When it comes to the ongoing tension between fintech startups and banks, there’s no shortage of speculation regarding who will come out ahead. While it may seem like these two entities are perpetually at odds, the truth is there’s actually a substantial number of industry players on both sides of the fence that are cooperating with each other.
Loan applications’ exchanges, borrowers’ data exchanges between online transaction organisations and creditors, and collaborative studies on technological development are just a few examples where banks and fintech are collaborating. But the question still stands: How long can this uneasy truce last?
The JuicyScore team decided to take a deeper look into this phenomenon. We started with a detailed analysis of the major growth strategies in financial industry. As a result, we identified several fundamental factors influencing competitiveness in the industry. To simplify the overall picture, we focussed on the two major factors that define competitiveness in the retail assets business and that can be independently measured or estimated: 1) cost of funding, and 2) the amount of data used in credit conveyors.
The way various finance industry sectors will cooperate further depends on the extent of aspiration to compete in the nearby sectors, and on the way major features of the two key development trends within companies will develop in the future. To boil it down to layman’s terms: “You scratch my back, I’ll scratch yours.”
Let’s review these questions separately.
The aspiration to compete will be defined in many ways by the growth rates of these segments. Currently fintech sector growth is 5-10 times higher than the banking sector. Moreover, if we consider the clients’ base, the fintech sector volume is already at 10%+ of the total banking sector, and the gap between the sectors is rapidly narrowing. This trend is not unique to Russia (see Chart 2).
In the next few years, we will likely see the expansion of activities by leaders of the banking and fintech sectors. This expansion will also be due to the growth in related finance industry sectors. Most likely, we will witness a greater number of mergers and acquisitions in the market driven by desire of competing companies to gain a share of the market and/or to acquire a team of professionals and experts with the necessary competences.
Ultimately, there is one thing that will always bring the two sides together: the desire for growth.
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