Disruptors, Innovators and Disintermediation – Should Banks Really Care?


Most would say I drew the short straw in debating Jason for the Great Open account debate. First, it’s Jason: young, fit and very smart. Second, I drew the banks. Banks are less popular than going to the dentist (I really did see a survey on this and found it hard to believe anyone would fund this research, let alone choose going to the dentist over a bank branch).

Jason argues that here’s a storm of “new” finance brewing on the horizon. (See Trade Financing Disintermediation: Get Ready For the Accelerating Decline of BanksThere is no question that there is a tremendous amount of noise by many vendors claiming to be the next force in business lending. And yes, many of these models are very interesting because they are leveraging the formula below:

Big networks + lots of data + new underwriting models + zero short term interest rates = huge interest by non banks to fund approved invoices or make small business loans.

And yes, many banks are finding their trade finance shops are stagnating while their payments business is growing (not necessarily a great trade-off). And for sure, new regulatory rules are making banks’ equity expensive, and therefore tough choices must be made in terms of how that equity is allocated across business lines.

So it’s very easy to dismiss the banks these days. So good, I like my chances. No one thinks I have one. I have nothing to lose, like playing Federer at the U.S. Open.

First, what do we mean by disintermediation? Are we talking about replacing the bank in business lending and displacing it with a new provider? Or are we talking about competing against the bank on new opportunities, like trade credit, which have historically stayed on the balance sheet. Numerous examples are available of new solutions happening today – online factoring, invoice auction markets, private pcard exchanges, P2P small business lending, etc.

But let’s not forget a few things. Banks have relationships with almost every corporate customer out there. They risk-score all these customers. They have the account relationship, the data and the payment standards and infrastructure. They also are the government’s enforcement cops. Whether you believe it or not, they have been trust brokers in the past. Heck, you keep your money there don’t you?

Yes, these new models have been innovative (thank God, don't count on the banks for that), they are more nimble, but most lack a strong origination team to go and discuss global treasury, trade, credit, etc., issues with clients. It’s we have a better mousetrap.

So bring it on Jason, I have nothing to lose, so I will let my forehand rip down the line in Boston and hope and pray Federer is having an off day.

P.S. For those interested in pre registering for the whitepaper, visit here.

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