend More Time On Smartphones Than Traditional PCs: Nielsen. time-smartphones-traditional-pcs-nielsen-1557807 . Accessed 14 January 2015

[15] Ericsson. 2013. Ericsson Mobility Report.

[16] 2014. Mobile Behaviour Report. 2014mobilebehaviorreport.pdf Accessed Jan 13 2015. P 6 and 28.

[17] 2014. Mobile Behaviour Report. 2014mobilebehaviorreport.pdf Accessed Jan 13 2015. P 23.

[18] Juniper Research. 2014. Mobile & Online Banking. Accessed 16 Jan 2015

[19] Federal Reserve, BI Intellegence. 2014. The Future of Payments.

[20] Groenfeldt, T. Forbes 2014. Prepaid Cards To Hit $200 Billion In Merchant Sales in 2014. Accessed 15 January 2015

[21] Timothy Edmonds. 2014. The demise of the cheque.

[22] Australian Payments Clearing Accosiation. Cheque Payment Transactions. statistics/cheque Accessed 14 January 2015

[23] Accenture. 2013. A Critical Balancing Act: US Retail Banking in the Digital Era. Accessed 15 January 2014

[24] Capgemini. 2012. Trends in Insurance Channels. access/resource/pdf/Trends_in_Insurance_Channels.pdf Accessed 15 January 2015

[25] Steiner, S. Bankrate. 2014. Bank tellers: Are they an endangered species? tellers-are-they-an-endangered-species.aspx Accessed 16 January 2015

[26] Chaudhuri, S. Glazer, E. The Wall Street Journal. 2014. Bank Branches in U.S. Decline to Lowest Level Since 2005. Accessed 16 January 2015

[27] King, B. 2013. Bank 3.0 P.90

[28] Lammers, B. Business First. 2014. More people trusting in banks, says FDIC report. Accessed 16 Jan 2015

[29] Lammers, B. Business First. 2014. More people trusting in banks, says FDIC report. Accessed 16 Jan 2015

[30] King, B. Ted Talks. 2011. Bank 2.0: Modality Shift. Accessed 16 January 2015

[31] Shevlin, R. 2014. The Debanked: An Update On Unbanked Consumers. on-unbanked-consumers/ Accessed 25 Janury 2015

[32] King, B. 2013. Bank 3.0 P. 96

Excerpt out of 62 pages


How do Fintech Startups and a Changing Consumer Behavior Reshape the Financial Services Industry?
Frankfurt School of Finance & Management
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ISBN (eBook)
ISBN (Book)
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FinTech, Finance, Startups, Digitization, Mobile, Payment, Lending, Crowdfunding, Internet, Venture Capital, Innovation, Entrepreneurship, Banking
Quote paper
Viktor Kanzler (Author), 2015, How do Fintech Startups and a Changing Consumer Behavior Reshape the Financial Services Industry?, Munich, GRIN Verlag,


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