Today we have simply adopted this term as a way to describe companies that are challenging established business models, or offering new ones in a space the incumbents are not occupying.

The digital revolution has seen the rise of thousands of new companies that have emerged because consumers want to leverage technology to do things differently. Millennials and Gen Z are digital natives: they are weaned on computers, software, and digital devices. This shift in consumer demographics has triggered the coming changes.

Many banks have referred to themselves as financial technology companies. But, as banks shift to become techs, companies like Apple, Google, Amazon, and Uber shift to become banks, or attempt to replace the need for them.

The fight for the customer

During a TED talk, Uber CEO Travis Kalanick referenced the history of innovation in his space, and reminded us that Uber was actually invented in 1915, when a company called Jitney was thriving, but was shut down by the regulators.

A few decades ago, financial institutions provided us with a safe place to complete transactions, but they were in the driver’s seat as far as what products they would offer and to whom. It was, in essence, a supply-side economy.

Today the consumer has all the power. We no longer are limited in terms of our options. If demand for change is not being met by the incumbents, a start-up will emerge to fill the void. Regulations are there to protect consumers and service providers, but if they refuse to innovate along with the demand, they may get left behind — or cut out of the equation.

The next 10 years will present many challenges for FinTechs, financial institutions, and consumers alike. The idea of a bank failing became all too real after 2008. In the rush to innovate and modernize, it is not in anyone’s best interests to move money from one large organization to another like Apple, Amazon, or Google.

Enter blockchain

Blockchain, at its most basic, is a global database running on millions of devices and open to anyone, in which anything of value can be moved and stored securely and privately. Trust is established through mass collaboration and intricate code. The security of blockchains relies on trust between strangers.
The Fin+Tech Growth Syndicate recently hosted a FinTech sandbox workshop. During a discussion about blockchain, a Gen Z attendee stated the future of banking is that “I never have to leave my couch.” So, would we move from our bank if it innovated to provide everything we need while never having to leave our couch?

While companies like AliBaba, Google, and Apple become banks, can an incumbent bank start offering non-banking services and products to their customers?

Can the regulators innovate? They need to be pressured as much as the financial institutions to move faster and leverage technology. Gen Z has told us they think we need banks because a secure alternative has not yet been realized. Amanda Lang, anchor of Bloomberg North and former host of CBC’s Exchange with Amanda Lang, stated, “Canada needs banks, but Canadians do not.”

FinTech in Canada

There are 300 commercially operating FinTech companies in Canada today. BetaKit is tracking 515 start-ups, 67 investors, 110 co-working spaces, 25 services, 57 accelerators, and 7 communities. At the FinTech Summit 2016 presented by BDC IT Venture Fund in collaboration with MaRS, Peter Misek predicted in five years there will be 1,000-plus FinTech start-ups in Canada.

From competition to co-operation

“It’s not the institution versus the start-up anymore; it’s how to partner,” said J.P. Rangaswami, Chief Data Officer at Deutsche Bank. “There will always be people smarter than you. You have to learn how to engage: none of us can scale without partnering.”

What is likely to happen is the creation of sanctioned arenas where financial institutions, investors, and FinTechs can congregate to find the right fits and test products before they come close to the real data. The industry calls this approach a sandbox. The idea being that you bring your toys and imagination to discover what you can build together. The revolution is coming — we just have to be prepared for it.

The buzzword in this sector is disruption: innovators try to disrupt the status quo in the provision of services. But, this definition doesn’t give the consumer enough credit. This market is demand-driven. The world is asking for innovation, and the FinTechs are answering the call. Financial institutions are running to keep up — sometimes too slow, and sometimes being bypassed where regulations allow it.

The consumers are demanding it, the innovators are creating it, the investors are bankrolling it, and the financial institutions are working hard to get in the game. With the right sandbox and a lot of collaboration, everyone will get what they need.