It's not just me but indeed not many have questioned the raison-d'être of on-line banking startups. After all, these capital-rich modern companies all provide silky-smooth UX in their apps, websites and operations without the burden of the bricks and the mortars. They also fit into the disruptive profile faced with a very old business.
What's not to like?
Save that in other sectors, when startups disrupt incumbents, they aim to do the core business better: Uber does taxi better than taxis, Airbnb does travel housing better than most hotels, Slack does corporate messaging better than all the dinosaurs before it, etc.
However, in the case of banking, startups are NOT doing better than traditional banks.
What? Are you blind? Their apps and services are much better than those of BoA and BNP Paribas! How could they not be better?
Well, except that "interfaces" is not the main business of banks. The main business is making money out of the interest spread between loans and savings. This is where all commercial banks are struggling – they're not struggling because savers hate their apps or websites. They're struggling because in the perennial low interest rate environment, it's so difficult to make money out of the spread between loans and savings.
And providing a very smooth UX for savers won't help on this.
This is why most on-line banking startups talk about making money off insurances or other financial products. This fundamentally could make or break the companies though. Financial industry is highly regulated when it comes to cross-selling financial products to the clients. And again, if traditional banks cannot make enough money cross-selling, it's difficult to argue that fintech startups – after meeting all the regulatory requirements – could.