Thousands of new so-called fintech start-ups are invading the established financial world. The calling card of the new-style financial technology company is that it uses mobile digital devices to set up a real alternative to the retail bank branch in your town.
The music and media industries have already been radically changed by the internet. While the shift in the strictly regulated financial industry is only slowly proceeding, the pillars of the banking world are sensing the pressure.
Some observers believe that traditional banks will be overrun by new fintech start-ups with their smart business models.
ONLINE BANKING is one form of fintech, though to date this has always been operated by the traditional banking industry. The internet allows everything to be done online. Even a new account can be opened, with the customer just holding up an ID to the camera.
A bank can save a lot of money this way. According to a digital association, Bitkom, nearly one-third of all German users do all their banking over the web. Rates are higher in some other nations. One problem for the online banks is that they have to pay their bricks-and-mortar competitor who own the automated teller machines s every time a customer withdraw money from a "hole in the wall."
The online back subsidises that service, providing it free of charge to its customers.
Recently that triggered turmoil in Berlin, where Number26, a fintech, severed ties with some customers, accusing them of using ATMs too often for small amounts. Number26 waited too long to explain, and ended up being roasted with criticism.
Other new-style online banking providers such as MyBucks want to use internet technology to offer optimised loans to customers with smaller and mid-sized incomes in emerging-market nations.
To test the creditworthiness of customers, the company has developed a technology-based scoring and self-learning algorithm.
PEER-TO-PEER CREDITS make it possible to cut out the middle-man. Instead of going to a bank for a loan, you are put in contact with an individual looking to loan out money.
Online platforms such as US-based LendingClub or Germany-based Auxmoney and Lendico want to bring the parties together and algorithms are used to keep the default risk to a minimum.
The draw is lower interest rates for the borrowers and higher rates for savers.
One of the biggest ways to save money is cutting out the classical infrastructure.
Berlin-based Zencap became a major broker last October by bringing investors and companies looking for credit together with Funding Circle.
It doesn't always run as it promises.
The founder of LendingClub Renaud Laplanche had to step down in May after allegations of "control deficiencies."
EXCHANGE RATES: A fintech can also track down higher interest rates in a foreign country as a way to get people to invest - and thereby save money.
WIRE TRANSFERS: Some start-ups like London-based Transferwise saw a niche in the international bank transfer market. They offer their service cheaper than the fees many banks charge for an international bank transfer.
MOBILE PAYMENTS are also a target for fintechs, trying to create more ways for individuals to pay with smartphones and tablets instead of with credit or debit cards.
That unnerves banks, since customers feel less reliant on a local bank, but commerce likes the idea, because it can yield more data about customers for merchants which they wouldn't have had if the customer had paid with cash.
TRANSFERRING MONEY WITHIN APPS. Suppose you have to contribute to a restaurant bill, but don't want to open your banking app, fiddle with long account numbers and wait for security codes.
PayPal, the former eBay subsidiary, lets you shift money by email to one person at the table who then settles the bill with the waiter.
SHOP ON CREDIT: Why deal with a bank when you need credit in a shop? That's what Swedish start-up Klarna thought and started loaning money. PayPal wants to make it possible as well.
BLOCK CHAIN: This is a new type of transactions system that replaces traditional banking anti-fraud checks with a ledger. The technology underlies the digital currency Bitcoin, but it could conceivably be adopted by the banking industry to managed all payments.
A number of start-ups as well as traditional institutions are looking into using the technology, which has however a disadvantage: the global ledger of transactions continuously grows. Would it be conceivable that this "block chain" becomes too big to manage?
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