FinTech Threatening the Livelihood of the Major Banks

FinTech Threatening the Livelihood of the Major Banks

Businessman using laptop

Trust. It’s an important part of human relationships. Whether it’s a personal relationship or a business relationship trust is paramount.

Take for example a personal relationship – you simply can’t have a decent one without trust. If you don’t have trust then suspicion creeps in. You start to wonder what the other person is doing all the time. You end up driving yourself crazy. Ultimately the relationship breaks down.

In business it’s the same. Without trust how can you be sure your business partner is doing what they say? Maybe you’re about to enter a large transaction worth millions of dollars. Without some level of trust how can you possibly agree to a deal?

Of course you have other mechanisms to enhance trust. You have a marriage certificate in a personal relationship. You have a contract in a business relationship. But at the end of the day even with these — you still have to trust the party you’re dealing with.

Trust is an essential part of the human fabric just as is honesty, morality, empathy or love. In a sense it defines who we are.

Without getting too philosophical — trust is an important part of life. You should take it seriously. In other words, you should be very careful whom you trust. Misplacing your trust can be very harmful. It can damage your personal life. And damage your financial life.

I’m not advocating trusting no one. But every now and then you should reaffirm with whom and where you place your trust.

For instance, your business and financial relationships. Where do you place your trust with your finances?

Maybe you have a broker you deal with. Do you trust them? Do you trust that the actions you request are fulfilled accurately on your behalf? Do you trust they’re not ripping you off on fees? Do you trust they are keeping your funds safe?

You only need to look at examples like Sonray Capital, Opus Prime or BBY. Three Aussie brokers. Three failures. Millions wiped, money lost.

There are other financial relationships to be wary of too. In fact, it’s a travesty how many times hard working Aussie’s place their trust in a financial provider only to be ripped off.

Remember Great Southern from a few years back? A failed Forestry Managed Investment Scheme? Perhaps Timbercorp? You might have even been part of the Pyramid Building Society debacle in the 90s.

There’s an ever growing list of financial institutions in Australia happy to defraud and rip off the average Australian investor.

More recently you can turn your eye to the most ‘trusted’ institutions of all…our banks.

If the banks are ripping you off then who can you trust?

Every single one of the ‘Big 4’ has been implicated in financial planning fraud. Not just one, or two. All four of them. You hear about it in the major papers — but what do you do about it?

We are given hard evidence of mismanagement, fraud and the shoddy practices within the Aussie banks. But what does it lead to?

I’ll tell you what it leads to — nothing. Absolutely nothing. CBA’s financial planning scandal goes back as far as 2003. Over a decade of financial planning malpractice. Sure, CEO Ian Narev said ‘sorry’. And there was compensation paid out. But how’s the bank doing today? Oh, they’re the biggest company in the country.

In fact, of the biggest six companies in Australia four of them are the banks. Too big to fail — perhaps. Too big to rip you off? Well I’ll leave that up to you.

And it’s coming to light right now that CBA staff are implicated in another multi-million dollar fraud. The Sydney Morning Herald are reporting that, ‘Commonwealth Bank staff were allegedly complicit in a $76 million Ponzi scheme and received secret commissions for their role in the alleged fraud.’

Yet another example of people involved in the bank scamming people out of hard earned money.

Have you had enough of it yet? I have. How are we supposed to trust these people with our money? The simple answer is we shouldn’t. Trust none of them. When have they actively gone about trying to earn your trust? Ever?

We implicitly place our trust in our banks for no good reason. Well, that’s not true. We place our trust in them because we give them our money to look after. And most of the time they’ll keep it safe.

But I could do that. If you gave me $1 million I’d keep it safe for you. But would you do that? Would you give me your $1 million to look after? No of course not — and I wouldn’t expect you to. But it’s no different to the banks — and there’s proof that they are happy to rip you off.

The storm is coming and the banks are in trouble

There’s a storm brewing and it’s coming in the form of FinTech. If you don’t know what FinTech is, it’s the abbreviation for ‘Financial Technology’.

That sounds pretty broad — and it is. But FinTech encompasses all the new companies, new technologies and new financial services threatening the livelihood of the major banks.

Peer-to-peer lending, peer-to-peer currency exchange, blockchain, microlending, inclusive banking, mobile payments, data analysis, and authentication technology — these are just some of the areas taking customer money away from the banks.

And over the next five years you’ll start to see a major shift in where we conduct our financial business. The big banks as you know them are living on borrowed time. It’s hard to believe because we’re talking about companies worth $100 billion. But I’m seeing the next wave of financial services companies coming up, ready to steal market share.

On Tuesday I’m spending two days in the heart of London at a FinTech conference, Finovate. Here I’m going to see and speak with some of the most innovative FinTech companies in the world. Some of them are Australian.

When you start to understand how the FinTech world works it’s easy to see the future. Sure the big banks will probably still exist. But they’ll operate on thin margins, mainly in commercial and institutional banking. Retail banking, customer focused banking — they’re going to lose that business.

These new, people focused FinTech companies are going to be the retail bankers of the future. They’ll provide you with a better service, better products and a better banking experience.

It’s the future of banking. And it’s coming at us faster than most people realise.



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Sam Volkering

Sam is Editor for Money Morning and it’s small-cap and technology analyst. He spends his time hunting down the most exciting stocks on the planets, whether they’re potential-packed volatile small-caps or tech firms transforming our future through cutting-edge technologies. You can find more of Sam’s work over at Australian Small-Cap Investigator, where he shares the best small-cap stocks he finds on the ASX, or at Revolutionary Tech Investor where he reveals the latest breakthrough tech investment he’s discovered. If you’d like to more about Sam’s financial world view and investing philosophy then join him on Google+. It’s where he shares investment insight, commentary and ideas that he can’t always fit into his regular Money Morning essays.

Sam Volkering is Editor for Money Morning and its small-cap and technology analyst.

He’s not interested in boring blue-chip stocks. He’s after Australia’s rising stars — companies whose shares trade for cents on the dollar — and are often shunned by those in the financial services industry. His mission is to make you big money, from small stocks.

If you’d like to learn about the specific companies Sam is recommending you buy for turbo-charged stock returns, take a 30-day trial of his small-cap investment advisory Australian Small-Cap Investigator here.But that’s not where Sam’s talents end. From discovering the Apple 2e and Macintosh in the mid-80s, to the rise and fall of the Mini Disc in the 90s…to building internet apps in the 00s…Sam is an amazing talent at finding new, cutting edge technologies and translating that research into how the future will look — and where the opportunities lie.It’s his job to trawl the world to find, analyse, research and — in the right situation — recommend investments in the world’s most innovative and technologically advanced companies.He recommends the best ones he finds in his breakthrough technology investment service Revolutionary Tech Investor.This revolutionary investment advisory is dedicated to finding the best ways to profit from technological developments across the globe. If the best action is in Australia, Sam will find it. If it’s in Silicon Valley, Frankfurt or Tokyo, Sam will find it there too.To find out more about how Revolutionary Tech Investor can help you profit from breaking developments in the tech world click here to take a 30-day no-obligation trial today.

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