EASYMONEY

Choosing a bank is about to become as ruthless as shopping for flights, taxis, and hotels

Obsession
Future of Finance
Obsession
Future of Finance

On a recent trip, Raisin CEO Tamaz Georgadze sat in seat 19B on an EasyJet flight from Paris to Berlin. The middle seat on a budget airline would be a creative form of torture for many executives, but there’s no denying that it can save a few euros.

Saving euros is Georgadze’s strategy for competing with big banks, even if it means flying across Europe in seats that don’t recline. (Georgadze, who showed Quartz his boarding pass, says he routinely takes the middle seat.) The German technology company he founded has targeted the savings deposit business without quite becoming a bank.

It works like this: With a Raisin account, users can shift their money to banks in 31 different countries to get the best interest rate. The company has attracted more than €5 billion ($6.2 billion) of assets since launching in 2013. The company doesn’t have a banking license, though it does use white-label bank providers to handle things like money laundering regulations. Instead, it’s an Uber- or Skyscanner-like digital service where customers can transfer funds to 40 partner banks via a single interface.

After all, if Uber can be a taxi company without owning cars, then a bank doesn’t need a balance sheet, said Ramin Niroumand, co-founder of startup platform Finleap, at the Paris Fintech Forum last week. Yahoo Finance has a similar idea, recently rolling out a sharing economy-style app for saving money. It has a millennial-friendly activity feed and trust-scoring metrics, but no capital reserves.

If these types of technologies catch on, banks will face a lot more competition. Consumers are famously reluctant to switch banks (people are more likely to get divorced, the saying goes), making it possible for banks to provide inferior interest rates, charge high fees, and generally provide lackluster service. But companies like Raisin, for example, act as price-comparison websites that make it easy to switch between accounts. New regulations in Europe are making it even easier for consumers to switch providers and for rival companies to tap into financial data once jealously guarded by the established players.

The risk for traditional banks is that they all start to look the same, and consumers flit around depending on which offers the best price. This kind of relentless, brand-agnostic competition is essentially what’s happened in the airline industry, giving rise to budget carriers like, well, EasyJet.

It is already happening in parts of the financial industry—rather than putting money into investment funds run by relatively expensive portfolio managers, investors are increasingly switching into whichever index fund has the cheapest fees. Companies like Vanguard have been among the biggest beneficiaries of this trend. (Raisin, by the way, is partnering with Vanguard to offer ETFs.)

Whizzy technology and low fees are no guarantee of success, for course. Big banks remain highly profitable despite the advent peer-to-peer lending (paywall), for example, which some people thought would make traditional bank lending obsolete. And some so-called neobanks, like Revolut, have gotten banking licenses rather than shying away from them.

Banks are also protected by a moat of regulation that makes it hard for tech companies to break in and offer a full suite of services. Still, if the hotel and taxi sectors are any guide, financial executives should be on guard for rivals adopting business models inspired by the tech industry. Those posh, business-class seats aren’t so comfortable anymore.

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