Banks have long been an important and trusted pillar of the economy; from saving to lending, underwriting to trading, banks are a necessity for consumers and businesses.
But, following the fallout from the recent financial crisis (nearly 10 years ago), banks have struggled, with increasing and ambiguous regulations, record low interest rates, slower global growth and higher scrutiny.
Enter the latest wave of Fintech.
Fintech is nothing new, with electronic trading, online brokerage, ecommerce and electronic payments well integrated into the financial ecosystems, but this time feels different.
Launching a disruptive Fintech company has never been easier, with public cloud services (like Amazon Web Services) allowing start-up Fintech firms to access tremendous computing power for sophisticated analyses with enterprise – level infrastructure and security – all for a reasonable monthly subscription price.
Several new Fintech companies are now outright challenging the big banks. In one of my favorite graphics from CB Insights, we see the power of cutting-edge Fintech companies to disrupt all aspects of a top US bank.
VC’s have noticed.
Last year, Fintech financing exceeded $19 billion, up nearly 60% over a record 2014 and 8x since 2011.
Today, there are more than 2,000 startups attempting to disrupt traditional financial services, compared to only 800 a year ago. VCs see the opportunity to challenge the banking model – banks need to change or these latest Fintech firms will eat their lunch.
Some Banks are reacting, all should.
Increasingly we are seeing forward-looking banks partner with, invest into and in some cases outright acquire the Fintech firms that are having a deep impact on their industry. Most global banks have launched corporate venture capital funds, investing in early stage Fintech companies which offer technologies that can be adopted by their bank.
Banks’ corporate venture capital groups participated in 1 of 4 US Fintech deals last year, helping these banks drive innovation. Citigroup, Goldman Sachs and JP Morgan have led the charge, closing the most Fintech venture investments over the last five years.
Many banks are also partnering with more established Fintech players and establishing Fintech consortiums to stay ahead of the latest trends.
A few industry examples include:
- JPMorgan partnering with OnDeck to streamline SMB lending,
- UBS partnering with SigFig to bring low cost automated advisory (robo-advisory) to its wealth management clients,
- The R3 blockchain consortium of 45 financial institutions including Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, JP Morgan, RBS, Statestreet and UBS,
…and many more.
Fintech may be the only hope for banks to remain relevant in this challenging environment.
What do you think? Leave your comments below.