An overview of global investment trends in Fintech and the potential impact for banking.
In 2015, fintech investment entered the mainstream, with US$19.1 billion in capital deployed to fintech companies globally. While many of these companies are looking to disrupt major banking processes, such as payments or lending, others are working to enable banking clients to serve their customers better or reduce their operating costs.
This dichotomy of disruption and enablement is already reshaping the banking industry. That’s why banks need to stay on top of what’s happening in the fintech space – so they can make better, more informed decisions.
In the first edition of our Pulse of Fintech report, a quarterly publication developed in partnership with CB Insights, we examined key trends in fintech. The report highlighted a number of trends relevant to the banking sector.
More than a quarter of 2015 fintech deals involved corporate investors – ranging from 40 percent in Asia to 25 percent in North America and 12 percent in Europe. These numbers suggest that corporates are beginning to see fintech companies as enablers rather than competitors. In Asia in particular, traditional banks recognize they need to modernize how they service customers and are looking to fintech as a means of doing so quickly.
A number of banks have set the pace when it comes to fintech investing. Over the past 5 years, a host of global banks have invested in Fintech ventures including Barclays, BBVA, Citigroup, through its VC arm Citi Ventures, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo and Westpac.
When it comes to competition, banks need to look beyond their current competitors and disruptive start-ups. While both of these groups could cause significant challenges to incumbent banks, corporates from other industries may pose the biggest threat; companies like Google, Apple and Amazon are already looking for ways to expand their reach into other industries. Regional players like Alibaba, Tencent and Baidu in Asia could also take market share from banks that are unprepared.
Historically, fintech companies have primarily focused on payment technologies. In 2015, however, lending technologies also attracted investor interest. In fact, SoFi, an alternative lending company, attracted $1 billion in funding – the year’s largest fintech megaround.
2015 also saw increased investment in fintech companies focused on blockchain – especially from big banks looking to use the technology to make banking processes more efficient. Banks need to stay on top of blockchain and other evolving technologies like robo-advisory and digital identity. Each of these areas is likely to see increasing investment in 2016.
As fintech innovations take root in the banking sector, banks can’t stand still; they need to stay on top of innovations and act on those that will help them better address their customers’ needs more quickly and efficiently. For example a recent article in NetworkWorld in the US noted expectations that “Within five years consumers will manage 85 percent of their relationships with an enterprise without interacting with a human – moving to the ‘DIY’ customer service concept.”
This is where KPMG can help. To find out more about key trends in fintech relevant to banking, visit our Pulse of Fintech website. Each quarter, we’ll bring you fintech insights so that you can make more informed business decisions.