The Rise of Fintechs and Why Banks Should be Scared

This post seeks to provide fresh insights into a 2016 research findings of KPMG and H2 Ventures. It is a list of the Top 100 Fintech Companies in the world. I will attempt to dissect the report, distil the core message and what it means for banks/banking.

Intro

In my previous writings and speeches, I have been trying to point myself, banks and the public to the rising trend (or threats?) and opportunities of Financial Technology; and the need to disrupt ourselves before others do. It is not news that the times are changing and that the Fintech Revolution has already started.

The Report in Bullet Points

As usual, the report is divided into 2 categories of 50 each- Leading 50 Fintech companies and 50 “Emerging Stars”.

  • This year (2016) a total of 23 countries were represented as against 19 the previous year (2015)
  • Total funding for Fintech companies in 2016 alone was US$14.6bn. That is more than a billion dollars a month!
  • Regulatory Technology (regtech) featured for the first time this year
  • 1 accounting firm made the list
  • Companies from South Africa, Mexico, France and Singapore appeared on the list for the first time
  • China dominated the list; leading with Ant Financial (formally Alipay)
  • Oscar was the leading Insurance Tech company on the list. Ranked 3rd on the list, it is US highest ranked company on the list
  • Here is a breakdown of the companies by:

** Region:

1. 35 companies from The Americas

2. 29 companies from the EMEA (Europe, Middle East and Africa)

3. 14 companies from Asia

4. 12 companies from the UK

5. 10 companies from Australia and New Zealand

** Sector

1. 32 lending companies

2. 18 payment companies

3. 12 insurance companies

4. 8 regtech (regulatory technology) companies

5. 8 data and analytics companies

6. 6 wealth companies

7. 5 digital currency companies

8. 5 blockchain companies

9. 3 capital market companies

10. 2 crowdfunding companies

11. 1 accounting company

Why Does It Matter?

Take a closer look at the breakdown of the companies by sector again. What did you notice? Different areas of the business of banking is being attacked. From lending to payments, to insurance, to wealth management etc!

That is called flanking!

In military tactics, an army (usually the underdog) flanks the enemy by attacking it on the sides as against head-on attack. If a flanking manoeuvre is successful, the opposing army is usually surrounded from two or more directions. That is exactly what Fintechs are doing to banks right now. They are flanking banks from the different sides especially payments and lending.

One of my previous articles titled “What is a Bank?” gave some Nigerian Examples. You may want to read it here

How Should Banks React?

Peter Olynick proposed 3 ways banks can react to the Fintech Revolution:

  • Build- Banks have always been innovative. From ATM machines, PoS machines, Mobile and Online Banking to Credit and Debit Cards etc. They can still get back to being innovative. Building to combat these threats is an expensive but feasible option once they get past their fear of inertia. That is what Wema Bank PLC did with ALAT Digital Bank; creating an entirely new app-only bank. The first fully digital bank in Africa. Take a look at their simple website here
  • Buy- Once some guys have developed something the market wants, the banks can step in with their deep pockets. This is less risky than building but probably more expensive
  • Partner- Banks can invest money and other resources in promising Fintech companies to bring their ideas to the market. This is a less risky option than the first two

Thanks for taking your time to read but I have 2 assignment for you:

1. Think critically about how digital disruptions apply to you and your career. For example, how does social media recruitment affect my job as a HR personnel? How does social media affect my job as a brand executive?

2. Share this post to help someone. Copy the link here

Once again, thank you for taking your time to read this week’s post. Please, feel free to reach out to me.