After blogging about how hot Fintech is, I stumbled across this article by Avinash Swamy (HT to Bradley Leimer), and asked Avinash if I could place this on the blog as it shows the other side of the coin about how banks are reacting to Fintech threats and opportunities. Avinash kindly agreed, so read on ….
An analysis of the strategies being adopted by banks across the world to address FinTech.
The financial technology space has always been a happening area as banks and financial firms have always been early adopters of technology. This continues today with a new generation of Financial Technology (FinTech) companies who are leveraging the Internet, mobile and social technologies, cloud computing and Big Data to build and take to market innovative solutions that are changing the way financial services are accessed, delivered and experienced.
Some of these FinTech companies sell their solutions to banks while many others are bypassing their traditional banking client base and are offering their solutions directly to financial services customers over the Internet with innovative and cost effective value based offerings. They include companies that offer credit/lending services (including peer to peer, crowd sourced and other varieties), payments services (and as a result small amount deposits for payments) and financial management services targeting retail and small business customers.
With FinTech becoming such a hot area, here is an analysis that potentially highlights trends on how major banks across the globe are reacting to the FinTech phenomenon. The analysis is based on publicly available news articles and press releases from banks and FinTech companies in 2013 and 2014.
Here are some of the key findings:
- 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 — SWIFT’s Innotribe is an example.
Surrounded on all sides by a bewildering array of new financial technology companies springing up, the big banks have…blogs.wsj.com