The fintech community sprang up out of nowhere over the past decade to dominate any discussion on the state of the banking industry. However, asks Chris Skinner, will we still be talking about fintech in 10 years’ time?

A decade ago, we talked about the financial crisis, technology, regulations and compliance.

A decade later, we are still talking about regulations and compliance, but the discussion has changed thanks to the explosion of thousands of start-up firms around the world, in every constituency, doing things differently with technology. It is now known as the fintech community.

A decade ago, there was no fintech. No one referred to fintech; no one talked about it.

Yet a decade later, you cannot ignore it with many new business models and products creating companies worth billions and challenging the traditional banking industry. The best illustration of this dramatic change is perhaps the stark difference in valuations of Stripe, a payments firm formed in 2010, and Commerzbank, a German bank founded in 1870. In October 2019, Stripe was worth seven Commerzbanks. The world has changed.

What will we talk about a decade from now?

Beyond fintech

My forecast is that we will not talk about fintech anymore as the ideas, products and models of the fintech community will have been absorbed into the banking community. Banks will still be doing what they do, but they will just do it differently. Another German institution, Deutsche Bank, summarised this well in a statement: “Banking is what we do and technology is how we do it.”

Spot on. The how of banking is technology and, a decade from now, this will be fully integrated into most banks’ business structures.

What this means in reality is that banks will imitate, emulate and integrate fintech business models, products and services into the banks’ business models, products and services. A few banks are already doing this, with BBVA and Goldman Sachs being early movers. BBVA has made several significant acquisitions of fintech start-ups, such as Simple and Holvi, over the past decade, while Goldman Sachs has not only acquired firms such as Financeit but has launched its own challenger bank called Marcus.

Acquisitions gain pace

What is now happening, however, is an escalation of such activity. Between 2010 and 2018, for example, there were fewer than 20 bank acquisitions of fintech start-ups but, notably, six acquisitions have taken place in just the past year. Now, we are seeing many more. For example, Santander took a major stake in Ebury, a foreign exchange facilitator for small and medium-sized enterprises, in 2019, while American Express acquired Pocket Concierge, a restaurant booking app. We saw banks in the US partnering with Amazon, Apple and Google to provide financial services and even saw fintech start-up Raisin buying a bank, MHB-Bank.

The market is now getting even hotter, as Visa has just announced the biggest acquisition of a fintech start-up since this new market explosion began a decade ago. In January 2020, Visa agreed to buy privately held payment processing start-up Plaid in a $5.3bn deal. Plaid’s technology powers major mobile financial apps such as Venmo, a payment service owned by PayPal, and Chime, a US challenger bank.

The price is what is notable. The sum of $5.3bn is double the value of Plaid compared with its funding valuation of a year earlier but, more importantly, a multi-billion-dollar acquisition shows that traditional financial firms are moving from watching fintech to acquiring it for top dollar. This is something I predicted a while ago and such begins the movement towards fintech and banking coming together as one. No fear of each other anymore but more of a partnership.

A booming decade

This is why I believe we will see fintech continue to boom through the next decade and, during that boom, see many more multi-billion-dollar investments and acquisitions of start-ups by banks. After all, banks have the billions to do this. Banks also know they need to do this to keep up, as their ailing internal technologies are out-flanked and out-stripped by new and agile firms.

The result is that, by the end of this decade, we probably won’t talk about fintech anymore. We will just talk about banking powered by tech. After all, banking is what we do and technology is how we do it.

Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.


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