Bankers and Silicon Valley types are fond of framing their rivalry over the future of financial services as a winner-takes-all game.
But that construct may be too simplistic, according to a growing number of people on the front lines of digital innovation.
These days the big questions are which party will hold the primary relationship with customers — and which will be relegated to the back end. The answers are plenty contentious, as evidenced by a spirited debate on the future of banking at the Next Bank USA conference in New York this week.
"Banks are recognizing now that the only way forward is with tech companies that own the customer experience," Brett King, the founder and chief executive of mobile money-management service Moven, said in a characteristically bold declaration.
As proof, King pointed to the advent of the mobile money transfer service M-PESA in Kenya. While Kenyan banks initially tried to shut down M-PESA, he said, they have since accepted that they need to partner with it in order to access customers. In the U.S., mobile wallets Apple Pay, Android Pay and Google Wallet are also shunting banks to the sidelines, according to King.
"That pattern will repeat over and over with core payments, core credit, and savings and bank account capabilities," he said.
Siding with King was Robert Tercek, a former media executive who consults with companies on digital strategies. He suggested that just as digital disruptors like Netflix and Amazon forced television companies to alter their distribution models, so will tech companies increasingly require banks to go through them in order to reach customers.
"Something similar is bound to happen," he said. "Companies today are developing a mobile habit of use with consumers on payments and transactions. The web is [a] transactional space, and banks don't operate in it."
But there is also plenty of evidence to suggest that banks will remain customers' main point of contact, according to Ron Shevlin, director of research at bank and credit union consultancy Cornerstone Advisors.
While digital wallets, peer-to-peer lending and other recent inventions may propel the financial industry in new directions, Shevlin argued that only banks have the resources and scale to pull together wide-ranging financial services and tie them neatly into one customer-facing package.
Tech companies may be pioneering better digital customer experiences, he admitted. But "that leads to the need for customer support," Shevlin said.
"Fintech companies are not well-staffed and suited to deal with consumers' financial services needs," Shevlin elaborated in a follow-up conversation. "Sure, they may have desks to deal with technical-support issues. But to displace banks, it will take a lot more than just technical support."
Banks also have a major edge over startups when it comes to cybersecurity, Shevlin said. He quoted Cathy Bessant, Bank of America's global technology and operations executive, who recently said she has "unconstrained resources for cyberdefense." The implication is that since smaller tech firms cannot afford to make that kind of investment, they will remain beholden to banks.
Such arguments constitute banks' primary defense against the prospect of unbundling — the threat that bank customers will scatter to marketplace lenders, mobile payment services and online investment advisers for individual services, leaving financial institutions to handle mostly low-margin transactions. Industry experts like Richard Magrann-Wells, financial services practice leader at Willis North America, have suggested that customers may stick with banks in the long term because they prefer the convenience of housing their financial services under one roof.
But King contested the idea that younger customers have a predilection for one-stop shopping.
"Today's customers don't think like that," he said, pointing to the widespread popularity of peer-to-peer payment service Venmo among millennials. "It's independent of banks, and it's what they use."
King readily admitted that fintech firms will work with banks well into the future. But that is only so they can leave the big guys to deal with infrastructure and regulatory issues, freeing up money and resources to concentrate on developing new technology.
"We need banks to enter into markets," said King, acknowledging Moven's partnerships with Toronto-Dominion Bank and Westpac New Zealand. "We're not going to get charters in Canada, New Zealand, Australia — that's not a good deployment of our capital. We'd rather spend on technology and experience. We do need bank partners, but just at the back end."
Shevlin agreed that banks and fintech firms are settling into a pattern of mutual dependence. But he had a different read on the power balance between the two, noting that financial institutions are pouring investments into innovation labs and acquiring customer-friendly startups. It was an argument best summarized in the form of what may be the world's first fintech rap.
"Don't be a fool," Shevlin declared, "Fintech don't rule. / No doubt they're cool. / But they're just a bank's tool."