I was having a debate the other day with two bank CEOs. One runs a direct bank that is going digital and the other runs a branch-based bank that is investing in digital. At one point in the conversation, we got into a discussion about coders and, in a surprisingly frank dialogue, both CEOs said that coders are the most critical resource for their bank today.
Coders make the difference. That's why Capital One has recently poached Google’s head of advanced technology and projects, Dan Makoski, while JPMorgan has been hiring a whole host of Silicon Valley talent, including Tim Parsey, a senior vice-president of design for Yahoo!; Abhijit Bose, one of the founding team who helped develop Google+; and Josh Klenert, a designer of digital applications from the Huffington Post.
As JPMorgan CEO Jamie Dimon puts it: “When I go to Silicon Valley… they all want to eat our lunch. Every single one of them is going to try.” In order to avoid having the bank’s lunch eaten, JPMorgan is hiring the best to beat the best. Rock star coders are the future. They make the difference between a mundane and truly awesome digital service.
Stars of the future
It particularly interests me now that senior bank executives recognise this, as I had never heard such a conversation between top banking people before. Coders are critical in the future bank. They will differentiate the bank’s service between average and amazing.
They will deliver the difference between an engaging user experience and a brilliant experience. You can see this today by how some coders become superstars overnight. Mark Zuckerberg is a hero to many, as is Jack Dorsey, but what about Jan Koum, Evan Speigel, Sean Rad or Kevin Systrom? Never heard of them? They’re the founders of WhatsApp, Snapchat, Tinder and Instagram, respectively. Also rock stars and multi-millionaires.
That’s what happens with a good coder – they can transform fortunes overnight. So if banks are going digital and they need reformation, the likelihood is that we will see a few rock star bankers who are pure coders in the not-too-distant future. But these coders are not necessarily going to work for banks. Many will start up their own firms, specialising in aspects of financial technology or, as it is generally known among this group, 'fintech'.
This is why I find that almost everywhere I go, there’s a fintech start-up appearing.
According to Silicon Valley Bank, the US bank that supports investors in new technology ventures, more than $10bn has been invested in fintech start-ups since 2009. This amount has been spread across more than 2000 start-ups and makes it one of the top 10 investment areas for funds globally.
This analysis is echoed by multinational professional services firm Accenture, which notes that 2013 saw private fintech companies raise nearly $3bn, more than tripling the $930m invested globally in 2008, with a focus on payment processing companies, financial software and systems that provide strong data analytics for banks.
The silicon trail
What is even more interesting is that the places where all this development is taking place are London and California.
In 2013, nearly one of every three fintech dollars and one of every five deals went to Silicon Valley-based companies. Europe, meanwhile, accounted for 13% of all fintech funding globally in 2013 and 15% of deals. However, London’s five-year growth trajectory in fintech investments has outpaced Silicon Valley.
Accenture’s analysis of European fintech data reveals that since 2004, the lion’s share of Europe’s fintech deals and financing have taken place primarily in London and that, in 2013, the UK and Ireland represented more than two-thirds of Europe’s total investment in fintech (69%).
With such frenetic activity, banks are waking up to the opportunities in this field as well: Swift has an annual Innotribe Startup Challenge at Sibos, with regional contests throughout the year; Barclays recently opened a fintech start-up accelerator laboratory in London; BBVA challenges start-ups to show their capabilities in an annual developer competition that offers a €30,000 prize fund; and so on.
In 2013, banks are seen to be the biggest investors in these fintech start-ups, with many of the largest banks creating corporate venture capital firms.
SBT Ventures – the venture capital arm of Sberbank, the largest bank in Russia – led the $8m seed round for Moven, as part of its $100m investment fund. HSBC’s fund runs at $200m and Santander’s fintech fund has $100m in capital. Amex Ventures joined in the financing of personal financial management tool LearnVest’s series D $28m investment earlier this year. Citi Ventures has made two big investments this year: a $32m series C round in Betterment, an online financial advisor, and a $38m series C investment in Platfora, a company providing big data analytics. Finally, BBVA (the bank, not the venture capital group) acquired digital banking app Simple for $117m, which is another example of the money big banks are willing to spend on fintech start-ups.
In total, big banks are forecast to invest more than $8bn in seed funding in the five years 2013 to 2018 so, all in all, this is a hot space to be and, if you’re not a rock star coder or if you don’t have one, you better move fast as this space is definitely the new competitive battleground for banks.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
