Module 4: Incumbent Banks & Open Banking

Pain Points in Banking and Personal Finance

Challenges and frustrations consumers face when managing finances that create opportunities for fintech innovation.

Pain Point

A negative experience or problem that a customer is willing to pay to have fixed.

Financial Stress

Managing finances is a source of stress for individuals across all age groups.

Bank Gatekeeper Perception

The view that banks are monolithic, conservative institutions controlling access to financial services.

Overcharging Perception

The belief that banks earn high profits by charging excessive fees for everyday financial products and services.

Customer Intimidation

Feelings of anxiety or discomfort when interacting with bank representatives.

Underserved Populations

Groups such as minorities and lower-income individuals who struggle to access adequate financial services.

Unbanked

Individuals who do not have access to basic banking services or a bank account.

Debt and Savings Struggles

Difficulties individuals face in paying off debt or saving for the future.

Credit Score

A numerical rating produced by credit agencies that assesses an individual’s creditworthiness.

Credit Score Awareness

The fact that many consumers are unaware they are evaluated by credit agencies such as Equifax and TransUnion.

Fintech Market Opportunity

The idea that unmet personal finance needs create demand for fintech solutions.

New World of Digital Banking

The modern banking environment shaped by technology, regulation, and evolving consumer expectations.

Regulatory Barrier to Entry

Capital, liquidity, and compliance requirements that make entering banking difficult and costly.

Compliance Costs

The financial and operational burden associated with meeting regulatory requirements.

Trust in Banking

Customer confidence in financial institutions that is built slowly but can be lost quickly.

Incumbent

An established financial institution with existing customers, infrastructure, and regulatory licenses.

Incumbent Brand Advantage

The benefit banks gain from long-standing brands, branches, and customer relationships.

Open Banking

A system that allows consumers to securely share their banking data with authorized third parties.

Consumer Data Ownership

The principle that customers control access to their financial and transaction data.

Data Sharing Authorization

Customer consent that allows third parties to access banking data and can be revoked at any time.

Secure Data Handling Requirement

The obligation for third parties to return or destroy data once authorization is revoked.

Application Programming Interface (API)

Software that enables two computer systems to exchange data over a network.

Open API Requirement

The mandate that banks provide secure APIs to share data with authorized third parties.

Closed APIs

Private APIs used internally by banks behind security firewalls.

Partner APIs

APIs banks use to share data with trusted partners such as Visa and Mastercard.

Screen Scraping

A data collection method where customer credentials are used to extract banking data directly from online accounts.

Consumer-Driven Banking

A framework that enables consumers to use their financial data to access better financial products and services.

Consumer Benefits of Open Banking

Greater control of financial data, improved outcomes, enhanced security, and access to innovative tools.

Small Business Benefits of Open Banking

Reduced administrative burden, faster loan decisions, and better software integration.

Economic Benefits of Open Banking

Improved competitiveness, innovation, and resilience in the financial sector.

Banking-as-a-Service (BaaS)

A model where licensed banks provide regulated infrastructure and services to fintechs.

BaaS Value Proposition

Providing licenses, compliance, deposits, risk management, and reporting to fintech partners.

Fintechs as Customers

The strategy of treating fintech firms as clients that require regulated banking infrastructure.

Response of Incumbents

Strategies traditional financial institutions use to respond to fintech disruption.

Competitive Moats

Structural advantages large incumbents have due to scale, capital, and customer base.

Whales

Large financial institutions with massive balance sheets, IT budgets, and millions of customers.

Smaller Fish

Smaller banks and financial firms that are more vulnerable to fintech disruption.

Build In-House Strategy

Developing proprietary digital banking technology internally.

Digital Banking Apps

Mobile and online banking applications launched by traditional banks.

Neobank

A digital-only bank that operates without physical branches and delivers services online.

Challenger Bank

A newer bank that competes with incumbents using digital-first models and lower-cost structures.

Digital-Only Bank

A bank that provides financial services exclusively through digital channels.

Buy vs Build Decision

The strategic choice between purchasing technology or developing it internally.

Buying Technology

A faster but more expensive option with limited customization.

Building Technology

A slower approach that allows customization but requires talent, time, and resources.

Innovation Labs

Dedicated research and development units within banks focused on innovation.

Innovation Theatre

Highly visible innovation efforts that produce little practical outcome.

Strategic Partnerships

Collaborations between incumbents, fintechs, universities, and investors.

Joint Venture

A partnership where two or more firms create a separate entity to pursue a shared objective.

License Software Strategy

Using fintech technology through subscription or software-as-a-service models.

Software-as-a-Service (SaaS)

A licensing model where software is provided through ongoing subscriptions.

Data Aggregator

A platform that collects financial data across institutions using APIs.

Data Aggregator Financial Marketplace

A platform that aggregates financial data and connects consumers to multiple financial products.

Plaid

A leading data aggregator that enables verification, payments, and financial data access.

Equity Investment Strategy

Incumbents investing in fintech start-ups to gain exposure to innovation.

Fintech Acquisition

The purchase of fintech firms to acquire technology, talent, and intellectual property.

Acquisition Risk

The possibility that fintech acquisitions fail due to integration challenges.

Unbundling

The process by which fintechs break traditional banking services into standalone products.

Rebundling

The strategy of combining multiple financial services into a single integrated offering.

Business-to-Consumer (B2C)

A fintech model that sells financial products directly to end consumers.

Business-to-Business (B2B)

A fintech model that sells technology or services to other businesses or financial institutions.