A few years ago, many credit card and bank executives were relatively dismissive about competition from online lenders like LendingClub and Prosper, saying they were not affecting their card portfolios because their volumes weren't high enough to make a difference.
Fast forward to this week at Card Forum, and bankers and card executives are now singing a different tune, arguing that fintechs a force to be reckoned with.
Wayne Best, chief economist at Visa, said that unsecured installment lending picked up in 2018 — and much of that was due to fintechs.
“In 2010, fintechs were about 1% of the total,” he said. “In 2018, it was close to 40%. This has to have an impact.”
Visa estimates that about 5% of the credit card market is now being disintermediated by fintechs.
“That’s a big deal,” Best said. He noted that in addition to installment loans, fintech point-of-sale lending is becoming an option for consumers.
“You have to think about the opportunities this creates, in addition to some of the challenges it creates,” Best said. “You can sit back on the sidelines and wait for all this to happen to you, or you can jump in with both feet, either through strategic investments and involvements. This is a big wake-up call.”
Chris Madan, vice president of marketing solutions and client offers at CIBC, also acknowledged the shift.
“Competition is everywhere,” he said. “Look at Amazon. Look at Apple coming out" with its own credit card. "Airlines want to own the travel experience end to end, including redemption of points. The threat is greater and it’s coming from what have traditionally been different ends of the supply chain.”
Ken Myhra, senior vice president of credit cards at BECU, sees the danger of ignoring fintech competition as “death by a thousand paper cuts.”
“They’re helping call out where our members’ pain points are and we need to attack those in an aggressive way,” he said. "One of the things we’ve learned over time is that they are better than we are at bringing things to market quickly. There are brilliant people out there that have ideas about how to solve those problems. So we’re looking at this first, as, yikes, they found a pain point, but then how can we partner with some of the organizations that share the same values and can help us fix our problem much faster than we would be able to.”
But not all bankers and credit union executives are overly concerned.
“Fintechs are interesting if only to help point out the direction that financial services is moving in,” said Justin Ziedman, head of credit card products at Navy Federal Credit Union. “Fintechs have a tendency to come and nip at the edges. ... When we see fintechs come in and play in that space, we say this is something we need to do better, or this is a cohort we need to learn how to serve differently. We see fintechs as a great way to see which way the wind is blowing. There’s an incredible opportunity to partner with them.”
At Zions Bancorp., fintechs are helping to change the way executives think about marketing and product development, according to Coby Hafen, senior vice president of bank-card product and marketing.
For instance, the bank might market a product for businesses as a “reporting tool” where a fintech would call it an “expense management tool.”
“Even that slight difference can make a difference,” Hafen said.
Bankers and card issuers need to acknowledge fintech competition, said Paul Siegfried, senior vice president at TransUnion.
“If they don’t think they’re threatened by this space, they are misinformed,” he said. “They along with their competitors need to ensure they’ve got strategies where they’re considering the consumer value proposition at the point of sale all the way through to how they compete to keep those balances on the books. Those are two fronts they’re battling today.”
