After the recent announcement by Robinhood, I’ve read numerous discussion about Fintech - more specifically that every Fintech startup wants to grow up to become a bank (i.e. own the customer relationship).

This sounds like aggregation theory at work - the defining playbook of the Internet era. First, own the customer relationship, and then use that to exercise leverage on suppliers.

For example - Netflix spent years building a customer relationship, developing a streaming entertainment habit and licensing content from studios. Netflix Originals helped them move up the value chain - it gave them full ownership and control over what was produced and how it was produced. With their distribution power, Originals gave them full control of content.

Probably more relevant though is the comparison to cellphone networks before the iPhone launched in 2007. At that time, network providers had full control of the voice, messaging and [most importantly] data products. With the iPhone and AppStore, the network as the provider of content quickly became irrelevant. The network became a “dumb pipe”, and all the value for the smartphone shifted to the device manufacturers because they had a stronger relationship to end consumers. People bought an iPhone or Android, and stopped talking about whether they were on AT&T, Verizon or T-Mobile.

A similar shift is in progress in the world of finance. Startups are providing consumers a number of banking services - attacking gaps in user experience, unfriendly pricing and general opacity in the world of banking. By building customer relationships, these companies can expand in the value chain to offer more services that banks currently offer.

This probably doesn’t mean a full disruption of banks, but a lot of the value sits above the core banking services (infrastructure, underwriting risk, and securitization). By losing the customer relationship through consumer financial products like checking, savings, investments, and loans - banks risk becoming the dumb pipes of the finance industry.