ABA Banking Journal - November/December 2016 - 22


SPECIAL REPORT > INNOVATION AND TECHNOLOGY
Banks provide tremendous value that is not replicable by
startups, the most important being their role as trusted
custodians of their customers' money and information.
Banks have established a strong level of trust with
customers that is necessary when handling someone's
money. Establishing and growing customer relationships
is the largest challenge for startups. Additionally, startups
cannot replicate banks' payments system access and low
cost of funds due to FDIC insurance.
Only by collaboration will banks and startups realize the full
potential of fintech.

'Uber for banking'? Think again
Is the banking industry at an inflection point where
traditional players are in danger of being "disrupted" by
new tech-focused challengers? We have seen this happen
as traditional cabs are challenged by transportation
network companies like Uber and Lyft.
There is much that we can learn from the example of Uber.
Uber took an analog industry and provided mobile access
that was seamless and addressed key pain points such as
payment and hailing. Uber also provides a full replacement
for the service it is disrupting. If you have Uber, you never
need a cab. As noted above, none of today's fintech firms
come close to replicating the breadth and depth of banking
services. Simply put, you are not going to disrupt the entire
banking industry by making wedding loans.
Banking may not have an Uber; instead, it will more likely
face an Amazon. We can take a lesson from the early
days of e-commerce, when shoe retailers were worried
that powerhouse e-tailer Zappos would put them out of
business. Many of those shoe retailers were disrupted
by digital channels, but not by Zappos. Today, Amazon
sells far more shoes than Zappos did before Amazon
bought it. A platform that is able to bundle all of these new
technologies into a one-stop shop will be best positioned to
win digital-first customers.
There are two possible outcomes to this evolution. First,
if banks ignore fintech or take too defensive of a posture,
someone else will come along and begin packaging all
of these narrow fintech offerings into a marketplace, like
Amazon did with e-commerce. In fact, the companies
that are most likely to do this are the tech platforms that
dominate today-Amazon, Google or Apple.
Banks are unlikely to be completely disrupted in this
model. There are services that banks provide that are
difficult, expensive, and in many cases impossible to
replicate. Today's fintech firms rely on banks for core
banking services and this is unlikely to change. Moreover,
22

ABA BANKING JOURNAL | NOVEMBER/DECEMBER 2016

customers will still demand deposit insurance, something
no fintech can replicate. The banks will still be part of this
system, but they would lose their customer relationship,
becoming back-end facilitators that compete on price alone.
A market where banks compete solely on price would mean
the end of community banking.
In the alternative outcome, if banks proactively partner with
fintech companies and integrate their technologies, they can
become the platforms of the future. Banks already own the
customer relationships and serve as a one-stop shop today.
There is no reason that they should not play this role in a
digital future.
In reality, we will end up somewhere in between these two
outcomes. The good news is that we are still in early innings,
and banks are well positioned to become the platforms.
Today, less than one percent of banking industry profits have
been claimed by fintech. Few customers, apart from early
adopters, have developed financial relationships outside of
their banks.
There are a number of banks that have led the way to
establish such platforms. Notably, all of these participate
and support the fintech ecosystem in three key ways: labs,
incubators and venture investments. Each of these banks
has an innovation lab to build innovative products inside the
bank. They have programs to help the earliest-stage ideas
become companies, and they invest in startups directly
through venture capital.
Participating in each part of the ecosystem has its own
benefits, but participating in all three creates a network effect
in which knowledge, talent and connections can be shared.
It gives new companies and the brightest innovators insight
into the problems that banks face allowing them to create
the tools to solve them. It also gives banks a window into the
leading edge of how technology is changing their industry.
Fintech startups are looking to change banking, often with
little insight into what a bank actually does. Today's crop
of startups has slowly shifted from looking to disrupt the
banks to a partnership model. The earlier we get tomorrow's
startups engaged with banks, and expose them to the
problems that need solving at community banks, the better
they will be able to partner and help solve those problems.
If banks are proactive in engaging fintech startups, they
will be best positioned to deliver fintech solutions to their
customers in a secure environment-and become the
Amazon-style universal platforms of the future.
ROB MORGAN is VP for emerging technologies at ABA and leader of
ABA's Fintech Task Force.



Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2016

Chairman’s View
Upfront
Picture This
Banking’s ‘Amazon Moment’
Special Report on Innovation and Technology
Building an ‘Internet of Value’
Do You Do What the Data Tell You?
Innovation in the Bank
Core Exercises
Cover Story Pillar of Her Community
Maintaining a Commitment to Ag Customers
Who You Gonna Call?
Anti-Money Laundering
Power Up Profile
Compliance ‘When Can I Call My Customer?’
Risk Management
ABA Compliance Center Inbox
From the States
Corporate Social Responsibility
Index of Advertisers
ABA Banking Journal - November/December 2016 - bellyband1
ABA Banking Journal - November/December 2016 - bellyband2
ABA Banking Journal - November/December 2016 - cover1
ABA Banking Journal - November/December 2016 - cover2
ABA Banking Journal - November/December 2016 - 3
ABA Banking Journal - November/December 2016 - 4
ABA Banking Journal - November/December 2016 - 5
ABA Banking Journal - November/December 2016 - 6
ABA Banking Journal - November/December 2016 - 7
ABA Banking Journal - November/December 2016 - Chairman’s View
ABA Banking Journal - November/December 2016 - 9
ABA Banking Journal - November/December 2016 - 10
ABA Banking Journal - November/December 2016 - Upfront
ABA Banking Journal - November/December 2016 - 12
ABA Banking Journal - November/December 2016 - 13
ABA Banking Journal - November/December 2016 - 14
ABA Banking Journal - November/December 2016 - 15
ABA Banking Journal - November/December 2016 - Picture This
ABA Banking Journal - November/December 2016 - 17
ABA Banking Journal - November/December 2016 - 18
ABA Banking Journal - November/December 2016 - 19
ABA Banking Journal - November/December 2016 - Special Report on Innovation and Technology
ABA Banking Journal - November/December 2016 - 21
ABA Banking Journal - November/December 2016 - 22
ABA Banking Journal - November/December 2016 - Building an ‘Internet of Value’
ABA Banking Journal - November/December 2016 - 24
ABA Banking Journal - November/December 2016 - 25
ABA Banking Journal - November/December 2016 - Do You Do What the Data Tell You?
ABA Banking Journal - November/December 2016 - 27
ABA Banking Journal - November/December 2016 - insert1
ABA Banking Journal - November/December 2016 - insert2
ABA Banking Journal - November/December 2016 - Innovation in the Bank
ABA Banking Journal - November/December 2016 - 29
ABA Banking Journal - November/December 2016 - 30
ABA Banking Journal - November/December 2016 - Core Exercises
ABA Banking Journal - November/December 2016 - Cover Story Pillar of Her Community
ABA Banking Journal - November/December 2016 - 33
ABA Banking Journal - November/December 2016 - 34
ABA Banking Journal - November/December 2016 - 35
ABA Banking Journal - November/December 2016 - 36
ABA Banking Journal - November/December 2016 - 37
ABA Banking Journal - November/December 2016 - Maintaining a Commitment to Ag Customers
ABA Banking Journal - November/December 2016 - 39
ABA Banking Journal - November/December 2016 - 40
ABA Banking Journal - November/December 2016 - Who You Gonna Call?
ABA Banking Journal - November/December 2016 - 42
ABA Banking Journal - November/December 2016 - 43
ABA Banking Journal - November/December 2016 - Anti-Money Laundering
ABA Banking Journal - November/December 2016 - 45
ABA Banking Journal - November/December 2016 - 46
ABA Banking Journal - November/December 2016 - Power Up Profile
ABA Banking Journal - November/December 2016 - 48
ABA Banking Journal - November/December 2016 - Compliance ‘When Can I Call My Customer?’
ABA Banking Journal - November/December 2016 - 50
ABA Banking Journal - November/December 2016 - Risk Management
ABA Banking Journal - November/December 2016 - ABA Compliance Center Inbox
ABA Banking Journal - November/December 2016 - 53
ABA Banking Journal - November/December 2016 - 54
ABA Banking Journal - November/December 2016 - From the States
ABA Banking Journal - November/December 2016 - 56
ABA Banking Journal - November/December 2016 - Corporate Social Responsibility
ABA Banking Journal - November/December 2016 - Index of Advertisers
ABA Banking Journal - November/December 2016 - cover3
ABA Banking Journal - November/December 2016 - cover4
http://www.nxtbook.com/naylor/BAKS/BAKS0318
http://www.nxtbook.com/naylor/BAKS/BAKS0218
http://www.nxtbook.com/naylor/BAKS/BAKS0118
http://www.nxtbook.com/naylor/BAKS/BAKS0617
http://www.nxtbook.com/naylor/BAKS/BAKS0517
http://www.nxtbook.com/naylor/BAKS/BAKS0417
http://www.nxtbook.com/naylor/BAKS/BAKS0317
http://www.nxtbook.com/naylor/BAKS/BAKS0217
http://www.nxtbook.com/naylor/BAKS/BAKS0117
http://www.nxtbook.com/naylor/BAKS/BAKS0616
http://www.nxtbook.com/naylor/BAKS/BAKS0516
http://www.nxtbook.com/naylor/BAKS/BAKS0416
http://www.nxtbook.com/naylor/BAKS/BAKS0316
http://www.nxtbook.com/naylor/BAKS/BAKS0216
http://www.nxtbook.com/naylor/BAKS/BAKS0116
http://www.nxtbook.com/naylor/BAKS/BAKS0615
http://www.nxtbook.com/naylor/BAKS/BAKS0515
http://www.nxtbook.com/naylor/BAKS/BAKS0415
http://www.nxtbook.com/naylor/BAKS/BAKS0315
http://www.nxtbookMEDIA.com