The Evolution of the Bank Account

Recent innovations in software, encryption, and networking technology have changed the way people work, how they communicate, and the expectations they have about how services are delivered. One area of technology-driven change which is about to break out of niche markets and into the mainstream is digital payments.

Technology is enabling new methods of financial behaviour, which, under the general name of fintech, represent a shift which will sweep up billions of people and thousands of companies, including some old titans of commerce, in the coming years. Traditional financial companies may want to resist change, but they will recognize sound investments when presented with them, and indeed have already shown an appetite for fintech investment.

A new stock index was launched in July by investment bank Keefe, Bruyette & Woods and Nasdaq Inc. specifically to track the action. The KFTX tracks 49 publically traded fintech companies, totalling $785 million in market cap. That is a very small piece, however, of the rapidly expanding global fintech market.

Accenture estimated that investment in fintech in the first quarter of this year grew by 67 percent (year-over-year) to $5.3 billion. The growth continues unabated: day after the KFTX was launched, Spanish banking giant Santander announced it would double its investment in its fintech fund, launched in 2014, to $200 million.

Personal Finance in the Connected World

The influx of investment capital is both recognition and a catalyst of the digital shift, in which cash is a niche payment method, and the bank account is, in the terminology of the computer industry which is forcing the change, storage. The growth of our contemporary financial institutions came about in an age when payment methods like cash and cheques made sense for consumers.

In the context of new technology, security and convenience of payments are much more easily assured through fintech services. They provide the networks, encryption, controls, and interfaces that make use of the stored currency. This is not an entirely new development, but rather an extension of a gradual process which has seen cash decline in favor of plastic cards which were once run through machines that took copies of them on paper slips, then were swiped electronically, and are now increasingly inserted, tapped, or even ignored altogether in favor of fully electronic methods.

The New Generation

Perhaps surprisingly, companies successfully bringing innovative fintech services to market are not overly concentrated in the traditional hubs of either world finance or technology. The Accenture report noted that growth was strongest in Europe and Asia.

European Commission research on innovation concluded that Sweden leads a number of Nordic countries atop Europe's "Innobarometer." Scandinavia is home to a number of interesting fintech start-ups. Swedish payments provider Trustly, number 5 on the above list, is notable for its aggressive expansion and profitability. Whether it will join Holvi as the region's second billion-dollar startup, or "unicorn," remains to be seen, but 8 years of turning a profit is remarkable in the emerging field, and its growth and business model suggest it will continue to attract partners, as well as investors.

"Today's online consumers want instant gratification and immediate results," Johan Nord, Chief Commercial Officer at Trustly said in an interview. "People want simplicity, convenience and the highest possible security. Payments from the bank account ticks all these boxes."

Co-operating with Competitors

The service delivery models of most leading fintech companies involve improving existing elements of finance, or leveraging them to address market inefficiency. Companies partner under a model often called "co-opetition," which involves working with companies to expand networks and market reach, even if the partner offers a competing service.

Familiar names like Apple Pay and PayPal, as well as next-generation companies like Trustly, have embraced co-opetition, allowing their digital financial technology to be used to facilitate transactions across platforms and methods. PayPal and Trustly have already established this kind of business relationship. Bank accounts become storage, and credit cards simply a different kind of storage, like a "credit account," which the end user accesses to make a convenient digital payment, via the fintech service provider.

The Cross-border Integration Opportunity

There are roughly 500 million people living in Europe, as the European Union works towards its goal of establishing a "single digital market." Those consumers who work, shop, and travel more or less freely across borders are not very likely to be content with co-ordinating between regional financial institutions, or even go to an ATM.

While American consumers are just as quick to avoid cash, they cross National boundaries less frequently, making it easier for the big banks of the world's largest economy meet the daily needs of their customers alone, and so to hold out fintech start-ups. Europe (and regional innovation hub Sweden)is therefore a likely point of origin for the companies which will turn effective service delivery into profit, and then scale out to eventually become fintech's big winners.

Personal Finance in the Digital World

The growth of fintech has likely already passed the tipping point, and the newly decentralized, globalized, "as-a-Service" way of looking at commerce has restored the bank account to a more appropriate status. The technological context in which financial institutions offered bank accounts as all-encompassing personal financial platforms, even as a means of earning interest, has passed. The bank account is now a hub for activity enabled by fintech.

"We see the bank account as the hub of people's financial life that all other payment methods depend on and 93% of Europeans already have, trust and regularly receive their salary to it," Nord says. "With new digital and innovative means to log in, it has never been as convenient for consumers to pay straight from the source of their money as now."

A bank account is a good place to keep your money safe. Fintech is increasingly the tools with which you pay, you get paid, you invest, and you borrow. At this point, we can recognize the financial industry disruption. The questions are: what form will it take, and who, aside from consumers, will benefit.

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