US citizens in their 20s and early 30s, analysts say, offer a glimpse of tomorrow’s banking market. For example, Mark Zandi, chief economist at Moody’s Analytics, states: “Their relationship with the financial system is very different — it’s an electronic one, on their smartphones." which “will be very disruptive to the banking system.”, seattletimes.com reports.
Going further, Brian Moynihan, chief executive of Bank of America, argued in November, 2015 that, if the banks fail to meet the challenge “it may allow part of our industry to be forever taken away from us.”, the source cites. Global investment in startups focused on retail banking markets rose to nearly USD 6.8 billion in 2015, according to CB Insights, a research firm. That is more than triple the USD 2.2 billion in 2014.
Stephen Bird, global consumer banking CEO at Citi Bank, said the bank had reached a “pivotal point,” when “technological change is intensifying” and “competitors are everywhere.” In an interview, Bird said that the bank's aim is to provide an array of banking and money-management services that are as effortless to use as ordering and paying for a ride on Uber. “It’s a big opportunity for us if we can move fast enough,” Bird said. “It’s both an opportunity and a threat.”, the source cites.
While the fintech insurgents are moving and growing quickly, they must overcome big challenges of their own before reshaping the industry. They are still relatively small and niche players in the sprawling retail-banking business. They are not deposit-taking institutions, where consumer savings are insured by the government.
They also lack the legal and regulatory apparatus that traditional banks have built over many decades. Already, some of the new services are facing regulatory scrutiny. In November, 2015, Apple, Google, Amazon, PayPal and Intuit formed a Washington, D.C.-based advocacy group, Financial Innovation Now, to promote policies to “foster greater innovation in financial services.”
Still, some banking habits are changing across the population. In 2010, 40% of US citizens with bank accounts visited a physical branch once a week, while only 9% made a mobile transaction weekly, according to survey research by Javelin Strategy and Research. By 2014, the percentage reporting weekly visits to bank branches fell to 28%, while the weekly mobile banking share tripled, to 27%.
The migration to mobile computing may well work to the advantage of the digital-only entrants as people of all ages become more comfortable using a smartphone as the remote control for their finances. Wealth-management services, for example, skew toward an older demographic. At SigFig, a San Francisco startup that offers an online investment-advisory service, the average user is 47 years old. Still, the share of SigFig users tapping in from mobile devices has increased steadily, to 50%.
“People have such a daily relationship with their smartphones now, almost no matter what their age,” said Mike Sha, chief executive of SigFig, the source cites. Venmo is riding a surge of popularity among millennials. The volume of payments through Venmo, a unit of PayPal, more than tripled in the most recently reported quarter, to USD 2.1 billion.
Venmo, according to William Ready, senior vice president for products and engineering at PayPal, is beginning to cross generations, as younger adults persuade their parents to use the smartphone app for sending money and splitting payments.
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