FinTech: enhancers and replacers

So, is fintech disruptive? Well, not all fintech is disruptive, if you ask me. I make a distinction between three types of fintech. First of all, you have the enhancers. The enhancers are companies that try to enhance some of the existing aspects, products, services, infrastructure within the financial services system. They enhance, but they do not truly transform the system. Secondly, you have the complementers. The complementers try to bring something extra to what already exists in the financial services sector, so they fill a gap. They add new products or services or some extra functionality to the existing financial services system. Thirdly, and they are, well in most cases, the most disruptive fintechs, you have the replacers. Those are the companies that try to replace what already exists, peer-to-peer lending platforms. A lot of the things that have to do with blockchain technology, where they really want to take out the middleman, where technology is used to replace some of the existing functionality of the financial services sector. So, it's interesting to have a look at some of the examples of these different types of fintech disruptors.

For me, TransferWise is the typical example of a replacer, that 90 percent of the transfers, international money transfers, through their system is processed within the day, virtually no bank, and promise this today. They are very transparent as we already said. Their fees 0.5 percent, are very user-friendly, app-based, and very straightforward in a way that you use a service. But, let's dig a little deeper and have a look at their operating model. Imagine that you have a person, Kathryn in Germany, who wants to send money abroad to John who lives in the UK. Well, what TransferWise figured out is if you want to do that international money transfer, you could do it via the traditional system. But, probably, on the other hand, you have a group of users in the UK who also want to send money to Germany. So, what they did is they make two money pools, one in Germany, one in the UK, and the money transfer that is going from Germany to the UK is actually never leaving the country. So, what Kathryn is doing, she is transferring her euros to a euro account from TransferWise, a German account, and TransferWise transfers euros to the ones, recipients in Germany, who are waiting to receive euros from the other side from the UK side, and the same happens at the other side. So, John in the UK, who is receiving pounds, doesn't actually receive his pounds from Kathryn, but from the other users who are sending pounds back to Germany. So, what TransferWise is doing with this system is very cleverly, emitting the existing financial services system. So, indeed, 90 percent of the transfers processed within the day are not really international transfers. Through their system, through their operating model, they are transforming international transfers into national transfers, and by doing this, they increase the speed of the system, and they increase the speed of doing international transfers. So, this is fundamentally different, totally different approach than the existing financial services sector as to international transfers.