• Innovation Investigation: Do Banks Have the FinTech Market Cornered?  
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Innovation Investigation: Do Banks Have the FinTech Market Cornered?

When the new wave of FinTech start-ups began to emerge from the ashes of the Global Financial Crisis, their advent was accompanied by a prophecy of doom for the established financial institutions they came to challenge.

In a line of messaging repeated ad infinitum by bloggers, industry analysts and the startups themselves, banks were told their days may be numbered – that their historical inability to innovative could prove to be their downfall, and – as one FinTech company’s marketing campaign suggested – it was time to say “Bye-bye banks.”

Today, words like “funeral” and “death knell” aren’t so easy to come by when poring over conventional wisdom about the future of big banks and FinTech. In their place, terms such as “collaboration” and “selected disruption” now form the common vernacular, with very few exceptions to the rule.

The Paypers’ recent report on Payments, Supply Chain Finance & E-Invoicing in 2016 offers good examples of how the relationship between incumbent and new financial service providers is interpreted today. Paypers’ editor, Mirela Amariei, writes: “Peeling back through FinTech history, the innovations that survived and scaled were the ones that worked with banks, not against them.”

Elsewhere, commentator Chris Skinner summarizes how he sees the current balance of power between banks and FinTechs in blunter terms. “These new markets are growing with bank support, not against the banks themselves. However, even if FinTech does grow into a larger monster, there’s plenty of time for banks to respond by either acquiring or launching competitive services, such as Goldman Sachs’ P2P lender.”

If the scenario of banks simply snapping up innovative technologies to avoid being supplanted by them sounds like the end of the line for start-up spirit, the numbers suggest otherwise. Q1 of 2016 alone saw total investment in FinTech companies of $5.7 billion – a 22% in increase on the previous quarter. Already this year, Chinese FinTechs Lu.com and JD Finance have benefited from funding rounds that added over $1 billion to their coffers, while in the US, 17 different start-ups attracted investments ranging from $30 million – $400 million. Little wonder that the Founder of Future Asia Ventures, Falguni Desai, is compelled to claim that “there has never been a better time to be an entrepreneur.”

FinTech Investment Q1 2016

Figures show a very healthy level of investment in FinTech already this year.

Such figures indicate that if the endgame for FinTech involves cozying up to banks and allowing their rebel hearts to become bank property, there’s still a whole lot of spending to be done by banks until they’re suitably convinced they’ve laid claim to all the best innovations out there.

Moreover, there may be a flawed logic in imagining an endpoint at all for the relationship between banks and FinTechs. Although FinTech has leveraged the best of today’s technology to shine a light on banks’ unpreparedness for the digital age, what will tomorrow’s technology bring? When innovation “goes corporate”, and banks snap up the innovators threatening to overthrow them, it may be a safe bet to assume that the best next idea is more likely to come from a group of friends in a garage than the now paid-up bank staff who had the best last idea.

Even Apple – widely perceived as the greatest innovator of our age – has been left to play catch up with the likes of Spotify, who built on the bigger corporation’s disruption of the music industry to create a new model for consumption. Why download it when you can stream it? New ideas and new technology will always exist, and FinTech innovation won’t stop simply because “every bank calls itself a FinTech company now.”

Perhaps the biggest driver for FinTech companies’ ongoing significance is the perception that they have consumer interests at heart more than big banks ever will. Information Age summarized this notion well: “One of the things that appears to contrast new from old – FinTech from traditional finance players – is delight over the prospect of making a real difference to the lives of people across the globe.”

Whether you agree with that statement or not, it’s certainly true that in driving down costs, adding customer convenience, and highlighting the shortcomings of banks, FinTechs have already claimed victories that are automatically to the benefit of the masses. Such victories, one would imagine, will always be in demand. And if banks – even in their new, FinTech-augmented form – don’t deliver them, an innovative outside force surely will. There will always be “new” incumbents to challenge.

In the same Chris Skinner article referred to earlier, the respected commentator suggests, “The start-ups may win the battle, but there won’t be a war – just a symbiotic special relationship.”

That seems to be the scenario most commonly anticipated for banks and FinTechs today. However, perhaps it’s reasonable to extend the thought and assume the battle for better services will never really end. If so, FinTechs may just go on winning on the customer’s behalf forever; new innovators arising each time their predecessors become part of the status quo. Such a scenario may not bring about the cataclysmic fall of the banking industry once imagined, but it would certainly fit with history’s teachings about the restless nature of innovation – and leave an infinite amount of work for FinTech entrepreneurs still to accomplish.

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