Are Fintech Companies Killing Banks?
Fintech, a market that integrates finance and technology, has taken the business world by storm. KPMG Pulse of Fintech report indicates the Global Fintech Investment rocketed to $111.8 billion in 2018, driven by mega deals. 2019 promises to be another successful year for financial technology companies. During the first quarter of 2019 (Q1 2019), Fintech firms observed a worldwide raise of $9.15 billion in investments from 445 deals i.e. $5.78 annual growth in total funding as compared to Q1 2018. The countries to have secured maximum funding include Americas with $5.06 billion raised from 219 deals followed by Europe with $2.39 billion from 106 deals and Asia with $1.59 billion of funding from 99 deals.
In a recent Financial Technology Sector Overview - Q1 2019 by Venture Scanner, 2665 Fintech startups were classified into 16 categories that have collectively raised $142B from 3,996 investors.
Source: Venture Scanner
FinTech vs. Banks
Banks have been under attack from many quarters. It was until recently when statistics derived from research reports and banking pundits were forecasting banks to face an existential crisis with the rise of fintech. A recent analysis by the Wall Street Journal contradicted the delusion by highlighting three largest U.S. banks that added more than $2.4 trillion in domestic deposits over the past 10 years, resulting into a 180% increase. Contrary to popular belief, fintechs and financial institutions can actually work together – and mutually benefit. Fintech startups bring agility and technological know-how to the table; legacy financial institutions provide resources and regulatory acuity that’s been honed over decades.
Collaboration or Co-Innovation
With banks facing increased competition, Fintech firms were believed to sap the banking sector's profitability earlier in the days. But banks still have plenty of competitive advantages – the trust established through hundreds of years safekeeping customer’s assets, access to customers’ transactional data, the ability to offer a full range of services, to name just a few. Now the current situation indicates that competition is good, especially if it creates inroads for new and currently under-served consumers to access and use traditional financial services. The concepts of collaboration – or “co-innovation” – are becoming more important within the financial services and technology industries. Here is huge value for both large banks and smaller FinTech companies to work together and tap into the scale and scope that banks have. The collaboration between fintech firms and legacy banks can result in innovative solutions and remarkable customer experiences through digital technology. What do you think?
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