Readers from generation X, those above 35 may remember Shawn Fanning. He was the inventor of Napster, the legendary peer-2-peer file-sharing programme that enabled millions of people across the planet to share their music for free. Corporate lawyers successfully stopped Napster in 2001, and rightly so because the music-sharing programme was basically facilitating music-theft from artists and entertainment industry. But what the lawyers couldn’t stop was the new online-technology that enabled free distribution of entertainment now paid for by the customers. Yet, it took more than a decade before the new technology finally broke through and made downloading mainstream.
It was generation X that brought down HMV, Blockbuster and Kodak and it was the oldest members of the succeeding Generation Y – the millennials – the delivered the coup de grace and paved the way for Netflix, iTunes and Instagram. But it won’t be Gen X or the millennials above 30 who will define future banking. It will be the generation Z – the mutants – the 24/7 online-generation, born with a smartphone in their left hand from where they communicate via social media their parents have never heard of.
At the moment, “fintech” is running into some resistance. Investments in startups are slowing down and venture capitalists have problems doing their exits as gracefully as they had imagined. The world’s 2,000 fintech startups aren’t really making money and have difficulties attracting customers compared to the established financial players. At the moment, they are more bright ideas with a future than profitable businesses.
The same was said about all the internet-businesses before the dotcom-bobble in 2001 (I was there) when investors lost faith in all the new ideas; but history has shown that the ideas were all right. Just ask Amazon or Alibaba. The investors and analysts simply forgot, that it often takes a generation or two for new technologies to break through; there is a resistance in most markets because as people we need time to adopt and change habits and normally the young generation becomes the early adopters because they don’t have habits to break or attitudes to change.
Shawn Fanning launched a new business model that displayed the inefficiency of the established music industry. So do the new fintech startups. They offer the same services but at a fraction of the price charged by the traditional banks. They will win but the fintech-victory will not happen overnight. It will happen gradually as a new generation of consumers comes of age.
Therefore, banks should turn their attention towards the Gen Z and study their strange behaviour. Because the mutants will never go to banks to seek financial advice neither online nor at a branch should there be any left in the future. They will approach the social media and these media will be ready. In January, Reuters reported rumours that Snapchat is developing its own robo-advisor preparing to give nancial advice to more than 100 million daily users – of which the majority is below 24 years of age. Facebook’s chief technology officer Mike Schoepfer is on the board of Wealthfront, another robo-advisor and it shouldn’t be too difficult to guess why he is there. And the investment app Robin Hood, which in only on smartphones – and smartwatches (!) is targeting the same age group as Snapchat and had a waiting list of more than half a million users before it launched a little more than a year ago. All these examples are initiatives targeted at young people that are presently below the radar of the traditional banks. Start watching the Gen Z and the young Gen Y’s because they will be the ones who in a decade deliver the coup de grace to banking, as we know it today.
By Nils Elmark
Consulting futurist, BankingLab.london