We are starting to see unprecedented increase in capital in search of good ideas and innovation. Europe saw a 215% growth rate in FinTech investment in 2014. The UK and Ireland, the Nordic countries, the Netherlands, and Germany saw investments of $623 million, $345 million, $306 million, and $82 million respectively.Is the involvement of banks in FinTech a Trojan Horse?Click To Tweet
Fragmented Approach to the changing Innovation landscape
“How are banks reacting to FinTech?” by Avinash Swamy summarizes an analysis of the strategies being adopted by banks across the world to address FinTech (Thank you Avinash for the fantastic analysis!!)
Some of the key findings from Avinash´s analysis are:
- The preferred strategy for most banks is to create startup programs to incubate FinTech companies with just under half of them doing so or to set up venture funds to fund FinTech companies with 20% of them choosing this strategy.
- Alternatively, one fifth of the banks analyzed have adopted to partner with FinTech companies directly while a few banks have adopted different strategies by acquiring FinTech companies or launching their own FinTech subsidiaries.
- Approximately 60% of the FinTech companies that the banks engaged with as part of any of the mentioned strategies are enterprise FinTech companies that offer technology solutions to banks while 40% of the FinTech companies they engaged with offer financial services on their platforms directly to the retail and small business market.
- European banks dominate FinTech related engagement with over 80% of the banks analyzed headquartered in Europe. North American banks account for only 20% of the banks. Based on the little information available, banks in Asia Pacific seem to be adopting a more conservative strategy and are working with a few leading traditional IT firms who have their own FinTech innovation programs. Additionally, almost all of the banks in the list are large Tier one banks with deep enough pockets.
- It must be noted that banks are also increasingly engaging with FinTech via other channels like Industry Associations/Bodies such as Innotribe.
Adapting to the changing innovation landscape
However the other side of the coin is really what it means for the banks in the long run. Banks are bound to adapt to the changing financial services landscape. The competition and startups precipitated by the rise of FinTech are also indirectly helping banks create better, more convenient products and services for their customers.
Could the increase in collaboration and cooperation between traditional banks and innovative startups and tech businesses result in increased acquisition sprees by banks? Clearly FinTech represents a new revenue stream for the banks which are adopting a more opportunistic approach to dealing with technology innovation.
Here you can enlarge this map.
Aside from increasing investment in technology innovation, banks are starting to explore open innovation, such as opening up their intellectual property, assets and expertise to outside innovators to help generate new ideas and discover new areas for growth. 2015 is seeing banks planning to create corporate venture arms. At the end of the day, banks will have to just adopt newer, more agile, business models to keep pace with the changes engulfing the financial services space. What does that mean for FinTech?
UPDATED IN NOVEMBER 2015: Major banks stepped up their Fintech investments in 2015, betting on startups ranging from bitcoin payments apps and enterprise blockchain platforms to peer-to-peer lenders. According to a CB Insights report, 34% of all Fintech deals since 2009 by Wells Fargo, JPMorgan, Citi, Morgan Stanley, Goldman Sachs, and Bank of America have come in 2015 year-to-date through 11/17/15.
The major banks will continue to accelerate their involvement in Fintech innovations. Do you think their involvement will have an adverse impact on the growth of Fintech innovations? I would love to hear your opinion. Please use the comments section below.
- “How are banks reacting to FinTech?” by Avinash Swamy