This disintermediation of banking services is nothing more than a direct threat to the future profitability and even existence of the traditional retail banks.

Bill Gates (Founder of the Microsoft company) foresaw this as early as 1994, when he stated that “although banking is a necessity, banks are not”. In a study among digital natives, half of the participants indicated that they are willing to use financial services from non-banks. Banks are now competing with literally thousands of companies some giants such as Google, Facebook and Apple but also with many smaller start-up companies that are introducing innovations continually.

Before the banks can even react to all these new entrants, they should first have an overview of the “battlefield”. But how?

A good start is to categorize these companies into four groups. This is what the top 12 venture capital firms in the world did, so it seemed to me like a good example to follow. These are the four groups:

1. Lending

2. Personal finance management

3. Payments technology

4. Blockchain and cryptocurrencies

But just grouping into 4 buckets doesn’t help to assess the potential impact on the current financial system. It won’t show us the potential disruptiveness of these innovations. For this we need a further categorisation across the four groups.

For this categorization I found an article by fintech writer Chris Skinner (www.thefinanser.com) to be very good. It still helps me to this day.

The first categories he calls ‘wrappers’. These financial innovations do not replace or substitute a financial service or product, but wrap themselves around an existing banking service or product.

Examples are Apple Pay, Google Pay, PayPal, iZettle, Wonga, Samsung Pay, Alipay and many more. For example, if a customer pays with Apple Pay by using his mobile phone, the money is still debited from a bank issued debit- or credit card. These companies fall under the personal finance management and payments technology categories mentioned above.

In the short to medium term I don’t think Wrapper-FinTech’s will be a big treat to banks. They are not replacing the ‘rails’ of the banks (that would be very expensive) but they are trying to offer a better customer experience (CX) than the banks. So far banks seem to have been able to keep pace though, with China being the notable exception.

The second category is called the ‘replacers’. These innovations try to replace banks. Most of these innovations sit within the lending group mentioned above. Examples are the P2P lending websites such as RateSetters, Zopa, LendingClub, Prosper, Lufax and many more.

Peer to peer lenders had a great impact when they became mainstream (about 5 years ago) but recently the growth seems to have slowed. In China the regulators have stepped in and in the US there was scandal and fraud.

I do think that replacer-FinTech’s are potentially more ‘dangerous’ than the wrappers, because they can take away a part of the balance sheet of a bank.

The third category is called ‘reformers’. Here the most important and potentially massively disruptive innovation is blockchain and all the cryptocurrencies that run on it. Blockchain and cryptocurrencies have the potential to replace a large part of the banking infrastructure: replacing the rails so to speak. It means that consumers would not need banks anymore to keep or exchange stores of value.

This would obviously massively disrupt banking as we know it. But the likelihood of this happening is also the most uncertain. The technical uncertainty and societal controversy surrounding blockchain and cryptocurrencies means that mainstream adoption is a long way off. Especially the increasing threat of regulators stepping in, is creating a very uncertain future.

Contributed by MARTIJN VAN KEULEN, Head of Digital Channels and User Experience, TMB.

Views expressed in this article are those of the author and not necessarily of TMB Bank or its executives.