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PARTING SHOT Massive investment in FinTech innovation is signalling the end of traditional banking. By David Lee
On the edge of disruption Innovative competitors operating on sleek business models and offering new alternative services are entering at the bottom of the market, where gross margins are low and latent demand is high. A ccelerating technological advancement in computerisation, communication and automation will increasingly displace jobs faster than labour markets can adapt. The result is persistent long-term unemployment. And given the inverse relationship between unemployment and inflation, there will be little rationale for policymakers to raise interest rates. In a low interest rate environment, fractional reserve banking loses its potency. The financial system is on the verge of massive disruption. Innovative competitors operating on sleek business models and offering new alternative services are entering at the bottom of the market, where gross margins are low and latent demand is high. As these new entrants scale and progress through higher market segments, they will erode incumbent pricing power. Financial services and banking still enjoy relatively robust margins, but this is more a function of regulatory protection than the actual value they create. Besides, they are tending to focus more on compliance and cost containment versus strategy execution. It’s slow death. Large, complex financial institutions— encumbered by tightening regulation, a silo mentality and burdensome physical infrastructure—are ripe for digital disruption. Google Ventures, Intel, Citi Ventures Asia and many others are investing heavily in FinTech start-ups: software and appbased companies primed to disrupt banks, fund managers and insurance companies through the offering of alternative financial services. Growth in this area has been explosive. Investment in FinTech was US$34 million in 2003. In 2008 it was US$930 million. And by 2014, according to some measures, it was between US$4 billion and US$13 billion. The disruptive companies attracting this level of investment have certain characteristics in common. Weapons of mass disruption The world has become more volatile and uncertain. It used to be that companies with high margins were the most attractive destinations for capital, but the disruption is proving otherwise. These days, the most attractive companies are the innovative ones, with low margins but high potential for scalability, and a
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Urbanisation, Technology and the Gr
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4 FROM THE EDITOR From smart drones
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At the Helm Humility and compassion
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INDUSTRY WATCH Transforming the tra
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INDUSTRYWATCH China’s Digital Lan
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INDUSTRY WATCH Real Estate Investme
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