They survived the explosive growth of the capital markets, and ended up harnessing it – disastrously, in some respects – to their own ends; thanks to taxpayers, who bailed them out, they also survived the financial crisis; and so far, they have largely survived the regulatory backlash that followed in its wake. But can the established banking industry outrun “fintech”?
Those with long memories will recall a UK internet bank called egg, widely hailed at the time as the start of a banking revolution that would overturn the entrenched oligopoly of the established banking players. It did not. What remains of it is today divided up between the Yorkshire Building Society, Citigroup and Barclaycard.
Egg and other digital banking start-ups of the same era failed because they didn’t fundamentally challenge the main tenets of the traditional banking model and way of doing things. As mere virtual copies of it, they were insufficiently disruptive, and therefore soon ended up crushed beneath the monopoly power of the incumbents.
All this could be about to change. Under the catch-all heading of the “fintech revolution”, a whole host of technologies are under development that promise a genuine alternative to traditional banking and payments systems. Most people will have heard of crowdfunding, peer to peer lending and robo-financial advice. These are early examples of the rival models that digital technologies make possible. Yet so far, they are also small beer, and certainly don’t pose any kind of existential threat to the traditional banking cartel.