The financial services industry is probably the last service industry to face into technology disruption, and it’s finally here. Peer-to-peer lending and crowd funding are the first visible Fintech start-ups that will challenge the existing banking model and profits. Regulatory barriers and the high cost of physical infrastructure have protected banks but that’s changing. Cloud computing in particular has lowered the cost of building scalable and secure platforms. Our regulators have also embraced the economic benefits from technology disruption. After all, it is new regulatory frameworks that are making this possible. Overtime you will see dynamic new entrants doing consumer loans, small business loans, equipment financing, property loans, and insurance. You’ll see web based self-managed retirement funds, smart phone based payment devices. For us, personal loans are just the start. With Squirrel Money we see ourselves gradually building a virtual bank. All of this will put the traditional bank business model under pressure. And as a result, I think banks will become a lot less retail focused. However start-ups will never be able to fund as cheaply as banks, or offer the same level of safety. I can see a future where banks will be bigger than they are now and play more of a wholesale role. They will still fund mortgages and corporate and commercial loans because scale matters. To put it in context the residential mortgage market in NZ is $200 billion and that’s been funded at an all up interest cost of around 5.50% after costs. That’s cheap and very efficient, which is why we don’t get new entrants in the market. In a market with rapidly changing technology, it follows that the banks that will be most successful are those that can transition fastest. To me it means building wholesaling capability, embracing and investing in new start-ups, and gradually giving up expensive retail footprints. Banking will become a scale game.