The thesis focuses on how Fintechs are disrupting the financial retail banking industry and how banks react to these changes. In this context, challenges and opportunities of their actions will be analyzed and discussed.
Furthermore, it will be derived how aspects of innovation influence the Fintechs success in this process and how innovation takes place in the financial industry in general.
Finally, this thesis discusses the implications of the current situation for both Fintechs and banks, and identifies potential outcomes and consequences for all involved parties.
Since the beginning of the 21st century and the spread of the internet whole industries have been transformed or became obsolete.
Disruption in the form of digitalization has taken place in the music, book, media and movie industry. Online and mobile services, offered by start-ups and technology companies are changing one industry at a time. Retail-focused companies like Apple, Netflix, Google, Amazon and Twitter have changed the way people think and use music, films, books and media. They also changed the consumers’ general perception of good service, usability and of how companies are doing business.
Despite all these improvements in our everyday life, the financial retail banking industry has remained relatively constant, even though it caused people to adapt to new circumstances, in the form of the Global Financial Crisis (GFC), resulting in a Global Recession and higher regulations for the industry. Since then, the industry missed the opportunity to regain the customers’ trust by changing their habits and improving their services. Instead, customers are increasingly unlikely to buy products or refer their bank but are increasingly prepared to leave their bank within the next six months.
This state of stagnancy inside the financial retail banking industry seems to have changed. New entrants have caused uproar in the industry. Fintechs, an acronym for financial technology, are entering the retail market, forcing banks to adapt and innovate. Online and mobile banking services are now considered to be the future of financial retail banking. Fintechs threaten to take away customers by offering better and cheaper services with higher usability. As both the number of Fintechs and their customers increase, banks realize that Fintechs are going to be a threat for them.
Table of Contents
1 Introduction
1.1 A changing industry
1.2 Purpose of this thesis
1.3 Methodology
1.4 Structure
2 Innovation in the retail banking industry
2.1 Innovation and change in customer behavior
2.2 Trends in banking
3 Fintechs
3.1 General Information
3.2 Business to Consumer (B2C) market
3.2.1 Mobile Payment
3.2.2 Lending
3.2.3 Funding
3.2.4 Personal Finance and Wealth Management
3.3 Business to Business (B2B) market
3.3.1 Software-as-a-Service (SaaS)
4 Banks response strategies
4.1 Copycat
4.2 Collaborate
4.3 Investment and Acquisition
4.4 Internal Innovation
5 Discussion
5.1 Climax and shakeout
5.2 Consequences for Fintechs
5.3 Consequences for banks
5.4 Consequences for the customer
6 Recommendations
7 Conclusion
Objectives and Topics
This thesis examines the disruption of the financial retail banking industry by Fintech companies and investigates how established banks are responding to these market shifts. The core research question addresses whether banks are being replaced by Fintechs or if they are successfully adapting through innovation and collaboration.
- The impact of digitalization on customer behavior and banking expectations.
- Categorization of Fintech services in both B2C and B2B markets.
- Analysis of four primary banking response strategies: Copycat, Collaboration, Investment/Acquisition, and Internal Innovation.
- Evaluation of long-term implications and consequences for banks, Fintechs, and customers.
Excerpt from the Book
3.2.1 Mobile Payment
Mobile Payment can be defined as any payment made by using a mobile phone, including but not limited to purchases, bill payments, charitable donations or payments to another person (Board of Governors of the Federal Reserve System, 2015). Transactions can be made via text message (SMS), through an Application (App) like a mobile wallet, by accessing the account through a web page, Near Field Communication (NFC) Chips or any other possible solution.
Payment in general is a critical process. In the best case the consumer should not experience any difficulties, time constraints or interruptions; as these could lead to a cancellation of the purchase. Therefore payment should be as easy and quick as possible.
The advantage of mobile payment compared to payment via credit card is clear: The consumer is able to pay with their Smartphone at offline point-of-sales and does not need a credit card. Research by Kim et al (2015) concluded that not mobility itself is the principal reason to use mobile payment services. Instead acceptance of mobile payment is driven by usefulness and the ease of use. A swift registration and a convenient user experience hereby are the most significant factors for acceptance.
Summary of Chapters
1 Introduction: Provides an overview of the changing retail banking industry, the purpose of the thesis, and the methodology used for the research.
2 Innovation in the retail banking industry: Defines innovation within the financial context and discusses current trends, including shifts in customer behavior and the rise of online and mobile banking.
3 Fintechs: Explains the nature of Fintech firms, categorizing their services into B2C markets (e.g., mobile payment, lending, funding) and B2B market (SaaS).
4 Banks response strategies: Analyzes the four strategic measures banks take to respond to Fintech disruption: Copycat, Collaboration, Investment and Acquisition, and Internal Innovation.
5 Discussion: Examines the market dynamics, including the "climax and shakeout" of Fintechs, and details the specific consequences for Fintechs, banks, and customers.
6 Recommendations: Outlines strategic advice for banks on how to defend their market position through digitalization, innovation, and restructuring.
7 Conclusion: Summarizes the findings, highlighting the necessity for banks to adapt through innovation to maintain leadership in the retail banking industry.
Keywords
Fintech, Retail Banking, Digitalization, Disruption, Mobile Payment, Lending, Crowdfunding, Wealth Management, Innovation, Bank Strategy, Collaboration, Big Data, SaaS, Customer Experience, Market Shakeout
Frequently Asked Questions
What is the core focus of this thesis?
The thesis explores the transformative impact of Fintech companies on the traditional retail banking industry and analyzes the strategic responses of established banks to this disruption.
What are the central thematic fields?
The main themes include digitalization, innovation management in banking, the classification of Fintech business models, and the competitive strategies available to incumbent financial institutions.
What is the primary goal of this research?
The goal is to understand how banks are reacting to new entrants, to analyze the effectiveness of their response strategies, and to identify future outcomes for all stakeholders.
Which scientific methodology is applied?
The work utilizes a combination of comprehensive literature research, analysis of industry reports, and empirical data gathered from a questionnaire sent to the top 20 German retail banks, complemented by qualitative telephone interviews.
What is discussed in the main body?
The main body classifies Fintech services (B2C and B2B), evaluates four distinct banking response strategies (Copycat, Collaborate, Investment/Acquisition, and Internal Innovation), and provides a critical discussion of the potential market shakeout and its consequences.
Which keywords characterize this work?
Key terms include Fintech, retail banking, innovation, digitalization, market disruption, and competitive banking strategies.
How does the author categorize Fintechs in relation to banks?
Fintechs are defined as either "Facilitators" that support the industry through B2B services, or "Disruptors" that account for radical innovation and disintermediation in the B2C market.
What is the author's conclusion regarding the future of banks?
The author concludes that while banks face severe threats, they are unlikely to become extinct. By successfully embracing innovation, internal restructuring, and digital adaptation, they can regain leadership and maintain their relevance.
- Quote paper
- Frederic Tronnier (Author), 2016, Innovation in the financial retail banking industry. Are banks taking over Fintechs or are Fintechs taking over banking?, Munich, GRIN Verlag, https://www.grin.com/document/334498
