Fintech targets trillion dollar profits
Analysis by McKinsey and Co suggests the trillion dollar profits of traditional banks are vulnerable to being leeched by more than 12,000 fintech start ups. The digital innovators, often targeting a single link of the value chain, pose a grave threat to the business model of the old banking houses.
Banks have long made their money by bundling a number of businesses together and relying on the stickiness of life-long customer relationships to rake in super profits on high margin products and services such as investment management, foreign exchange and credit cards.
Challengers like Paypal, Nerdwallet and Wealthfront have targeted the profit centres while ignoring the low returns on basic asset and liability management. Ignoring the less profitable links in the value chain further advantages the start-ups, which do not have to convince their customers to suffer the friction of moving all of their finances to a new provider.
McKinsey identifies “millennials, small businesses, and the underbanked” as three groups most vulnerable to cherry-picking by the fintechs. All three are cost sensitive and highly receptive to the message that digital delivery and distribution is cheaper and more convenient.