Banks face their ‘Uber moment’ as tech firms muscle in

Nimble “fintech” companies are making significant inroads into the world of banking after years of agitating around the edges, the World Economic Forum (WEF), the Swiss-based corporate think tank that runs the Davos summit of world leaders each January, reports The Times.

Jesse McWaters, the lead author, said: “For decades, banks and insurers have employed similar, highly profitable business models. But they realise an Uber moment may finally be coming to their sector. Financial technology companies are deploying online platforms, have small capital bases and make strategic use of data to acquire customers and revenues at a fast pace. Banks and insurers noted that, and are contemplating their response.”

Uber, a US-based tech group that uses an app to connect customers wanting to travel with drivers who can transport them, has expanded its simple model rapidly across international markets since it was founded in 2009.

It suffered a setback this week, though, when two senior executives at its French operation were detained by police amid allegations that the company’s model breached transport laws.

The Prudential Regulation Authority last week granted a banking licence to Atom, a “branch-free, paper-free” institution that customers can access only via mobile phones or tablets, while Amazon is expanding its small business lending to China, India and Europe.

Rising investments in fintech start-ups are helping to fuel the challenge to entrenched players, with $12.2 billion (£7.74 billion) ploughed into the fintech sector last year, more than three times the total of 2013, the report noted.

Bankers who once thought that financial regulation was a barrier to new entrants are seeing non-bank fintech rivals go after the most profitable areas of their business, while avoiding regulated markets, according to Huw van Steenis, head of European bank research at Morgan Stanley, who contributed to the report.

Amazon announced plans this week to take on conventional banks in the UK by lending to small businesses that sell products or services on its site. Ebay’s PayPal division launched a lending service in the UK last year.

While challenges to banking are more imminent, insurers may face bigger threats online in new types of personalised health, life and car insurance, upending the model of mutualised financial risk that has been at the heart of the industry, the report found.

The study, based on 15 months of interviews and workshops with executives from financial institutions and fintech start-ups, confirmed that technology is eroding the bulwarks of the financial services industry just as it did in areas such as travel and entertainment a decade ago.