Fintech Banking End-game (Summary)

At over 3,000 words and 90+ footnotes[1], my original post on the fintech banking end-game is not a light read.

This is a summary of the key ideas in my contrarian[2] thesis.


This new generation of fintech banks is fairly unique. 5 characteristics differentiate them from the previous set of tech startups in financial services.

•1) Mobile: The primary way to interact with them is on the phone (Mobile).
•2) Full-stack: The entire infrastructure is built from scratch.
•3) Challenger: They're primarily VC-backed and not owned by large banks.
•4) Edge: Each startup possesses a unique 'edge' that makes it stand out.
•5) Convergence: Eventually every fintech bank will look the same.

Mobile-first fintech challenger banks.


Conventional tech industry thinking is that innovation tends to originate from Silicon Valley, before entering Europe. This isn't the case for fintech banking.

The EU's legal framework allowed startups to operate as 'E-Money Institutions' without obtaining a banking licence. The uncompetitive EU banking scene gave startups the opportunity to enter. Developments on the payments infrastructure front lowered costs and made launching easier.


While each fintech bank will have its own unique take on the future of banking, convergence will happen in the long-run in 2 ways.

•1) Banking Licence Convergence: The 'EMI' structure is a compromise. It's flexible but only a stop-gap solution. In time, most fintech banks will apply for a banking licence.
•2) 'Core Banking Stack' Convergence: Over time, every fintech bank will end up with the 6 functions that make up the 'core banking stack'.



Competition based on unique features will shift to price-based competition, as every fintech bank would possess its own 'core banking stack'.

Price-based competition will require greater scale, leading to a 'winner-takes-most' situation. With increasing competition, the industry will consolidate and shrink to a small group of fintech banks.


There is a growing consensus that 'marketplace banking' (where the bank serves as a hub for third-party providers) will be the final, surviving business model in fintech banking.

I disagree.

Given how the number of unique financial services and asset classes are finite, customers will flock to the fintech bank that offers the cheapest pricing structure.

A fintech bank will only be able to offer low prices on a sustainable basis if it achieves scale. Economies of scale will arise if there is critical mass. Hitting critical mass will require network effects stemming from rapid user growth.



The remaining fintech banks will compete by creating its own 'Layer 2 banking stack'.

•1) Payments Network: A private global payments network will connect merchants and consumers directly, lowering/eliminating costs.
•2) In-network P2P Lending: Capital can be recycled in the network through a passive savings and lending mechanism.
•3) Liquidity: The 'closed loop' nature of 'Layer 2' will reduce the cost of capital for all parties.



Retail banking is (strangely) similar to tech companies, where scale, network effects & access to capital can increase its ability to compete on an exponential level.

While the fintech banking scene is incredibly competitive at the current moment, in the coming decade the landscape will be different.

One vision of the future is 'marketplace banking', where banks serve as 'app stores' with third-parties providers serving as an 'app'.

My contrarian view is that disintermediated banking will give way to the tendency to centralise, as seen in the tech industry.

A low-cost banking service augmented by 'Layer 2' will increase customer count and transaction volume growth, leading to positive network effects and giving the firm economies of scale, thereby increasing the effectiveness of further investment and resulting in lower costs.

My view is that a few incredibly large and dominant fintech firms will remain.

  1. The original op-ed should be used as the source for all footnotes and references. ↩︎

  2. It's contrarian because there is a growing consensus that the 'marketplace banking' model will be the 'final' model, whereas I see the tendency to centralise manifesting in fintech banking. The banking model is similar to tech (software) companies, where scale, network effects & access to capital can increase its ability to compete on an exponential level. ↩︎

  3., Archive 1, Archive 2. ↩︎