The financial services industry is one of the last frontiers new technology has yet to fully conquer. Despite a heavily regulated banking industry, fintech companies are estimated to capture 17 percent of banks’ revenue by 2023.
While there is no shortage of fintech startups out there, nearly 27 private fintech companies have achieved ‘unicorn’ status with an aggregate valuation of approximately $140 billion, many of these startups have yet to hit a critical mass.
This is partly due to the heavy regulation the financial services industry is under, as well as its conservative nature and sheer size. Some have proposed that the banks may disappear due to the vast amount of financial technology firms attempting to disrupt the way the masses utilize banking. Others see fintech companies as a bubble that will eventually lose its elasticity.
The most likely scenario is that both will come to together and form partnerships; the big banks know they need to adapt to the changing retail banking environment to stay relevant. The future generations simply don’t trust the banks, and banking is built on trust.
The SVIC’s role is to connect Silicon Valley with the rest of the world.
“Many established companies are going through an existential crisis, largely associated with a lack of innovation, and adapting to the new world of millennial consumers,” said Andrey Kunov, president of the Silicon Valley Innovation Center. “The technologies they have been using are coming from the 20th century, and Silicon Valley is producing a lot of technologies that can displace their competitive advantage of the past century.”
“What we are trying to do is help both sides, help established companies learn more about innovation, and help Silicon Valley companies identify new channels, new clients, and partners in the world of established business so their chances of survival are much higher,’ added Kunov.
Voices From The Valley
Many top bank officials were in attendance looking to partner with up and coming startups. Knowing that 40 percent of all Fortune 500 companies will not be around in the next 10 years, they need to adapt to this fast changing environment.
“Every large bank is throwing away opportunities to capture millennials, no question about it” said Jay Sidhu, chairman and CEO of Customers Bancorp Inc.
Experian plc (ADR) feels that financial services is ripe for disruption, but noted that the industry is severely regulated.
Financial technology is not restricted to solely the banking industry, real estate and insurance have also shown potential as well.
“I personally believe there will be several billion dollar companies in real estate fintech in the coming years” said David Weiden of Khosla Ventures.
“There are many existing companies that have potential, auction.com is well on its way to be a billion-dollar company” added Weiden.
The range of fintechs potential to disrupt the industry are vast; there are currently over 12,000 of them, from mobile payments, payday loans, lending and financial education. The list goes on and on.
“Without a doubt the fintechs will change the banking industry, but they likely won’t replace it,” said Oliver Buechse, founder of My Strategy Source.
“Because there are so many fintechs they will clearly disrupt banking and take some revenue from the banks, but they will also take business from each other, the same way social media sites took displacements from each other, MySpace and Facebook, Snapchat etc.”
“There is a segment of the fintech companies that will hit a critical mass, and when they get there, their technology and approach will become a market standard, and then the banks will begin to react to that and partner with them, emulate them, and maybe acquire them,” added Buechse.
The exciting space of fintech is likely still in its infant stages. It will be essential for the big banks to partner with these new innovators to stay relevant and capture the new generation of banking consumers.