The beginning of the digital revolution at the turn of the millennium has ushered in a structural change in many sectors. Due to the increased use of modern information and communication technologies (ICT), several sectors have already experienced existential economic implications.
This is especially evident in the music, media and publishing industries. For example, music is not only purchased on CDs from local retail stores, but is also increasingly consumed via the Internet through streaming services such as Spotify. Videos store rentals compete with the comfortable video-on-demand services available in customers’ own homes. The Internet as a medium for information and consumption for products and services has established itself as a faster, more comfortable and more efficient channel in comparison to traditional sales channels.
Stationary retail stores were also not spared from digital disruption. The market research institute Gesellschaft für Konsumforschung (GfK) predicts a doubling of the online share of retail sales from currently to 20% by the year 2025. At the same time, new and innovative market participants known as financial technology or FinTech companies are edging into the financial sector and trying to gain market share from established banks through customer-friendly products and services. Nevertheless, the banks do not seem to recognize the seriousness of the situation and therefore are reluctant to adapt to the new situation.
However, experience has shown that ignorance of an industry’s digitization has already led to the fall of large and established companies. As a well-known example in the technology industry, Kodak is often referred to in this context. The company’s reaction to the digital disruption took place too late, whereas other companies had already recognized the trend towards digital photography at an earlier stage and prepared corresponding products. As a result, Kodak plummeted from the top of the photography technology industry.
Evidence of ongoing digital disruption of the financial services sector has already been provided in the form of a new type of bank, the direct bank, which was first introduced in the early 1990s . FinTech companies seek to take advantage of this success and gain customers and market share by offering innovative solutions for financial products and services.
Table of Contents
1 Introduction
1.1 Purpose of this thesis
1.2 Scope
1.3 Structure
2 Theoretical foundations
2.1 Business model
2.2 Value chain
2.3 Traditional German banking sector
2.3.1 Retail Banking
2.3.2 Sources of income in retail banking
2.3.3 Cost situation in retail banking
2.4 FinTech – emerging challengers of traditional banks
2.4.1 FinTech definition
2.4.2 FinTech business models
3 Economic impact and possible future scenarios
3.1 Driving forces behind FinTech companies
3.1.1 Customer behavior in transition
3.1.2 Trends in banking technologies
3.1.3 Cryptocurrencies
3.2 Core areas of FinTech companies
3.2.1 Payment
3.2.2 Lending
3.2.3 Personal finance management
3.3 Economic impact
3.3.1 Selected key performance indicators of a bank
3.3.2 Predictions about the future development of the selected KPIs
3.4 Possible future scenarios of banks
3.4.1 Ignore FinTech
3.4.2 Investments in the banks’ own products and incubators
3.4.3 Cooperation and acquisition
3.5 Results
4 Conclusion and outlook
Objectives & Core Themes
This thesis examines the economic influence exerted by technology-driven FinTech companies on the traditional banking sector, with the goal of projecting future market developments and strategic scenarios for established financial institutions.
- Digital disruption and its impact on the financial services industry.
- The evolution of the traditional German banking sector and its business models.
- Analysis of FinTech business models, including payment services, lending, and personal finance management (PFM).
- Assessment of changing customer behavior and the role of new banking technologies.
- Prognostic future scenarios for traditional banks, ranging from ignoring competitors to active cooperation or acquisition.
Excerpt from the book
2.4.1 FinTech definition
The term FinTech is a portmanteau word consisting of the words financial and technology. It includes all companies and start-ups that make classic financial services and products more accessible to customers through modern technologies. FinTech is primarily a name for young and innovative companies, which usually use the opportunities offered by modern ICTs in order to offer customers a significantly improved banking experience. In addition to simple user-friendliness across all device classes from the smart watch to the desktop computer, the FinTech experience also involves a high degree of automation and thus greater efficiency in the handling of financial matters. Traditional banks have paid little attention to this market segment until a few years ago. In addition to the young FinTech companies, however, well-established and large companies, such as Apple and Google, also contribute to the FinTech segment.
Summary of Chapters
1 Introduction: Provides an overview of digital disruption across various industries and sets the stage for the structural changes currently impacting the financial sector.
2 Theoretical foundations: Defines essential business models and value chain concepts, while characterizing the traditional German three-pillar banking system.
3 Economic impact and possible future scenarios: Analyzes the driving forces behind FinTech, investigates specific service areas, and evaluates three strategic paths for traditional banks to address competitive pressure.
4 Conclusion and outlook: Summarizes the thesis findings and provides a forward-looking assessment of whether traditional banks can successfully adapt to the competitive challenge posed by FinTech firms.
Keywords
FinTech, Digital Disruption, Traditional Banking, Retail Banking, Value Chain, Business Model, Customer Behavior, Digital Transformation, Payment Services, P2P Lending, Personal Finance Management, Robo-Advisor, PSD2, Return on Equity, Innovation
Frequently Asked Questions
What is the core focus of this research?
The research investigates how technology-oriented FinTech companies are impacting the traditional banking sector and identifies possible future scenarios for established banks in response to these changes.
What are the primary thematic areas covered?
The study covers the transformation of the German banking sector, the emergence of FinTech business models (payment, lending, PFM), driving forces like changing customer demographics, and the strategic responses of traditional banks.
What is the central research question?
The research seeks to determine to what extent FinTech companies influence the income and cost structure of traditional banks and which strategic paths banks should adopt to survive in the digital era.
Which scientific methods are utilized?
The thesis utilizes theoretical foundations of business models and value chains, analysis of existing market statistics, and a DuPont analysis model to simulate financial impact scenarios for banks.
What topics are discussed in the main part of the thesis?
The main part analyzes the traditional value chain of banking, the specific threat posed by FinTech competitors, the influence of the PSD2 directive, and the implementation of strategic scenarios like cooperation and incubation.
Which keywords characterize the work?
Key terms include FinTech, digital disruption, traditional banking, P2P lending, customer behavior, and the DuPont analysis model.
How does the PSD2 directive affect the competitive landscape for traditional banks?
PSD2 obligates banks to open their API interfaces to third-party FinTech providers. While this promotes innovation and safety, banks criticize it as it provides competitors direct access to sensitive customer information.
What are the three strategic scenarios identified for banks?
The scenarios are: ignoring FinTech (the status quo), investing in internal products and incubators, or pursuing cooperation and acquisitions of existing FinTech companies.
Why is the "fear of change" significant for German banks?
Germany ranks high on the uncertainty avoidance index according to Hofstede. This cultural trait leads to a sluggish response to innovation and makes the transformation toward agile business models more time-consuming for traditional banks.
- Arbeit zitieren
- Malik Dakdaki (Autor:in), 2017, The economic impact of FinTech companies on the traditional banking sector and possible future scenarios, München, GRIN Verlag, https://www.grin.com/document/378376
