FinTech investment was accelerating rapidly. In Europe, 2014 had brought a 215% increase in investment, with the UK and Ireland, the Nordic countries, the Netherlands and Germany attracting significant amounts of capital.
A fragmented response to a changing innovation landscape
The more interesting question was not simply how much money was entering FinTech, but how incumbent banks were responding. An analysis by Avinash Swamy of bank strategies showed a fragmented approach.
The preferred route for many banks was to create startup programmes or incubators; others established venture funds, partnered directly with FinTech companies, acquired them, or launched their own subsidiaries.
The companies involved were also revealing. Roughly 60% of the FinTech companies engaged by banks were enterprise technology businesses serving banks, while around 40% offered financial services directly to consumers and small businesses. European banks dominated the sample, and most were large Tier One institutions with the resources to experiment.
Banks were also engaging with FinTech through industry bodies such as Innotribe. The response was therefore broader than a simple question of investment.
Adapting to the changing innovation landscape
The other side of the story is what this means for banks over the long term. Banks are going to have to adapt to a changing financial-services landscape. Competition from startups can force incumbents to build better, more convenient products and services.
But collaboration also creates another possibility: acquisition. If FinTech represents a new source of revenue and strategic capability, banks have an obvious incentive to invest in or eventually acquire successful businesses.
At the same time, banks are beginning to explore open innovation by opening intellectual property, assets and expertise to outside innovators. Corporate venture arms and similar structures can help banks find new ideas without having to build everything internally.
The strategic challenge is therefore larger than simply adopting new technology. Banks need more agile business models if they are going to keep pace with the changes taking place around them.
What does that mean for FinTech?
Updated November 2015: Major banks increased their FinTech investments during 2015, including investments in bitcoin payments, enterprise blockchain and peer-to-peer lending. A CB Insights analysis reported that 34% of all FinTech deals since 2009 by Wells Fargo, JPMorgan, Citi, Morgan Stanley, Goldman Sachs and Bank of America had occurred during 2015 year-to-date through 17 November.
The direction was becoming clear: major banks were moving further into FinTech. The question was whether that involvement would strengthen independent innovation or eventually change its character.
Sources
Avinash Swamy, “How are banks reacting to FinTech?”
CB Insights