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In the ‘universal model’ banks typically offer a broad product portfolio in retail, private, commercial, investment and transaction banking, along with wealth and asset management and insurance. This is depicted in the figure below.
Figure 1: The universal banking model, i.e. a bank’s business model based on offering a full range of financing products and services 
In the European ‘fintech’ landscape there is an increasing number of service providers that focus on improving specific parts of this traditional ‘universal banking model’ by using innovative technology. Fintech players focus on designing, building and executing specific parts of the banking value chain better, cheaper and faster than what is currently on offer at banks. With this strategy they are able to establish a market position for themselves in a specific niche.
In essence, fintech companies ‘attack friction’ and leverage innovative technologies (e.g. mobile Apps, APIs, cloud tech, crypto tech, artificial intelligence and data analytics) to address convenience, user experience and functionality (conversion) gaps that result from traditional banking products and services in finance. This technology development enables new companies to apply a ‘narrow finance’ strategy  , i.e. assess (a) specific part(s) of the business model and provide a superior alternative. This opportunity is evidenced by an uptake of investments in fintech markets worldwide: $4Bn in 2013 to over $12 Bn invested in 2014 . Currently 36 fintech companies have passed the $1Bn valuation mark.
The wealth of new fintech companies that emerged in the narrow finance space is depicted in the figure below. New fintech initiatives offer a range of solutions resulting in an evolution and improvement of financial tools previously controlled by banks.
Figure 2: The ‘breaking banks’ i.e. unbundling of the universal, full service model of banks into ‘bits and pieces’
This would not be a problem to bank giants, however the number of fintech players is so big and their pace of innovation so high it has become like ‘sandblasting’ to banks. One grain of sand does not have much impact, but many of them targeting a specific point at high velocity cuts right through any material.
Due to this brutal force all banking products and services are at risk now, as no bank (or any other service provider for that matter) can be good at everything, everywhere for everyone, especially in comparison to the highly specialized players they are competing with. In every single service segment, in both front- and back-office, there are fintech challengers well positioned to take business away from traditional, incumbent banks. From payments and transactions  to investing and trading, from lending to risk assessment, from small business banking services to funding and capital gathering. While competing for business is part of the game for banks, the situation is more serious now with virtually any piece of the value chain under attack resulting in continuously evolving rules of the game.
To conclude, banking executives are very much aware of the fact that they are being disrupted and that change is inevitable as the traditional structures of banking are changing and margins will be further pressured in the future. However, truly understanding the implications of such disruption is a difficult task, resulting in many strategic questions in need of an answer.
As innovation experts in the financial services sector we believe three strategic questions that the emerging fintech sector brings forward for incumbents are essential to answer:
- What are my ‘must win’ battles, what do I need to ‘defend’ and what am I willing to loose?
- How can I leverage fintech for the ‘must wins’ and ‘defends’?
- What do I need to change in my operating model to make this work?
Getting your answer to these questions and truly understand the implications, opportunities and threats of the emerging fintech landscape for your organization will be essential to stay ahead.
 [Finno], Is er een toekomst voor banken in de waardeketen? (Dutch only), March 2015, available here
 Chris Skinner, Will banks be laid low by a killer blow from new competition and regulation? June 2015, available here
 CB Insights, The Future of FinTech and Banking: Global Fin Tech Investment Triples In 2014, March 2015, available here
 Refer to our previous article in which we elaborate on the impact of PSD2 ‘Access to account’ (XS2A) on innovation in payment and other (data driven) transaction services