In our recent blog on the question of whether banks have the FinTech market cornered, we looked at the overwhelming body of opinion that suggests the destiny of FinTech start-ups lies in cosy collaboration with traditional financial institutions. However, a new report published by SparkLabs Global Ventures this month offers a timely reminder that your view of the future is entirely dependent on where you’re standing.
The report – FinTech Industry Overview 2016 – outlines the current level of investment in FinTech start-ups around the globe and insists any notion of FinTech’s greatest advances becoming bank property in the long term is short-sighted.
SparkLabs highlights the $13.8 billion of investment in VC-backed FinTechs in 2015 – an increase of 106% over 2014, as well as pointing out that last year saw more than 60 FinTech deals worth over $50 million (versus fewer than 15 in 2011 and 2013).
Naturally, as an active investor in FinTech start-ups around the globe, it’s logical that SparkLabs would paint an optimistic picture of what lies ahead. But their report is tempered with realism about the current landscape of FinTech success as well.
SparkLabs outlines the key conditions it believes gave rise to FinTech.
The report makes a direct comparison between the comparatively small level of assets under management between wealth management start-ups such as Betterment ($3 billion) and leading corporations in the same field, like Bank of America ($1.2 trillion).
Commenting on the report, SparkLabs CEO, Bernard Moon, also acknowledges the struggles of leading FinTech peer-to-peer lenders such as Lending Club and Prosper – the former parting company with its CEO amid controversy, and the latter laying off staff and closing offices in May. Yet Moon, whilst admitting he “may sound delusional” remains convinced such episodes are merely “a bump in the road”.
In contrast to the climate of FinTech collaboration being promoted by many major financial institutions, Moon seems determined to see disruption with a capital “D”, saying: “We believe the two biggest long-term opportunities for startups are in replacing the banks and insurance institutions themselves. There are companies, such as BankMobile, that have made early attempts to become the Bank of America of this new age. An earlier attempt, Simple, was disappointingly acquired by BBVA for $117 million. I personally was rooting for Simple to become a viable challenger versus traditional banks instead of an early casualty.”
Rising FinTech investment in Europe is mirrored across the globe.
In expressing disappoint at Simple’s acquisition and suggesting there are indeed sides to be picked in this battle, the SparkLabs CEO represents a line of thought that some might have imagined was all but gone in the discussion around FinTech’s future.
For Moon, though, the way ahead is clear: “As startups attack the revenue streams of banks, they will slowly erode the profitability of these traditional institutions. Start-ups challenging the financial sector are playing the long game; there will be no overnight successes. I believe we won’t see comparable giants from these crops of start-ups until a decade out — but change is coming, and it is inevitable.”
Perhaps the central takeaway from SparkLabs report is simply this: If you thought the future of FinTech had already been written by big banks, think again.
Download the full report here.