Disruptive, innovative, and promising a seismic shift in the status quo: such was the kind of rhetoric used to champion young fintech companies in the early days of the startup boom. Promising to do away with traditional banking models by using technology to out-maneuver large institutions and operate free from tight regulations, we were led to believe that there could be real change ahead.
However, in the years since then we have seen the revolutionary spirit die down, and in its place there is a new cooperation between startups and banks. What does this mean for the future and how will it shape the global financial landscape?
Embracing a new kind of financial market
Since the 2008 financial crisis, banks have opted for safe investments and much more stringent risk assessment. However, with the gradual stabilization of the global economy, there is a rising acceptance of the entrepreneurial spirit of the startup within banking culture. Indeed, in the US, 2017 saw more bank acquisitions of fintech startups than any year preceding it. Indeed, in the last twelve months, the stratospheric rise (and fall) in cryptocurrency investment has demonstrated to the entire world just how powerful fintech and its associated fields have become. While the opportunity for losing big is there, so is the potential for enormous gain.
The rise of cross-industry collaboration
In Europe, there have been intense moves to compete with the US and Asia within the technology market. In Germany, the economic powerhouse of the European Union, there has even been a ‘digital hub initiative’ setup, aimed at unifying its various tech hubs across the country in order to compete on a global scale.
While Berlin is heralded as the startup capital of Germany, Frankfurt is becoming an even stronger financial hub than it already is, with a greater emphasis on fintech. Furthermore, with Europe preempting the effect of Brexit, many major banking and investment institutions such as Goldman Sachs have set their sights on Frankfurt as their new European base.
In the wake of this news, there has already been an immense level of growth in both the number of FinTech startups in the city, as well as preparations for new arrivals. Charter flights into the city along with new luxury housing builds are just a few signs of the way things are to come, as young, talented financial experts are expected to pour into the city. As banks diversify their locations from London, there are high expectations that the same outcomes may arise in cities across France, Belgium and the Netherlands.
A subject of global importance
While attention remains firmly focused on the main players in Western Europe, Silicon Valley and in China, there is something of a revolution happening in emerging markets. As the difference between the percentage of the world population who have a bank account and who have internet access (around 60% and 50% respectively) narrows, we are seeing huge leaps in financial technology in the countries where this is having the biggest ramifications.
Kenya and Zimbabwe remain the undisputed leaders in mobile money, with M-pesa the largest mobile money platform in the world. While dominant, fintech within the African context is fast growing outside of mobile wallets and into various diverse areas, such as wealth management. The result? In recent years banks from across the world have been at the forefront of the move to invest in startups coming out of Nigeria, Kenya and South Africa.
From the establishment of Alphacode in South Africa, an exclusive space for fintech entrepreneurs across the African continent to support and grow their businesses, to Goldman Sachs’ rapid development of its digital finance arm Markus, there is no doubt that the close cooperation between banks and fintech startups will only continue to grow across the world. By uniting their myriad resources and experience, this will hopefully pave the way for a more streamlined service that can benefit both individual users and the broader global economy.