Banks in The Newly Vulnerable Financial Services Sector: "The Best Defense is A Good Offense"

Abstract

The topic of FinTech and the transformation of financial services sector has attracted broad attention in the passing decade, many economics researches have been conducted to explore the influences of Fintech companies on the financial services sector. Previous researches have proposed several reasons for Fintech companies to outperform the incumbents, which emphasized the reduced costs, advanced technology, customer-oriented products and lighter regulatory burdens. While major of the focus on Fintech companies, there are much fewer researches that focus on the strategic transformation of banks but only general suggestions of collaboration and cloud technology. The Fintech revolution that has been sweeping the financial services sector has much similarity with the digital revolution in the music industry and the travel industry. Both industries were highly affected by technological innovations via Internet and the business models of incumbents were strongly disrupted. Inspired by the view of newly vulnerable market, this thesis aims at exploring the common characteristics of the financial services sector in the Fintech revolution and understand the competitiveness of both banks and Fintech companies from a resource-based view. This thesis finds that the current financial services sector meets all elements of a newly vulnerable market, where technological innovations and regulatory forces exacerbated the legacy dilemma caused by the traditional operating system of banks. Further analysis illustrates the interconnection between the regulatory systems and the disintermediation threat of Fintech companies. Based on these findings, the thesis is able to give detailed suggestions for banks. Main findings in this thesis demonstrates that banks in the newly vulnerable financial sectors need to implement an aggressive platform-banking strategy and keep their customer-centric positions at the front-end of the value chain.