Fintechs are making waves and revenues but turning a profit may take longer, even as much as 10 years. Many, writes Brian Caplen, will disappear altogether.
Between 2010 and 2017, fintech start-ups and challenger banks attracted $88bn in investment globally. Since 2005 there have been sufficient new entrants in banking and payments to account for 17% of the total players. In Europe, the 1400 new competitors to emerge over the same period are capturing 6% to 7% of total revenues and one-third of all new revenue. In the UK, new players are taking 14% of revenues.
These figures are contained in a report from Accenture called Rapid Evolution Required and illustrate the scale of the fintech assault on banking.
But there is another side to consider. Generating revenue is one thing, turning in a profit is a lot more difficult. Many fintechs are losing money and it could be a decade or more before they enter the black. As a result, investors have grown more cautious and funding has become a lot more difficult.
Gareth Wilson, financial services managing director at Accenture, says: “The excitement over fintech is slowing down. Investors are demanding a very strong business case in order to put in additional funding.”
This should put banks in a stronger position as they seek tie-ups with fintechs in which the banks provide regulatory cover and a market and the fintechs bring in the latest in digital wizardry. In many cases the fintech strategy is to be bought out by a bank but under these circumstances banks are in the driving seat. Expect fintech/bank alliances to gather pace over the coming months and for some fintechs that don't find partners to struggle, or in some cases disappear.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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