The banking industry for a long long time enjoyed strong barriers to entry. It was difficult for new banks to start - licensing and regulation kept new entrants away. As a result banks enjoyed low customer switching, which in turn, allowed it to earn high returns on capital over extended periods. Banks could easily get 16-18% returns.
Fintech is now changing this industry. New Fintech startups are launching discrete banking products that disrupt that particular segment of banking services. For example, Digital Wallets is disrupting credit/debit cards.
Lets take a look at how Digital wallet is disrupting credit cards. In India, Digital wallets such as PayTM, Mobiwiki & others are at a stage where number of transactions over digital wallet will exceed the number of payments done on credit & debit cards.
The rise of digital wallets is changing the industry's dynamics. By 2017, more number of transactions will be done over digital wallets than with the older credit or debit cards.
As digital wallets gain preeminence, digital wallets can morph into credit cards, and offer credit to customers and even merchants who accept digital wallet payments.
Today most consumers who use digital wallets such as PayTM also use credit/debit cards to transfer money from their credit/debit cards to their wallets & having a credit card like facility available on their digital wallet will make them stop using credit/debit cards.
Digital wallets uses cloud computing and captures all the transaction data to analyze customer or merchant usages. Based on this transactional information, a credit score can be developed and against which loans or business lines of credit can be issued.
In short, digital wallets will completely disrupt and swallow debit & credit card business of the banks.