It’s clear that fintech can help emerging economies grow but it’s productivity that’s the big challenge in the developed west. Figures such as
UK economist John Mills, and investors
John Martinson founder of Edison Partners and
Ryan Goldenberg of LLR Partners, have long proposed a more bullish approach to growth and productivity in both the west, and fintech.
But could fintech collaboration provide some new answers to this perennial conundrum, and if we take an overview, look at the history and at what’s happening right now with the big banks and big tech, can we predict a direction of travel for the industry?
Moving from fear to acceptance
We all remember the early days of fintech, when the big banks dismissed fintech as a flash in the pan, a blip that would soon be revealed as nothing more than a bunch of overexcited tech nerds. Then came the moment of realisation that fintech did work, and
it wasn’t the same thing as bitcoin. At that point the fear set in, and with it came the vocal defensive stance.
A couple of years back we started to see a shift and slowly a few banks, and others, began to accept that fintech was not going away so they’d better engage with it. This attitude has now gained some urgency, and banks are beginning to fall over themselves
in their race to partner with fintechs.
As one UK institution quoted in a report by Deloitte said: “Fintechs are no longer going to disrupt the banks, they are going to power the banks. They are not going to be ‘us versus them.’ They are going to be ‘us and them.’”
Buy or build in-house?
The issue right now for banks is whether to invest in startups or bring in the talent to build fintech solutions in-house. Of course the two are not mutually exclusive, and banks will inevitably try to integrate the new acquisition into their business, but
as we’ve seen in other sectors such as autonomous vehicles, this doesn’t always work out as planned; there are huge cultural differences to overcome between an old-school company and an entrepreneurial team.
However, this has not stopped a whole slew of banks buying up fintechs. Last year, some banks acquired more than one fintech including Societe Generale, Goldman Sachs and Banco Sabadell Group. This is a developed-west phenomenon with 48% of acquiring banks
located in North America and 52% in Europe last year.
But things are changing. It was only a matter of time, but to many it still came as a shock when, last month, Berlin-based fintech Raisin acquired 100% of a traditional bank, MHB-Bank. This makes sense of course, because it’s the fastest most effective way
to supersize an established fintech.
Backing of the tech giants
Possibly the most interesting development here is that while the majority of big banks have been procrastinating over which way to jump; whether to partner, collaborate, acquire or build in-house, the big tech giants have been feverishly investing with a
There is precedent here. The banks and big tech have been working together for a few years now. In fact, according to a report by KPMG report, close to 30% of financial institutions are teamed up with one or more technology giants already, and another 30%
are planning partnerships. It makes sense because firms like Google, Amazon and Apple reach millions with sophisticated strategies and advanced tech, and they have no legacy issues. Banks can only win in these deals.
Google have, of course, been investing for some time now through Google Ventures, or GV as its now known, and have poured money into literally hundreds of startups including fintechs such as Stripe, Abacus and recently, London-based Gocardless.
But what’s new is that it appears all the tech giants are getting bored by the banks and are turning towards fintechs in increasing numbers. This was entirely predictable and when Apple unveiled its own credit card in March, albeit in partnership with Goldman
Sachs and Mastercard, it focused the spotlight on the opportunity for fintechs.
The next step however, is collaboration between fintechs, because right now scale matters. And we’ve seen some early signs of this with big headline mergers between First Data and Fiserv; FIS and WorldPay, and Global Payments and TSYS, just this year alone.
Now this collaboration-genie is out of the bottle, there’s no going back and I expect this trend to accelerate. It’s not impossible that we could see a mega-merger this year or next. Watch this space.