Margins in Digital Banking

1.) If a FinTech wants a competitive advantage (compared to a “classical” bricks and mortor bank) it has to be more efficient and more automated.

2.) If you want to be 100% (or close to that) automated your variety of products and services will be limited.
E.g. today you cannot serve all exchanges or investment products (e.g. bonds) fully automated. That is one (not the only one) of the reasons for lots of manual work at “classic” Banks.
With new technologies (e.g. blockchain or standard APIs) and further standardisation the opportunities for product and service automation will increase but they will be accessible to all participants.

3.) To have a radical different product/service offering is hard to achieve and if you should have one, there will be lots of people happy to copy you.

4.) As a result, the offers from FinTechs in the same service will be interchangeable or are already very similar.
E.g. compare Wealthfront, Betterment, FutureAdvisor etc. in the Robo-Investement-Advisor area.

5.) The differentiator will then be mainly pricing and yes of course also user interface, algorithms, marketing and the like…

In conclusion the margins will drop and banking (especially digital) will be a less lucrative business, which will then only be profitable for a few big ones (economies of scales).