Are banks ready to put their money where their mouths are when it comes to fintech?

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By now, almost everyone in the banking industry agrees that we are facing a perfect storm of changes that will forever alter the landscape for financial services. However, it still seems like a long way from talking about it to acknowledging the potential threats and challenges. And an even further way towards putting that knowledge into action.

Bank and fintech collaboration is all the hype these days, and everyone celebrates every time incumbents hands out prizes for startups engaging in a corporate accelerator or wins a pitching contest. But banks have a lot more to offer than acting as event organizers for the startup community. Banks have capital, a vast customer base, trusted brands and the know-how of how to build scalable financial business models.

As a result, and we are seeing some pioneers like CommerzVentures (the venture investment arm of Commerzbank) who stated that Banks were too focused on protecting themselves from a repeat of the global financial crisis that they missed many investment opportunities offered by key startups. Goldman Sachs, Citibank and Banco Santander lead the way in terms of investment volumes. BBVA has been on a steady shopping spree for a while by actively both investing and acquiring fintech startups like Simple, Holvi and Atom Bank. Polish bank mBank has set aside 50 MEUR to invest in fintech startups, to both enhance their own mobile offering as well as commercialize the solutions globally in the next phase. These are just some of the examples, and a report by KPMG and CB Insights are pointing out that early stage funding of fintech startups by banks is on the rise, and  corporate venture made up a third of total fintech investments in Q2 2016.

Despite these trends, banks miss out on fintech investment opportunities according to another report by Boston Consulting Group. The vast majority of the funding goes to payments and alteative lending, while areas like capital markets remain to a certain extent untouched by banks. According to BCG, enormous opportunity exists from the collaboration of established capital markets players such as investment banks with young fintech companies, but the potential is far from being realized.

Herein lies one of the key challenges of the innovators dilemma, as incumbents often tend to seek innovation that builds on the edges of existing business, rather than challenging one’s own core business models through new technology. As a result, many banks will be content by running a couple of innovation jams, putting out a #fintech newsletter on the intranet, but deep down hope that in the end everything will go back to normal as soon as the transition to mobile payments is done.

On the other hand, banks that are willing to invest and place some bets on actually challenging the industry will have everything to gain. With that in mind, action speaks louder than words.

5 thoughts on “Are banks ready to put their money where their mouths are when it comes to fintech?

  • March 20, 2017 at 10:15 am
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    Dear Christoffer!

    As always, an accurate and informative post. Thanks!

    As you know, Christoffer, I have witnessed first-hand the effects of disruption on the telecom business. The key challenge that they face is that analysts, shareholders and top decision makers are used to and measured by KPIs involving CAPEX. The players they compete with, like Youtube and all VOIP and communication players (including Facebook) have business models based on OPEX. This difference in mindset and business model has been almost impossible to overcome for telcos. The discriminatory regulatory framework, specially the one played in Brusse,l hasn’t helped either. The exception maybe Softbank in Japan, which has chosen to Venture-invest in out-of-core companies like Ali Baba and ARM.

    Will the shareholder base of banks, and the regulatory bodies, accept a change in business model that may deliver other KPIs than those they are measured on? From my point of view, there will be a strong need for spin-off, Venture and communication efforts from the top management in order to win the perfect storm you accurately describe.

    Reply
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