Investment in financial technology (fintech) startups has steadily gained ground, reach new heights in 2015 as venture capital firms and their backers sought to get in on what some heralded as a “revolution” underway in the financial industry. Not wanting to be left behind many banks took steps to ensure that they had some skin in the game.
These days most banks seem to have an innovation lab, accelerator or a venture capital fund to encourage tech experimentation. But these corporate startup programs are driven by either hope, fear or a herd effect. That is, if their banking competitors have a vehicle to promote innovation, they need one too.
The investments must provide some feeling of protections against being disrupted out of existence like once other, now former, community-pillar business models, such as newspapers. But the business of innovation is best left to entrepreneurs, while the business of solidity and trust falls squarely in the bankers’ realm.
The energy and expense required to run a full-scale startup program are difficult to justify for most banks, especially if the outcomes are so uncertain. This struggle will ultimately cause banks to abandon their innovation labs and replace them with more sustainable approaches to nurturing innovation.
That is to say that established banks and other financial institutions stand better to gain from frequent interactions and alliances with fintech companies that have proof of concept and shown an ability to gain traction.
Overview by Joe Walent, Senior Analyst, Emerging Technologies Advisory Service at Mercator Advisory Group
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