Home / Technology Policy & Ethics / September 2017 / Upsetting the Apple Cart – Are FinTechs a Threat to Banks

Upsetting the Apple Cart – Are FinTechs a Threat to Banks?

by Heike Menne-Spohr and Dr. Mohammad Saud Khan

September 2017

Financial technology or FinTech, is a business which mainly uses software to provide financial services to customers, thereby, disrupting the traditional financial landscape, which focuses more on what the banks will offer and less on what the customer wants. FinTechs are affecting the way people think about banking and how they do their banking. They are attracting millennials (born between 1982 and 2004), who are high earning customers prioritising fast, easy, flexible, and inexpensive banking solutions over personal services. Big data companies like Google, Apple, and Facebook are also accessing this market and add an additional dimension to mobile banking.

The global increased service regulation of the banking sector resulted in the downsizing of banks to reduce costs, negatively affecting their utilisation of technology within the system [1]. Many banks have complicated and outdated Information and Communications Technology (ICT) systems which are not able to compete with the technologically advanced systems of FinTechs, making them susceptible to more downtime, resulting in decreased customer satisfaction [2]. With more customers using smartphones, there is a need for streamlined banking services and reduced service costs.  Traditional banks have neglected to understand and adjust to customer needs, allowing FinTechs to offer exactly the services these customers seek – products which are simpler with fewer features and easier to use at a fraction of the price [3].

Global trends

Globally, there are an estimated 12,000 FinTech start-ups and funding increased from $5.6bn in 2014 to $12.2bn in 2015.  Although the popularity of FinTechs in the USA is limited, China and Europe have seen a boom in the last two years [14].

China, with 1.3 billion mobile phone users and increasing market value in mobile technology, has seen a significant increase in the use of FinTechs for banking and lending. Less regulated Chinese banks have helped FinTechs to grow from one platform in 2007 to over 2000 in 2015; most of these FinTechs are peer to peer lending companies due to the lack of access to credit for FinTechs in China [8].

The centre of the FinTech revolution is London with $646 million of venture capital funding going into the local start-ups in the first quarter of 2015, an increase of 66% from the previous year [3]. The Government has been instrumental in this growth through the development of a tech hub called Tech City in East London.  England also has a micro, small, and medium enterprises (SMEs) friendly approach to tax, start-up capital, and market competition [9]. In reaction to this success, the Canary Wharf group has developed a FinTech cluster which has turned into one of Europe’s biggest technology accelerators for finance.

Sydney, Australia has taken London’s example and has started a similar concept called Stone & Chalk, which is supported by the New South Wales government as well as large Australian banks.  They are hoping to surpass Singapore and Hong Kong and become the main FinTech hub in the Asia-Pacific [10].

There is no FinTech cluster or centre in USA, but several states are competing for the position.  Silicon Valley and New York would like to be the hub but it seems more likely that there will be several hubs all over the country.  USA is still lagging behind London but the risk-happy culture in the USA might make them more successful in the long run [9]. FinTechs in USA have many IT and technologically savvy people to pick from, and as the popularity of FinTech services increases this will begin to play a role in the success of the start-up as well as its competitive advantage.

Future for banks and FinTechs

In the past, banking was structured around face-to-face interaction; customers were reliant on the expertise of the advisers and had no other sources of information to draw from.  Technologically-enabled customers can now access information about products, banks, and advisers from their phones or computers.  This increase in awareness has moved the power from banks to customers, meaning that the bank’s communication with customers must take place in real time and on the customer’s terms [5].

FinTech’s technology allows customers to access and use their accounts 24/7 anywhere in the world and addresses their needs much better than the traditional 9 to 5 services. With more than 40% of customers using mobile phones to access their accounts and a predicted increase of 20% over the next 5 years, new technology must adapt with the customers [6].

Why are FinTechs successful

FinTech start-ups are successful due to the low margin, asset light, scalable, innovative, and compliance easy (LASIC) principle.

  • Successful FinTechs have low profit margin as a main feature, riding on existing infrastructure without the burden of large fixed assets, making them flexible and innovative.
  • FinTechs ensure that their businesses remain scalable and flexible. They can  increase in size without enormous cost increases. Most importantly the technology remains scalable.
  • FinTechs in their basic makeup are innovative; their reliance on constantly changing technology means that they must change with it and predict future trends.
  • FinTechs are fortunate that the regulations which govern them are currently light, enabling them to reduce compliance costs [4]

Google, Apple and Co

Large data companies like Google and Apple in USA have taken advantage of a loophole in the federal law which does not regulate the financial transactions of nonbanks.  Nonbanks are not clearly defined, and internet giants are using this to their advantage by forming nonbanks which do not accept deposits but customers can withdraw their money on demand, usually by transferring to another traditional account [7].

Apple’s newest iPhone contains a near-field communication (‘NFC’) chip which allows the compatible devices to communicate with each other when they are in close proximity without any additional steps. Considering that Apple holds the details of 800 million credit cards it can make an easy transition into a digital wallet [7].

Google’s peer-to-peer transaction service, Google Wallet, is linked to the Gmail accounts of its users as well as Google+. Together with Android Pay it allows customers to pay at point-of-sale by tapping their phone, send and receive money for free, and keep track of spending. Facebook followed Google’s example in 2015 and started its own payment system; its American users can link their cards to the messenger app which allows them to transfer money to each other as easily as sending a message [11].

Similar products are available in China; the social networks Sina Weibo and WeChat offer financial products like credit cards to their members. Internet retail giant Alibaba has expanded its services by introducing a company called Alipay.  It was expected to become a large financial institution and is now valued at $60 billion and offers full financial services via the internet.  Alibaba further owns an internet money market fund called Yu’E Bao which had no assets to begin with; after 10 months it was valued at $90 billion making it the fourth largest money market fund [12].

Data Mining

The data giants have an advantage which start-up FinTechs and banks do not have in the form of millions of members already signed into their database and records of customer-behaviour spanning years [7]. Data is also collected from online transactions, searches, and social networking activities [13].

PayPal has been running since 1998 and under its parent company, eBay, has been data mining for longer than the other data networks.  It has a unique position in that it is not classified as a bank or a nonbank, due to its policy of keeping money in interest earning checking accounts, it is classified as a money transmitter and thereby avoids any regulation [7].


FinTechs are actively targeting and attracting high earning millennials and thereby threatening traditional banks at the most basic level.  These high-income earners are more likely to use additional FinTech services which can translate into investments for FinTechs rather than the banks.  The global reach and large data bases of Google, Apple, and Facebook have the potential to impact the market and relegate traditional banks to the sidelines.


  1. Dy, M. (2016). The Challenges to Cross-Border Financial Regulation in the Post-Financial Crisis Era Research Policy Report.
  2. Hutt, R. (2016). What does the rise of fintech mean for banking? | World Economic Forum.
  3. Mackenzie, A. (2015). The Fintech Revolution. London Business School Review26(3), 50-53.
  4. Lee, D. K., & Teo, E. G. (2015). Emergence of FinTech and the LASIC principles. Available at SSRN 2668049.
  5. Kotarba, M. (2016). New factors inducing changes in the retail banking customer relationship management (CRM) and their exploration by the FinTech industry. Foundations of Management, 8(1), 69-78.
  6. Blurred Lines: How FinTech is shaping Financial Services’ (2016). PricewaterhouseCoopers.
  7. Packin, N. G., & Lev Aretz, Y. (2016). Big Data and Social Netbanks: Are You Ready to Replace Your Bank?. Houston Law Review53(5).
  8. Barberis, J., & Arner, D. W. (2016). FinTech in China: From Shadow Banking to P2P Lending. In Banking Beyond Banks and Money (pp. 69-96). Springer International Publishing.
  9. Irrera, A., Krouse, S., Levy, C. F., & Analytics, E. (2014). Race to be the big wheel in fintech.
  10. Wright, G. (2015). Fostering fintech innovation. Global Finance, 29(7), 44-44,46.
  11. Walker, A. (2014). Banking without banks: Exploring the disruptive effects of converging technologies that will shape the future of banking. Journal of Securities Operations & Custody7(1), 69-80.
  12. Lee, A. (2015). Singapore regulator backs fintech solutions. International financial law review34(29), 1-1.
  13. Tene, O., & Polonetsky, J. (2012). Big data for all: Privacy and user control in the age of analytics. Nw. J. Tech. & Intell. Prop.11, xxvii.
  14. Dietz, M., Khanna, S., Olanrewaju, T., & Rajgopal, K. (2016) .  Cutting through the noise around Financial Technology.


Heike Menne-Spohr is a lecturer in Human Resources (HR) and Marketing at Wellington Institute of Technology in New Zealand.  She has a background in Human Resources and Industrial Relations with an Honours degree in Industrial Psychology from the University of South Africa. In her Master’s research at Victoria University Wellington, she investigated the interplay between law and organisational codes of conduct with regards to sexual harassment in the workplace in New Zealand.

She also brings experience as a human resource and industrial relations consultant in varied industries throughout South Africa. During this time, she also entered the training industry and attained a qualification in teaching. In Germany, she worked on a Human Resource Information System (HRIS) project to track training and compliance requirements for SABIC Polyolefin GmbH.  She was the project coordinator for Avrami Business Communications with ThyssenKrupp to develop an intercultural assessment system which measured whether candidates would adapt to overseas placements.

Dr. Mohammad Saud Khan is a Lecturer (Assistant Professor) in the area of Strategic Innovation and Entrepreneurship at Victoria University of Wellington, New Zealand. Before taking up this role, he was positioned as a Postdoctoral researcher at the University of Southern Denmark. Having a background in Mechatronics (Robotics & Automation) Engineering, he was engaged as a field engineer in the oil and gas industry with Schlumberger Oilfield Services in Bahrain, Saudi Arabia and United Kingdom. In addition to several consulting assignments, his corporate experience includes a project on “Open Innovation” with Agfa Gevaert, Belgium.

Saud’s research has largely been focused on investigating entrepreneurial teams within high-tech business incubators. His work has appeared at several reputed conferences (such as Academy of Management Annual Meeting and Babson College Entrepreneurship Research conference) and journals (such as Creativity and innovation Management and Management Decision). Currently, his research interests include innovation management (especially managerial implications surrounding novel technological paradigms such as big data, IOT and 3D printing), technology and digital (social media) entrepreneurship.


Dr. Steve Jones joined the Center for Information and Communication Sciences faculty in August of 1998. He came to Ball State University (BSU) from completing his doctoral studies at Bowling Green State University where he served the Dean of Continuing Education developing a distance-learning program for the College of Technology’s undergraduate Technology Education program. Dr. Jones was instrumental in bringing the new program on board because of his technical background and extensive research in the distance-learning field.

Prior to coming to higher education, Dr. Jones spent over sixteen and a half years in the communication technology industry. He owned his own teleconnect, providing high-end commercial voice and data networks to a broad range of end users. Dr. Jones provided all the engineering and technical support for his organization that grew to over twenty employees and two and a half million dollars per year revenue. Selling his portion of the organization in December of 1994, Dr. Jones worked briefly for Panasonic Communications and Systems Company as a district sales manager providing application engineering and product support to distributors in a five-state area prior to starting doctoral studies.