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Dec, 2018

Moody's says banks should fear the power of FinTech

Cryptos have come a long way from being the laughingstock of the financial world to a sizebable and respectable force that can revolutionize money and payments. The fact that Bitcoin is now respected derives (among other reasons) from also another fact: it is feared.


This is practically what credit rating business Moody's points out in it's latest report. The fascinating and rapidly growing financial technology a.k.a. fintech (which made Bitcoin happen) poses a threat to many banks and financial institutions that didn't have to deal with such kind of competition till now.


Global investment banks (GIBs) face challenges from more agile financial technology (fintech) competitors that are not burdened by regulation, inflexible IT infrastructures and low interest rates, Moody's Investors Service says in it's report. However, Moody's thinks the GIBs on the whole come armed with advantages of scale and deep capital resources. If well channeled, these strengths will enable the GIBs to preserve their key customer franchises.



"To survive and advance in an intensely competitive and technology-driven sector, GIBs will have to deploy people and technology to successfully serve clients and effectively manage risk", according to Michael Rohr, a Moody's Senior Credit Officer. "Those embracing new technology through determined and agile digital strategies, often in partnership with the most powerful fintech disruptors, will be able to defend core franchises, retain customer bases and improve efficiency and controls, supporting their creditworthiness. GIBs unable to fund high initial investment and ongoing maintenance risk increased customer attrition, reduced pricing power and higher cost structures."


In consumer banking, digitalization presents GIBs both opportunity and threat. Less regulated, 'capital-light' services will become more exposed to disruption, such as payments, cash management, and simple lending products. Only those GIBs that have developed clear digital road maps to combat disruption will be able to retain their 'sticky' banking relationships.


In asset and wealth management, fintech provides an opportunity to integrate technology into operations, thereby enhancing the clients' digital experience and providing an incentive to retain the bank relationship. Conversely, there will be a pronounced threat to companies that do not complement traditional offerings with stand-alone robo-services or hybrid human/tech-based advice, in particular for smaller-balance accounts.