1. The Rise and Rise of FinTechSpecial Feature
FINANCEMONTHLY 32 www.finance-monthly.com
For many decades, Wall Street and the commercial banking
community have enjoyed relatively relaxed competitive
environments while earning attractive financial spreads.
The financial crisis of 2008 and the emergence of FinTech
are beginning to shake-up the
landscape.
”Innovation in finance is deliberate and
predictable; incumbent players are most likely
to be attacked where the greatest sources of
customer friction meet the largest profit pools”
[World Economic Forum - The Future of
Financial Services]
If there were ever a textbook example of the chart from
Clayton Christensen’s Disruptive Innovation thesis, it
would arguably be that describing the rise of Fintech.
Simply put, FinTech is technology working hand-in-hand
with financial services, creating tools and services to
meet today’s demands. These demands are being driven
by millennials, or those who have grown up in a world
that’s digitally connected 24/7. Their behavior is linked
to the rise of FinTech, and the emergence of new business
models and companies.
“73% of millennials imagine buying financial
services through Internet giants such as Google,
Facebook and Apple. That’s because 49% believe
innovation in finance will come from those
currently outside the industry”.
[KPMG, China]
The term FinTech was originally coined for the back
and middle office areas to assist customers of financial
organizations - a technology for financial institutions and
their services. That definition has evolved greatly, and
today FinTech disruption in financial services is being
seen across all verticals including Payments, Lending,
Insurance, Asset Management and Equity Finance.
The FinTech Map covers all financial services sectors.
Connecting dots across different service types offers a
glimpse into the future of bundled services - through they
will be offered through separate companies.
Today, emerging companies are carving up traditional
sectors, and delivering superior services based on
technology and data analytics. Let’s examine three areas
making a difference today.
Payment Services
Ground zero, and the first casualty of financial disruption:
payments. With the emergence of Pay Pal and newer
platforms such as Apple Pay, revenue and margin pressure
is being applied to VISA, MasterCard and AMEX. The next
phase of disruption is the creation of a cashless world and
mobile money. Traditional money aggregators’ profits will
suffer if the challenge is unmet. In fact the largest players
are supporting the change by investing in innovation and
by setting up FinTech accelerators.
Alternative Lending
Lending has been a big beneficiary of the rise of
sophisticated social networks - those which connect people
for business or investment ends. The lending Club, Lending
Tree and Prosper, are among a more noticeable group of
emerging platforms. They serve capital requirements of
sub-prime borrowers and major institutions alike. Their
efficient business models raise the technology bar and soon
are expected to chip away at servicing the needs of SME
and the traditional corporate world. Commercial banks,
with their significant infrastructure costs will struggle to
compete, and over time may lose ground through margin
erosion and uncompetitive service levels. Some banks are
forming partnerships with alternative lenders as a way to
participate and learn. Others are investing in alternative
marketplace technology to level a tilted playing field.
Capital Raises through Crowdfunding and crowd-
investing
One disruptive category with the potential to alter the
future of Investment & Commercial Banking and Wall
Street is the raising of capital through crowdfunding.
Some in the industry today still write-off crowdfunding
as niche; the domain of 3D printers, smart-watches and
struggling movie-makers. That very complacency has the
potential to significantly raise the stakes and potential for
disruption.
Capital Raising platforms have already begun to fill the
post global crisis funding gap to serve the Startup and
small company market. In coming years, traditional
intermediaries and investment banks stand to see
aggressive competition as experienced platforms begin
raising capital for multi-million dollar projects and global
institutions. Capital Raising platforms have already
iterated several times in the last 3 to 4 years, and will soon
take center stage with larger offerings.
“We are not too far away from seeing companies
such as Facebook raising money through
crowdfunding directly with their one billion
users. They are already investing in payment
systems - which could also connect borrowers
and investors around the world”.
Or Institutional investors? Why would Fidelity, Blackrock
or PIMCO not want to create their own exchange to deal
directly with public companies? We are already discussing
change with small and large organisations looking to tap
into future opportunities.
FinTech has broken into the last bastion of financial markets,
Wall Street. From New York to London, Frankfurt to Hong
Kong, industry insiders are peering from behind monitors to
witness the emergence of a revolution in finance that has been
several years in the making.
FinTech
THE RISE AND RISE OF
The industry accelerates but has yet to reach
cruising speed
Grow Advisors is proud to support the growth of FinTech around the world. We offer consulting and professional services on crowdfunding,
crowd investing and p2p finance globally. Our advisors develop platforms that connect startup ecosystems, set up marketplaces and co
-investment models, structured investment instruments, and find innovative ways to create finance solutions globally.
Sources:
https://newsroom.accenture.com/news/growth-in-FinTech-investment-fastest-in-european-market-according-to-accenture-study.htm
https://newsroom.accenture.com/news/accenture-and-top-banks-in-asia-call-for-applicants-for-FinTech-innovation-lab-asia-pacific-2015.htm
http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf
http://www.gic.com.sg
https://www.cbinsights.com/blog/singapore-sovereign-wealth-fund-deals/
Executives in FinTech business feel they are on the right
track, and moving fast. Investment in this space tends
to support this. According to Accenture, investment in
FinTech more than tripled between 2008 and 2013, and
grew by more than 200 percent globally in 2014. Growth
in overall venture-capital investments grew by 63 percent
in comparison. This trend is not going unnoticed and
FinTech is expected to attract more players, with greater
innovation and disruptive ideas.
The growth of FinTech will be uneven, and
surprise many.
Statistics from 2014 reveal that Europe is gaining ground
in harboring FinTech, and will give Silicon Valley and
New York strong competition. The United Kingdom
(and Ireland) leads the European pack, with the Nordic
countries, the Netherlands and Germany making inroads.
Further afield, Asia will become a leader in many
sectors.
The largest (though yet to be regulated) alternative
lending market in the world is China. It has several key
pieces of the puzzle to allow it to become similarly placed
in other sectors too.
Activity in Singapore and Hong Kong is now more intense
than at any time in the past. Conferences, forums, white
papers and more - all directed at making these hubs the
next FinTech capital.
If based on investments alone, Singapore is perhaps the
most interesting for FinTech. According to CB Insights,
the Government of Singapore Investment Corporation,
GIC Private Limited (GIC), and other sovereign wealth
funds such as Temasek Holdings, have made important
investments in FinTech in recent years. Square, the
mobile payments startup, received US$150 million from
Singapore’s GIC, raising its value to US$6 billion. Last
month the Monetary Authority of Singapore announced
its plan to invest a further US$225 million over the next
five years under the “FSTI” scheme to provide support
for the creation of an ecosystem for innovation aimed at
financial institutions to set up their R&D and innovation
labs in Singapore.
Cities and regions across the globe will compete for
FinTech Startups by enhancing their ecosystems and
enacting new regulation. While European FinTech hubs
will play a role, the next race might well be for Asian
supremacy. In April this year, Accenture together with ten
financial institutions announced a call for applications to
join the FinTech Innovation Lab Asia Pacific, with the aim
of finding the best FinTech innovators in the region. Just
one example of many where Asia is increasingly making its
presence felt among FinTech entrepreneurs and investors
alike.
The future of innovation and technology continues to
develop - and at a faster pace than in the past. There are
many possibilities for emerging countries and regions to
participate.
Technology is enabling change in financial services. That’s
welcome news for everyone, not only for those leading
the innovation, but also for governments, investors and
customers alike.
Fasten your seat-belts, let us show you the future.
The Future of FinTech