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As groundbreaking and disruptive proprietary solutions may seem to their creators, their success in the market is rarely attributed solely to a solution itself — especially when it comes to financial technology. The surrounding ecosystem and critical industry stakeholders are the ones playing the biggest role in enabling growth and development of the startup community.
In the financial services industry, those stakeholders include watchdogs, financial institutions, FinTech-focused venture funds and the targeted consumer market among other members of the ecosystem. Altogether, they led to the 30 largest FinTech funding rounds during the first half of 2016 exceeding $4.6 billion in aggregate funding.
Although the funding is vital for startups at various points in their lifecycle, there are other ways the ecosystem supports entrepreneurs and facilitates innovation adoption.
The strongest financial support is provided by banks
Aside from being open to building beautiful friendships with FinTech startups, financial institutions are quite passionate about financially supporting the entrepreneurial community. Banks continue to be very active in discovering talent and supporting innovative solutions — over the last five quarters, Goldman Sachs, Citigroup and Banco Santander or their venture arms have invested in 25 VC-backed FinTech companies. Moreover, three of the largest FinTech investors are international financial institutions — Citi Ventures by Citi, followed by Goldman Sachs and JP Morgan.
From the year 2000, Citi Ventures invested over $1.39 billion across 48 deals, while JPMorgan dedicates ~$3 billion each year in technology with a large portion of that funding going towards FinTechs. Another industry leader, Bank of America, was reported to be setting aside $3 billion from its annual budget for investing in technology and innovation.
As Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US commented, “We are seeing more partnering by traditional financial services companies with FinTechs to help develop new business models, while also enabling FinTechs to expand their customer base and get the support they need to become sustainable.”
Moreover, Citi along with JP Morgan are among the most active financial institutions patenting solutions across segments. Citibank has also set up three separate systems within the bank that deploy blockchain-based distributed technologies.
Financial institutions built an industry conveyer to lead entrepreneurs from ideation to startup launch, growth and development
The role that financial institutions play in the growth of FinTech ecosystem is not limited to financial support. More importantly, banks have built and actively participate in incubation and acceleration of startups at various stages, providing them coworking spaces, mentorship, certain funding at the entrance and the opportunity to access banks’ vast networks of partners and customers. And recently, some of the most forward-thinking institutions have been making bits and pieces of their internally developed software available to outsiders through open APIs.
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