Opinion: banks have 5 years left to live

The era of monopoly banks is coming to an end, says the executive director of the Swedish bank Klarna. Amid competition from fintech challengers, banks will face massive customer loss and disruption over the next five years.

Banks have until recently had an advantage when it comes to the data of their clients. From checking accounts to credit cards, banking giants had access to a wealth of information that financial technology (fintech) rivals could only dream of.

Now in Europe, everything could change. Banks operating in the European Union will be forced to disclose their customer data to third-party companies only with the customer's consent. EU lawmakers hope the introduction of a revised Payment Services Directive (PSD2) will give non-bank firms the opportunity to compete with banks in the payments business by creating new financial products and give consumers more choice in financial products and services.

The opportunity will come as part of a conceptual shift known as “open banking.” Proponents say that with an open banking structure, non-bank firms - such as large corporations like Amazon and IBM - will be able to create new financial products using data from banks.

Sebastian Siemiatkowski, head of the Swedish bank Klarna, believes that the banking system in its current form is in its last decade, and maybe less, given the rapid pace of development of the fintech sector.

In his opinion, the introduction of PSD2 will create huge competition in the financial services market and could break the existing monopoly banks within the next five years.

For this, all the conditions in the market are already ripe: clients are ready to easily switch to new services, and fintech firms are ready to offer them their platforms. Such startups operate like banks, but already offer digital services online and do not have physical branches.

Financial giants have to do “cool things,” according to Siemiatkowski, to keep up with the innovations being developed by their competitors.

The head of Klarna believes that incumbent banks have three options to fend off competition from fintech firms. 

⁃ transform into a digitally managed business; 

⁃ choose the mergers and acquisitions (M&A) route, buying out fintech competitors to move forward; 

⁃ just leave the market.