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Why is fintech a huge threat to banks?



Jamie Dimon, chairman and CEO of JPMorgan Chase, described fintech as one of the “greatest competitive threats” for banks in his annual shareholder letter released Wednesday.

“Banks … are facing widespread competition from Silicon Valley, both in the form of fintech and big tech companies” such as Amazon, Apple, Facebook, Google and Walmart, Dimon wrote and “that is. Where to stay next “

In particular, fintech companies “are making great strides in building both digital and physical financial products and services,” Dimon said. Intuitive, easy-to-use, fast and intelligent product development.

Part of the reason “Banks play a much less role in the financial system,”

; he said.

Fintechs such as Stripe, Robinhood and PayPal have seen a lot of growth and success in recent years that may present challenges to traditional banks.

While traditional banks have “Key strengths” such as “brands, economies of scale, profitability and deep rooting with their customers” Dimon also acknowledged their weaknesses. Things like A “inflexible legacy” along with “broader regulations” can hinder innovation within banks, although these content can also make “secure” banks an option for consumers.

Still, without those hurdles, fintech companies can succeed, according to Dimon.

“Fintech’s ability to integrate social media, use data intelligently, and integrate rapidly with other platforms (usually without the drawbacks of being a real bank) will help these companies gain a share of the power.” An important market, ”he said.

“[M]Any banking products, such as some forms of payments and deposits, are moving out of the banking system. Additionally, many forms of lending are moving away from the banking system, ”Dimon wrote.

In the midst of the COVID-19 epidemic, especially Americans are increasingly willing to use fintech, according to a 2020 McKinsey & Company survey, consulting firm fintechs are. “Contact with traditional banks in terms of customer trust”

Young people, in particular, are a driving force for adoption: “Gen Z and Millennials have the most overall fintech accounts,” the report said.

However, “many baby boomers rely on certain fintech accounts, contradicting the general understanding that digital tools are only for the younger generation,” according to the report.

Fintech’s growth is also fueled by interest in technology. cryptocurrency and blockchain

For example, as Ethereum became more mainstream, DeFi or decentralized finance was introduced to the market.

Decentralized Finance, or DeFi, is an emerging part of the fintech universe that refers to an application system aimed at building traditional financial instruments with digital currencies.

For example, through DeFi Lending, users can borrow or borrow cryptocurrency just as you can with fiat currency at the bank and earn interest as a lender.

Of course, there are many risks associated with DeFi, including a lack of regulation and prevention.

Like the rest of fintech

“There are new and serious problems that need to be dealt with, and quite quickly,” Dimon wrote. [and] The legal and regulatory status of cryptocurrencies “

As a result, Dimon called for government regulations aimed at creating A “level playing field” for fintech and non-banking banks. (Financial institutions that do not have a banking license)

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