Disruptive technology is everywhere these days. From Uber, which has turned the taxi industry on its head, to Car2Go subbing for vehicle ownership and Airbnb replacing the average hotel room, these disruptive innovations are giving traditional businesses a run for their money. Now there’s fintech – short for financial technology – and it’s a threat that could put an end to this country’s big banks’ record profits.
What is Disruptive Technology?
It’s a buzzword we hear often but what does it really mean? In short, disruptive technology is any innovation or startup that displaces a current market and deeply changes the economic landscape. It’s a threat to established players such as the big banks. Not only can startups take away a large corporation’s market share, they can put them out of business for failing to respond.
With fintech companies turning their attention to the banking industry, the big banks aren’t giving up their market share without a battle. There’s a huge chasm between banking customers several decades ago and those customers today, who now demand digital tools to access and manage their money.
Fintech Disrupting the Investing Industry
Up until now, fintech’s main focus has been on investing. Startups like Wealthsimple, Nest Wealth and ModernAdvisor look to take a bite out of the big banks’ investing business by making it easier and cheaper to purchase Exchange Traded Funds. Investors can now use robo-advisers and pay a fraction of the cost to manage their investment portfolio.
Fintech isn’t just attracting technologically-savvy millennials. Canadians from all walks of life are warming up to fintech. However, the big banks still have the advantage of offering the human touch – something that many virtual banks and fintech startups cannot match.
There’s no denying that competition is a good thing as it leads to lower prices and better offerings for customers. For example, Canadians have long grumbled about high cellphone bills. That had the former Conservative government trying to introduce a fourth national wireless carrier but it was unsuccessful. That’s similar to the sentiment from customers about high banking fees.
Fintech Sets Sights on Retail Banking
Fintech has set its sights on the longtime rock-solid retail banking industry but online or virtual banking isn’t anything new in Canada. Tangerine has been offering no-fee banking to Canadians for years. What fintech firms are doing is changing the definition and the function of the online bank. For that we can look to fintech posterchild EQ Bank, which upon promising lower fees and higher interest rates was flooded by customer applications earlier this year. In fact, it had so many new applicants that it had to put a cap on new sign-ups.
So how are Canada’s big banks responding to this threat? They are lowering their fees and giving a better offering. RBC became the first big bank to offer free Interac e-Transfers, while CIBC is offering customers more flexibility when it comes to its fee structure. That’s a change in tune from earlier this year when the big banks like TD Canada Trust introduced higher bank fees. However, with so many no-fee banking options out there, some might say there’s no good reason to be paying banking fees these days.
The bottom line is it’s a good time to be a banking customer. If you don’t like what your bank is offering, see what else is out there. You might be pleasantly surprised to find a better offering at a lower price. And this is only the beginning. Industries including banking and communications providers need to step up their game and prepare for market disruption. The Darwinian evolutionary theory “survival of the fittest” has never held truer in today’s 24/7 economy.