Did someone cancel the fintech revolution?

Did someone cancel the fintech revolution?

Did someone cancel the fintech revolution or has it just been delayed? That's the question posed by a new report on the UK scene, which argues that new entrants have failed to lure customers from incumbents and that VC money has started to dry up.

Over the last few years, the fintech hype machine has been in overdrive, with a digital revolution promising to change market structure, radically improve products and services, and save the high street veterans from sliding into invisible utilities.

The Accenture report says that these promises have yet to come to pass; old fashioned banks are still standing, and perhaps standing still, while startups have yet to gain real traction in customer acquisition and seen their VC investment decline by more than a third in the last year.

Nevertheless, Accenture suggests that the revolution is more likely to be stalled than dead. The firm argues that the UK can establish itself as a leading exporter of fintech R&D, helping individual firms monetise their expertise and 'UK plc' build the county's digital reputation.

To do this, the report argues that government and regulators must compete with rivals such as Singapore to attract investment and talent. This is particularly important at the moment because of Brexit, which may result in limiting of free movement and see banks shift operations overseas.

Concludes the report: "The reality of the Fintech scene today is that its full impact can’t yet be predicted. As Zhou Enlai said in the 1970s when asked if the French Revolution had been a success - 'it’s still too early to tell'. But this revolution has not been cancelled, the old world is indeed changing, and the financial services industry will still be living in interesting times for some years to come."

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Comments: (6)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 29 May, 2017, 18:32Be the first to give this comment the thumbs up 0 likes

While they're thinking about talent and Singapore and Brexit and all that, fintechs should think about creating products that customers really need instead of offering yet another bank account that customers can get from high street banks anyway.

One such product for which there's a crying need is credit cards. To take India's example, there are merely 20M credit cards for a population of 1.2B people. I've heard of fewer than 5 fintech credit card offerings (none of them in India) and, when I probed them a little deeply, they seemed to be closer to debit / charge cards than credit cards. If fintechs focused on fulfilling customers' compelling needs, they'd see their adoption grow automatically.

Kristian T. Sørensen
Kristian T. Sørensen - Norfico - Copenhagen K 29 May, 2017, 19:51Be the first to give this comment the thumbs up 0 likes

While you still come across the occasional revolutionist among the fintech startups, the industry has matured in a way that has moved the rhetoric from "young vs. old" or "David vs. Goliath" to a mutual understanding that nobody knows banking (i.e. compliance, capital requirements etc) better than banks and the fintechs of the world are not set out to revolutionise banking, but to improve financial services as such - to the benefit of both banks and consumers.  

Jan-Olof Brunila
Jan-Olof Brunila - Swedbank - Stockholm 30 May, 2017, 07:50Be the first to give this comment the thumbs up 0 likes

Quite right Kristian. People who are old enough to remember the dot com boom in the late 1990ies realize that all change that impacts customer behaviour and needs infrastructure rebuild takes time. Many ideas from the dot com boom have been realized during the last few years - often by "incumbents". The original inventors may be long gone. Furthermore the authorities have created a new "unchartered water" for any new player in the financial service market with the regulatory tsunami.  If you aim to take deposits, lend people money or make payments in your start-up you have to know more about regulatory law than IT in order to keep away from the provisioning of personal liability for fines up to 5 million EUR for the CEO and board members... And the second hurdle is to build a service that people need and want - not a smart service that is looking for its problem to resolve.

Gerard Hergenroeder
Gerard Hergenroeder - Payments Shark - Millersvile 30 May, 2017, 15:00Be the first to give this comment the thumbs up 0 likes

What revolution? This Fintech thing has been all hype and a very few people made a lot of money from nothing which means there have a lot of losers. My definition of a Fintech is two former fired bankers in a garage who are trying to become millionaires with software that has no real value. Now on a more serious note. Some of the Fintech ideas are good. The challenge is trying to separate the good, the bad and ugly! Remember Fintechs have around for over 50 years. This latest spike in Fintech activity is the result of de-investment by bankers in next gen programs that got derailed by the 2007 mortgage crisis. As bank earnings continue to improve and regulators continue to improve their oversight value, Fintechs will take a back seat. I see a trend where the banks will recapture consume control of the next best thing.

A Finextra member
A Finextra member 31 May, 2017, 06:08Be the first to give this comment the thumbs up 0 likes

I don't think we should be looking at Fintech companies as trying to be new banks, although there are a few that have this goal. 

The real success is for Fintech to accelerate and innovate in areas the banks are slow to move on. It's becoming more apparent that banks are technology companies (See: Goldman Sachs Is a Technology Firm) and have tons of legacy systems in place. 

As we move into this interconnected, Everything-as-a-Service and API based way of applying new technology, these Fintech companies will gradually make their way in and start to remove barriers to entry. I don't think they'll flip banks upside down anytime soon though. 

I would have to agree, a lot of the hype about Fintech and it’s massive potential came from the Fintech companies themselves so it’s definitely on their shoulders to now deliver. But it would seem, this is now evolving slower than originally planned. 


Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 31 May, 2017, 13:49Be the first to give this comment the thumbs up 0 likes

As long as fintech chanted the "bank disruption" mantra, it enjoyed huge valuations and had no shortage of VC funding. Maybe it's only me but I see a strong correlation between the change of fintech's tune to "bank partnership" and drying up of VC funding for the sector. To answer the question in the title of this article, in reality, there was / is no fintech revolution. But there was a perception of fintech revolution in the past. That perception has gone away now, which has triggered the VC funding crisis for fintech.

There's nothing intrinsically wrong with fintech's current positioning as bank's tech partners - many traditional finserv technology suppliers have been flourishing in that capacity for ages.

Apart from fintech's ability to do something that customers really want, it struck me that the sector's outlook depends on the answers to a couple of questions such as: (1) Does fintech have the organizational DNA to become just another technology supplier? (2) More importantly, can it survive in that role without VC funding? Either way, this reinforces my old blog post Banks Have Nothing To Fear From Neobanks.