The two market models of fintech revolution

• The fintech revolution has two market models: The Western ‘Market Model of Frenemies by Difference’ and the Eastern ‘Market Model of Frenemies by Similarity’
• Western banks would happilly embrace the knowledge of fintech companies but with immense difficulties to do so.
• Eastern banks, on the other hand, would be able to embrace fintech more dynamically although it sees few reasons to do so.

The fintech revolution has two market models: The Western ‘Market Model of Frenemies by Difference’ which we usually see through a 2% to 2.5% global GDP-growth environment of the EU and the Eastern ‘Market Model of Frenemies by Similarity’ which we experience in the 5% to 10% GDP-growth powerhouse of India, China, Vietnam and the Philippines.

The market model of frenemies by difference

Western banks and fintech startups are ‘Frenemies by Difference’. Western banks are typically stagnating in terms of total assets. This stagnation defines their strategies: cutting costs, eliminating redundancies, selling underperforming business units and reducing risks. The name of the current game in Western banking is: playing defence. While completing strategic defensive actions Western bankers rarely have substantial parallel capabilities to fully embrace a 180 degree counter culture: the culture of fintech startups. The culture of fintech startups is characterised by high-growth, high risks, intense innovation and inherent flexibility. The name of the game for fintech startups all over the world is: playing offence. The defining strategies of Western banks are diagonally opposite to the existential principles of fintech startups. This disconnect between the everyday reality of Western banks versus the nature of fintech startups creates the ‘Market Model of Frenemies by Difference’.

The market model of frenemies by similarity

Eastern banks and fintech startups are ‘Frenemies by Similarity’. Banks in economies with 5% to 10% GDP growth rates are typically growing their total assets by 20% to 50% annually. This dynamism defines their strategies: focus on growth, management of an expanding organisation, acquisition of strategic business units and taking calculated risks. The name of the game in high-growth eastern banking is: playing offense. The culture of fintech startups all over the world is much closer to the strategic reality of high-growth Vietnamese, Indian or Chinese banks than to stagnating Western financial services providers. The defining strategies of high growth Eastern banks are very much in line with the existential principles of fintech startups. This unique match between the everyday reality of high growth Eastern banks and the nature of fintech startups creates the ‘Market Model of Frenemies by Similarity’.

The key question Western bankers ask about fintech is: How can I embrace fintech and make my bank grow?

The key question Eastern bankers ask about fintech is: Why to embrace fintech if I grow dynamically anyway?

These key questions define two paradigmatically different strategic propositions towards fintech. While Western bankers say: “we would happily embrace the knowledge of fintech companies, but we have immense difficulties to do so”, Eastern bankers have a different view: “we could easily embrace the knowledge of fintech companies, but we have few reasons to do so”.

Based on this situation described above the two key questions for me as a fintech trainer are:

First, how can I show Western banks the way high-growth Eastern banks maintain a culture of flexibility, dynamism and creativity? This will help Western banks better accept the culture fintech represents.

Second, how can I show Eastern banks the importance of embracing fintech solutions in a situation which provides them with countless dynamic growth opportunities outside fintech? This will help Eastern banks maintain dynamism and competitiveness in a theoretically more stagnant macro environment. 

All in all, both Eastern and Western bankers agree that banks and fintech companies are ‘frenemies’, but while Eastern bankers see ‘Frenemies by Similarity’, Western ones see ‘Frenemies by Difference’. And the question therefore is: What can we all learn from each other to create safe and profitable banks for the future?

Note: David Gyori is a fintech consultant, trainer, author and chief executive officer of Banking Reports Ltd London. The opinions expressed in this article are strictly his own.