Capital Markets

July 21, 2016

‘Collaboration’ is the new ‘disruption’ for the aspiring FinTech business


Written by Jordan Campbell, Senior Consultant

The word ‘disruption’ has become synonymous with fintech. It is now commonplace to read the narrative about the launch or growth of a business ready to take on the banks, shake up financial services and offer a better way of doing things.

And we rightly should believe much of the hype: despite the challenges of navigating the new post-Brexit normal, over $14bn of venture capital funding was poured in last year, while a report earlier this year from Citigroup estimated that Fintech could lead to the loss of up to two million jobs at U.S. and European banks over the next decade.

The growth in fintech is breeding badly needed innovation in financial services that will bring about more change in the next five years than we have seen over the last thirty.

However, what is also clear is that despite such disruption, banks are not about to go away anytime soon. Due to their sheer size and scale, they will not be put out of business by Fintech challengers.

A recent report by Deloitte, focused specifically on marketplace lending, highlighted that at best such lenders could hope for 6% of the UK lending market by 2020 if banks did not nothing and interest rates stayed at historically low levels. However, Deloitte forecasts a market share of less than 1% if interest rates do eventually rise and banks compete more.

Moreover, there are signs that banks are rising to the fintech challenge. U.S. giant Wells Fargo recently announced plans for the launch of a real time payment system with other banks allowing its customers to make immediate transfers. Its CFO, John Shrewsbury, proclaimed that the new technology meant consumers did not need to use any other way to transfer money.

Banks are also increasingly looking to innovate by partnering with fintech providers, evidenced by the recent agreement between Santander and Kabbage, a U.S. based SME lending platform, to help more small business customers gain access to capital.

Indeed, increased collaboration between fintech challengers and traditional financial services institutions is increasingly viewed as the most obvious way forward: evolution not revolution, in which fintech complements rather than competes.

Despite the fact that such collaboration is taking place, there is reticence amongst the fintech community to publically embracing the role of the ‘collaborator’, perhaps for fear of being seen to be sleeping with the devil.

Yet such a step-change in the story from disruption to collaboration could make for a welcome change – especially as the business community has entered a period of prolonged uncertainty as the UK begins to exit the EU.

A national journalist recently mentioned that he had lost count of the number of press releases he receives a week from fintech companies seemingly about to overhaul financial services. A business that is able to articulate itself along such lines may risk being viewed as less “disruptive”, but could also be taken more seriously by media and potential investors alike, positioning itself in the process at the forefront of the next chapter in fintech’s journey.

Don’t underestimate the power of being viewed as a collaborator.