Global fintech investment has seen a big growth last year and tripled from its $4.05 billion level in 2013 to $12.2 billion in 2014, research by Accenture shows. This growth in fintech investment can pose both threats and opportunities to banks, who, according to the consulting firm, should adapt quick and develop a business culture to avoid being left behind and lose out on customers.
Accenture recently released a new report on financial-technology (fintech) investment titled ‘The Future of Fintech and Banking: Digitally disrupted or reimagined?’. For the report, the consulting firm used the fintech investment-data from CB Insights, a global venture-finance data and analytics firm, and conducted a survey of 25 innovation-focused senior banking executives from across the banks that participate in the FinTech Innovation Lab* London and Dublin.
The research shows a strong growth in fintech investments, with globally the amount of investment in fintech ventures tripling from $4.05 billion in 2013 to $12.2 billion in 2014, of which the majority was made in the US. The highest growth, however, was experienced in Europe, which saw in an increase of 215% to $1.48 billion in 2014.
The UK and Ireland (UKI) dominate Europe’s fintech investment and accounted for more than two-fifths (42%) of the European total in 2014. The region experienced an increase from $264 million in 2013 to $623 million in 2014. Other regions in Europe experiencing high investment levels are the Nordic countries ($345 million), the Netherlands ($306 million) and Germany ($82 million).
According to Julian Skan, Accenture Managing Director overseeing the FinTech Innovation Lab London, the increase in fintech investment presents both threats and opportunities for bank. “Fintech is empowering new competitors and start-ups to move into parts of the banking business but, paradoxically, it is also helping banks to create better, more convenient products and services for their clients. It is also leading to increased cooperation between traditional banks and innovative start-ups and technology businesses in a way that can result in totally new business models and revenue streams,” Skan explains.
Accenture’s report shows that not all banks are equipped for this digital revolution, with 72% of the respondents feeling their banks have a fragmented or opportunistic approach to dealing with digital innovation. Only 28% say their bank has a comprehensive strategy. Almost half (40%) think the time it takes their bank to deploy new technology is too slow, either “negatively impacting their ability to realise value or providing no net benefit at all.”
The biggest challenges for banks associated with the digital revolution, are talent/skills and culture, with 80% of respondents saying their banks are only “somewhat” or “minimally” equipped for the digital age when it comes to skills and culture. Technology challenges make up the third biggest challenge, with 52% of respondents feeling their bank is minimally or somewhat equipped.
Despite the challenges, banks are feeling optimistic about the future and three-fifths believe banks and new competitors will coexist by providing differentiated offerings. Seven out of ten respondents (72%) expect their bank to increase its fintech investment in the coming two years, 56% thinks their bank will explore open innovation, and 32% says their bank will create a corporate venture arm within the next two years.
“Banks are starting to realise the full potential of digital technologies and their potential to disrupt and transform the banking industry. The leaders recognise that digital goes far beyond channel and process innovation - it dissolves industry boundaries and provides opportunities for new business models and competitors, and banks have no choice other than to innovate to remain relevant to their customers,” comments Richard Lumb, Group Chief Executive Financial Services at Accenture, on the results. “But banks need to innovate faster, become more nimble and develop a more entrepreneurial culture if they are going to compete effectively and meet customers' needs.”
* The FinTech Innovation Lab is a collaboration between Accenture and leading financial institutions, set up to nurture early-stage companies from the UK, Europe and elsewhere that are developing new technologies for the financial services sector.