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Is Fintech the End of Traditional Banking as We Know It?

Bart Platteeuw by Bart Platteeuw
May 10, 2016
in Industry Opinions
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Did you know that the Western Union Company started out as a telegraph business? In fact, the company monopolised the service in the United States during the 19th Century. Since telegraphs became less popular after the invention of telephones, their market share started declining after the 1970s. Because of not adapting to new communication technologies, the company became less relevant in the communication space.

That is when Western Union chose to provide an international money transfer service using its existing infrastructure. We’ve seen history repeat itself a number of times when huge companies failed to adapt to new technologies to stay relevant. Just like how telephones made Western Union irrelevant, Uber recently gave yellow cab companies a run for their money. Since the cab companies failed to adapt to new technologies, Uber saw the opportunity in this space and has had a huge success since its launch seven years back.

We are currently seeing the same trend in the finance industry. There have been several companies in the last few years that spotted the opportunity and have successfully harnessed modern technology to steal market shares away from conventional banks. Such companies are called financial technology or ‘fintech’ companies.

DealSunny, the web’s number one source for coupons and special offers, has come up with an infographic that illustrates some of the facts surrounding the growth of the Fintech sector. Here are a few interesting points from the infographic:

1. While it is true that Fintech companies are here to take away market shares and subsequently revenue from conventional banks, many banking groups have found a way to profit from the growing fintech trend. Instead of competing with them, many banking groups have found it more efficient to back them by way of funding and partnerships. Some of the top Fintech investors are Citi Ventures by Citigroup, JP Morgan Chase & Co., Goldman Sachs and Barclays.

Citi Ventures launched its own accelerator focused on fintech startups in multiple cities. These accelerators help the startups with funding and advice from some of their advisors. Barclays and Goldman Sachs have both started similar initiatives.

2. Other banks that are involved in supporting Fintech startups by way of investments include Santander, with a $100 million investment in Fintech startups, HSBC with $200 million, Sberbank with $100 million and BBVA with $100 million worth of investments. There are also other banks like Bank of Ireland, ABN Amro and Unicredit that show significant interest in financial technology companies.

3. Banks have shown particular interest in certain specific areas of financial technologies. These areas have subsequently seen major growth in the last year. Some of the top trending Fintech sectors are involved in Lending, Payments, Financial data analysis, Money Transfer and Cryptocurrency. Also, the infographic shows that 40% of conventional banks have already opened their own innovation labs within their organization. Also, 56% of banks are most likely to set up one within the next two years.

4. In addition to banks, there are a lot of technology giants that show interest in the fintech industry. The following companies either have their own sub-organization dealing with financial technology specifically or they have made significant investments in other fintech companies. These companies include IBM, HP, Dell, Microsoft, Accenture, Cisco and Lenovo to name a few.

5. The year 2015 was huge for fintech since there were many huge scale mergers and acquisitions in the industry. Some of the most notable deals were by banks like BBVA and Fintech behemoths like Paypal. In fact, Paypal alone bought two companies in deals totalling $1.2 billion. The acquired companies were Xoom, a personal international remittance company and Paydiant, a mobile payment company. The largest deal was the acquisition of Sunguard Data Systems, a security provider, by Fidelity National Information Services for $9.1 billion.

6. Due to the huge investor interest and the large growth of the industry, many companies have reached billion+ dollar valuations over the last decade. The fintech startups with the highest valuations are Lufax, Square and Markit with $10 billion, $6 billion and $5.1 billion in valuations respectively. Other Fintech companies that have a billion + valuation include Stripe, Lending Club, Zenefits, Credit Karma, Powa Technologies, Klarna, Commonbond, One97, Prosper, Zuora, Financial Force, Oscar, Adyen, Xero, iZettle, Sofi, Housing.com, just to name a few..

The infographic is proof that the financial technology industry shows great promise and isn’t showing any signs of slowing down any time soon. You can expect the industry to gain even more traction as banks are showing more interest in the sector and making aggressive forays into the industry.

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