Broke: Challenger Bank. Woke: Challenger Money

When Jamie Dimon, the CEO of JP Morgan Chase

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, said that his bank should be “scared s***less” about fintech competitors, he identified the fintechs PayPal, Square, Stripe and Ant Financial in addition to the techfins Amazon

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, Apple

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and Google

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as companies that the bank would need to compete with. Since he’s already forgotten more about banking than I will ever learn, I am certain that he is correct. What was interesting to me about this list was, though, that none of the organisations listed as keeping him awake at night began as “challenger” banks or bank spin-offs.

As I wrote in my first ever column on Forbes, when people were talking about “challengers” they should have be talking about Microsoft

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not Monzo. The challenger banks are just banks and as my good friend Alessandro Hatami wrote at the time, neither the challengers nor the incumbent banks, despite spending heavily on their own technology, have transformed the financial services sector. But perhaps real challengers will.

If the challenger banks aren’t really a threat to the incumbent giants, then who are their real challengers? Surely the threat is new business models, not new versions of the same old businesses.

Mr. Dimon singled out payments as a specific hill for banks to die on. This is because the business models of the future depend on data, and payments account for the overwhelming majority of interactions between a bank and its customers and therefore customer data. When storming that redoubt (and the walls were breached this week with the news that ChasePay is being shut down) the techfins don’t care about the money, because the margins on payments are going down, but that data. I was quoted in The Economist talking about this impending reshaping of the retail financial services sector a couple of years ago, pointing out that financial products are heavily regulated (as they should be) which is why the techfins are more than happy to have Mr. Dimon and his colleagues do the boring, expensive and risky work with all of the compliance headaches that come with it.

The techfins want the banks to do the manufacturing while they take over the distribution. This is an obvious strategy with major implications because if the techfins get between the consumers and their banks, then the banks will end up having to give away margin but, far more seriously, data. BofA Securities, amongst others, have pointed out that there is a “huge and valuable prize for private-sector players” from outside the banking sector if they can get in this business: the “treasure trove” of customer data that is not being fully exploited by the banks.

Data in the Vaults

You might argue that the banks deserve nothing more than being turned into low-margin plumbing to support more innovative and efficient techfin plays on top. Nydia Remolina at the Singapore Management University wrote good paper on this last year, saying that “financial institutions have access to enormous amounts of data, but due to multiple constraints this data is not yet sufficiently converted into useful insights” and putting forward a “data operating model” to link open banking, cloud computing, machine learning and AI to support digital transformation. I think this model is valuable because the ability for machines obtain insight and take action makes for a very different kind of fully-digital financial services sector based on the movement of data, not money.

Similarly Dara Hizveren of Garanti BBVA, writing in the most recent Journal of Digital Banking, rightly notes the opportunity for banks to try and build new businesses on such a model. The idea of “data banks” that manage personal…