Traditional finance is increasingly placing a bet on innovative FinTech start-ups to provide the shining light for new features, methodology and systems that will bridge the technological gap between consumers and banking services. Some of the most prevalent technologies to come out of this fruitful partnership include new financial trading platforms, smart card payment technologies and ID authentication software, among others. One of our most recent clients, YourWealth.co.uk, offers access to information, products and financial advice, and has been acquired by a traditional financial services group, Momentum UK. This serves as an example of how FinTech start-ups develop new services before exiting or merging with a more established player.
A major driver behind new FinTech firms, of which around half are expected to fail due to the highest risk of this segment compared to other technologies, are accelerator programmes that are being launched by banking institutions. One of these is the FinTech Innovation Lab, an annual mentoring programme that was first launched in 2011 in New York and which has recently come to London. The accelerator brings together start-ups so they can pitch their ideas to digital executives of major international banks. Barclays bank also has its own accelerator programme, launched in partnership with Techstars, which offers mentoring and seed funding. Other examples include Startupbootcamp and 3D FinTech Challenge, winners of which receive funding, technical assistance and product development help.
Governments are also playing a major part. For example, London’s emergence as a FinTech hub has been aided by the Seed Enterprise Investment Scheme, which allows tax breaks to investors in start-ups, while the Financial Services Investment Organisation (FSIO),aims to bring together private and public sectors to encourage investment in the UK’s financial services.
Banks are also becoming involved in the FinTech space through their own segment-specific venture funds. For example, SBT Venture Capital, which was launched in 2013 by Russia’s state-owned Sberbank with a $100 million venture fund that could eventually increase to $700 million, invests specifically in FinTech Series A and B rounds. In Spain, BBVA announced the launch of BBVA Ventures in 2013, which has $100m to invest in FinTech start-ups. Banks are hoping to keep up with disruptive innovations and not get pushed out of the market by more efficient and modernised business practices. Funding FinTech ventures is a way of ensuring digital progress and having a stake in the technological future of finance.
However, banks are not agreeable to all products and are unlikely to back anything that challenges their existing business models. For example, Bitcoin-based businesses receive no support from traditional money-transfer holdings due to the perceive conflict of interests. Still, an atmosphere of collaboration is being nurtured and banks are likely to increasingly finance exits in FinTech, much like social media giants acquire and finance relevant start-ups.
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