Fintech and the evolving landscape: landing points for the industry
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Fintech and the evolving landscape: landing points for the industry
Executive Summary
Venture capitalists, private equity firms, corporates
and a number of other players have poured an
unprecedented amount of money into global
financial technology (fintech) start-ups. More
than $50 billion has been invested in almost
2,500 companies since 2010 as these innovators
redefine the way in which we store, save, borrow,
invest, move, spend and protect money.
While fintech is the poster child As banks face increased pressure
that continues to grab headlines, to reduce costs and drive stickier,
there are signals that the market is more profitable relationships with
reaching the next level of maturity their customers, larger technology
and moving into the mainstream. A and platform players may offer a
cool down in investment growth in more attractive set of rails on which
some geographies, expansion in others, to deliver services to customers.
increasing deal sizes, successful IPOs
and the elimination of weaker players As such, incumbent banks are
are all helping to drive more realistic increasingly looking to fintech
investor expectations of fintech. to enable them to continue
operating a vertically integrated
The ever-evolving start-up
model, or find a specialist role
scene is not the only source of
as a platform service provider.
opportunity for investors.
Successful banks will rapidly make
Technology giants such as Google, clear strategic decisions on the
Apple, Facebook, Amazon and business model and use this vision
Alibaba (GAFAA) are redefining to rally their talent around a more
the customer experience and compelling journey, rather than the
increasingly playing around the cost cutting downward spiral in
periphery of financial services. which many players are now falling.
2
The Fintech landscape
The value of global fintech investment in 2015 grew
by 75% to $22.3 billion, driven by deal-flow across
continental Europe and Asia-Pacific (APAC); the
year-on-year growth affirmed the sector’s position
as the hot ticket item in financial services (Exhibit
1). However, while this stellar growth continues
to outpace venture investment as a whole, which
in contrast grew by only 29% in 2015, there were
signs the fintech industry had reached a new
level of maturity, with some regions cooling-off
and a continued increase in larger deal sizes.
2015 will also be remembered as However, 2015 also saw the demise
a year of successful fintech IPOs, of some iconic industry players, most
with companies such as PayPal, notably Powa, which built mobile payment
Square, WorldPay and First Data products and was once considered one
achieving multi-billion-dollar market of the UK’s brightest tech start-ups,
capitalisations, larger than many valued at $2.7 billion in 20152. Less than
established financial institutions. one year later, the business was put into
In addition to these newly public administration after failing to satisfy the
firms, there are now twenty fintech bold promises management had made
unicorns – private companies with to investors, leaving some questioning
a valuation of over $1 billion1. the value of the sector more broadly.
Exhibit 1: Global Fintech Financing Activity (2010 – 2015)
Investments Deal volume
($M) (#)
1,108
30,000 1,200
25,000 871 1,000
772 22,265
20,000 800
610
15,000 459 12,688 600
10,000 338 400
5,000 4,590 200
2,537 3,175
1,791
0 0
2010 2011 2012 2013 2014 2015
Europe North America RoW APAC Global deal volume
Source: Accenture analysis on CB Insights data
1
Accenture analysis on CB Insights data
2
“Powa: The start-up that fell to earth”, BBC News, March 21, 2016. Factiva, Inc. All Rights Reserved.
3
Early 2016, however, indicates a than quadrupled to $4.3 billion in 2015.
resurgence from Q4 in investor Given APAC’s rich tech ecosystem,
confidence with $5.3 billion poured rapid economic growth trajectory and The rise of APAC
into the sector in the first quarter, growing middle class, the region is
largely driven by two Chinese deals Fintech Investment in
tipped for major digital growth (see
each crossing the $1 billion threshold. Asia-Pacific more than quadrupled
Sidebar 1). Furthermore, an increased
In fact, fintech companies in APAC in 2015 to $4.3 billion. It is now
interest in some of the newer fintech
received more than 50% of all the second biggest region for
segments, such as InsurTech, RiskTech
investment in Q1. This 47% year- fintech investment after North
and RegTech, has helped spur on America, accounting for 19% of
over-year growth in the first quarter investment into the sector.
is a sure sign that the sector could global financing activity and up
be poised for another stellar year. Another sign of maturity is the from just 6% in 2010. China has
increasing number of big-ticket the lion’s share of investment,
accounting for 45% in 2015, but
A change deals in the sector. In 2015, there
India makes up 38% and is growing
were 94 fintech deals larger than
in composition $50 million (Exhibit 2), including a fast. Mumbai, Bangalore, Tokyo
Reversals of fortune such as the Powa and Beijing are the major fintech
number of megadeals like the $1
collapse led some critics to question hubs in the region by the number
whether current fintech valuations billion financing round from SoFi,
of deals. Looking at deal volumes,
are justified, or merely frothy. While the online lending marketplace.
78% went to fintech companies
it looks like Q4 may have reflected Over the course of the past five years, targeting the banking industry, 9%
a dip in confidence, what we can fintech investment has been largely to wealth management and asset
see clearly is that the composition management companies and 1%
focused around retail payments.
of the market is changing. to the insurance sector. Payments
However, maturity has brought much
greater diversification, with innovators is the most popular segment
Despite some cooling down at the
seeking to disrupt and enhance elements for fintech deals in Asia-Pacific,
end of last year in some of the
accounting for 38% of the total.
more mature fintech hotspots, such along the financial services value chain
as Silicon Valley, New York and (Exhibit 3). Insurance, for example, is
London, hubs in other parts of the rapidly emerging as the next big thing in
world, such as Austin, Stockholm fintech, with investment into firms with
and Mumbai gathered pace. Indeed, InsurTech propositions more than tripling
fintech investment in APAC more from 2014 to 2015 (see Sidebar 2).
Exhibit 2: Number of >$50m Fintech deals, 2010-15 94
14
19
52
6
6
61
40
15
1 1
8
6 1
4 2 13
3 2 5
1
2010 2011 2012 2013 2014 2015
RoW Europe APAC North America
Note: only deals with amount reported by CB Insights
Source: Accenture analysis on CB Insights data
4
Exhibit 3: Global Fintech Financing Activity by Product Segment, 2010-15
Size
Investment ($M) = 200 $M
Cagr 10-15 % = 800 $M
High growth segments
60 = 2000 $M
Retail Lending
Legend
50
Retail Investments Deposit accounts
Wealth Mgmt & AM
DCM Mature segments
40 Risk & Markets
Payments
Regulation Asset Mgmt Corporate Payments
Operations Insurance
Account Mgmt - Retail
30 Retail Payments Back Office Operations
SME Lending & Asset Finance Other
Non - life
Lending
Trading
20
Other Note:
Account Mgmt - Commercial 1. Bubble size represents amount of
Life Merchant Acquiring
investments 2010 – 2015
10 Inv. Research
2. Other includes accounting solutions,
Corporate Finance e-commerce solutions excluding
payments
0
0 100 200 300 400 500 600 700 800 900 1,000 Source: Accenture analysis on
CB Insights data
# of deals 2010 - 2015
From competition potential partners. Last year, the level companies looking to compete only
of investment into fintechs wishing to increased by 23% (Exhibit 5). So while
to collaboration collaborate with the industry increased there is still more investment going
Broadly speaking, there are two by 138%, now representing 44% of all into competitive fintech companies,
different types of fintech companies: fintech investment, up from 29% last there is a clear and growing appetite,
the competitive, which we define as year. Whereas investment into fintech from both sides, to collaborate.
direct challengers to the incumbent
financial services institutions,
and the collaborative, which offer
solutions to enhance the position of Exhibit 4: Fintech heat map – Threats and opportunities (# of deals 2010 – 2015)
existing market players (Exhibit 4).
Competitive FinTechs Collaborative FinTechs
Competitive fintech companies have
Loss of Loss of Loss of Reduce Op. Reduce New Digital
enjoyed some success, targeting less Products Relationship Relevance Revenues Costs Risk Business
profitable segments by delivering better Deposit
accounts
experiences directly to customers. For
example, On Deck Capital provides Payments
faster loans for SMEs, Square offers
card services for micro merchants Lending
and eToro offers professional
trading strategies for retail investors, Wealth Mgmt
& AM
frequently at a discounted price.
Markets
Many financial services institutions
recognise the role collaborative Insurance
fintechs can play to help drive
Back Office
their own evolution. Meanwhile, Operations
fintechs – from those who began
as collaborative players, to those >50% of deals 30-50% of deals 10-30% of deals 50% of deals 10-50% of deals
This is one reason the FinTech Innovation competitive fintech companies, initiatives pales in comparison to the $50 billion these
Lab, sponsored by Accenture and the such as the FCA’s Project Innovate3 have banks spent on new technology investment
Partnership Fund for New York City, helped to lower the barriers to entry for during the same period (Exhibit 7).
which brings leading financial services these firms. Interestingly, although not
firms together to identify and mentor as pronounced, these trends are reflected It is not possible to analyse how much of
the most promising fintech innovators, this $50bn is being spent on new forms
regionally whereby the investment
is such an important part of the growing of financial technology, or indeed invested
dollars have moved towards more
ecosystem (see Sidebar 3). Now in its in new home-grown bank intellectual
competitive firms in Europe and more
sixth year, The FinTech Innovation Lab has property, but we believe from anecdotal
collaborative firms in North America, and
produced many successful collaborations evidence that much of bank investment
to a lesser extent in APAC (Exhibit 6).
for banks, with more than 90 graduates remains tied up with adjusting legacy
across the four Lab locations: London, Even though investment dollars still tend technology. Furthermore, banks continue
New York, Hong Kong and Dublin. to employ a static method of annual
to favour those looking to compete with
investment allocation for activities
the industry, many are quickly acquired
The ratio of competitive versus designed to ‘Change the Bank’. As a
collaborative investment throughout by or take significant investment from
result, we observe that bank employees
the world differs dramatically from incumbents once market traction has
are encouraged to protect their existing
market to market. For example, the shift been proven, and even sometimes before.
multi-year programmes rather than
to collaboration has been particularly For example, Atom bank – a UK mobile- adopting new technologies as quickly as
strong over the last five years in New only bank – will launch in 2016 after those in specialist processing companies
York, where the proportion of investment receiving a $68 million investment in and other competing business models.
in collaborative fintech companies has exchange for a 29.5% stake from BBVA4.
grown from 37% in 2010 to 83% in 2015. This relatively low participation in external
However, in the UK, where the regulatory Nevertheless, while more fintechs wish investment, combined with constraints
environment is more favourable for to cater to the needs of the banking on ‘Change the Bank’ internal investment
those looking to compete directly with industry, they are not seeing reciprocal now poses a significant risk to incumbent
the industry, this trend is reversed, with investment from banks in their banks. subsequently hindering their ability
more than 90% of investment going to businesses. Last year, banks participated to win the battle for customer relevance
would-be competitive fintech companies. in less than 10% of all reported fintech and radically improve the efficiency
Whilst the UK does not explicitly favour deals, totalling less than $5 billion. This of banking transaction platforms.
Exhibit 5: Collaborative Fintech Investments vs. Competitive Fintech Investments, 2014/15 ($M)
% Ch. 15-14
18,150
44% +138%
11,642
Collaborative 29%
56% +23%
Competitive 71%
2014 2015
Note: total excludes Other segment
Source: Accenture analysis on CB Insights data
3
https://innovate.fca.org.uk/
4
“UK Mobile-Only Atom Bank Picks Up $128M Led By BBVA, Owner Of Simple In The U.S.”,
Techcrunch.com, November 24, 2015. Factiva, Inc. All Rights Reserved.
6Exhibit 6: Collaborative Fintech Investments vs. Competitive Fintech Investments, 2010/15 ($M)
The rise of InsurTech Europe North Amerca APAC
92 2,897 1,118 11,387 43 3,781
While fintech is relatively
7%
pervasive in banking and 14% 16%
capital markets, it is still Collaborative 38% 40%
nascent in insurance. In 2014, 60%
tech companies targeting the
insurance space received less
than $800 million in funding, but 86%
93%
84%
in 2015 insurance tech start-ups
Competitive 62% 60%
attracted more than three times
that, receiving approximately 40%
$2.6 billion. Most insurers are
still tied to a business model
2010 2015 2010 2015 2010 2015
based on pooling risk, calculating
average pricing and generating Note: total excludes Other segment
gross premium income, which Source: Accenture analysis on CB Insights data
is increasingly threatened by
digital technologies, such as
wearable devices, smart objects
and connected cars. However, Exhibit 7: Global Banks’ IT Investment by Type, 2015
these technologies also offer
insurers a new, rich data source,
providing new possibilities Bank IT spending for new investments
for underwriting, enhancing ~ $50Bn
the customer experience and
cutting costs. For example,
Oscar Health Insurance partners
with wearable-device company, Fintech Investments
Misfit, reward fit customers ~ $22Bn
by automatically linking their
biometric information to their
health insurance. Meanwhile,
Censio has developed software
Value of fintech deals with banks as investors
that automatically monitors ~ $5Bn
and measures drivers’ data
for auto insurers, which has
been adopted by Progressive,
a US-based insurer.
Source:
1. IT Spending in Banking, A Global Perspective, Celent, February 2015
2. Digital Disruption: How FinTech is forcing Banking to a tipping point, Citi, March 2016
3. Accenture analysis on CB Insights data
InsurTech
7A complex battlefield
Banks are now recognising that fintech
companies typically pose more of an opportunity
than a threat. Yet, despite this, banks still
find themselves confronted by a wide range
of related challenges across several fronts.
The impact of GAFAA – from Play Store to Mapping to
Search – with no fuss and no cost,
Customers are accustomed to higher
customers may perceive this gap
levels of digitally enabled customer
from their bank as a service failure.
service in other industries. This is
particularly true with firms such as With their prevalence amongst
Google, Apple, Facebook, Amazon consumers, GAFAA are starting to
and Alibaba (GAFAA). This group offer targeted financial services that
is resetting the benchmark for satisfy specific needs. Amazon, for
customer experience. Recognising the example, is making loans to small
inherent value of financial data, they
businesses trading in its Marketplace
are increasingly offering banking-
through a service called Amazon
style services to customers. This in
Lending. The service uses trading data
turn, leaves traditional banks at a
and vendor reviews to make highly
disadvantage as their view of the
reliable credit decisions. Google Wallet
customer cannot match the ‘high
allows customers to make online
definition’ picture available to GAFAA.
purchases via email, and Apple has
The challenge for banks here is what integrated payments into its new
Fjord refers to as “liquid expectation5”, touch authentication devices, such
whereby customers measure the quality as the iPhone 6 and iPad Air 2. Also,
of service they receive from players in Facebook has launched its free ‘Friend-
one sector, against their experience to-Friend’ payments service. Given how
from another. If, for example, Google fast the digital financial ecosystem
can offer a fully integrated customer is evolving, learning from and
experience, with a single log-in, collaborating with GAFAA will be high
across multiple devices and products on the agenda for bank leadership.
8The rise of the platforms from multiple banks and building open, secure and resilient services
greater efficiency into non-value- that can also be integrated with
The banking landscape is not
adding, yet essential processes other customer solutions
only changing in the front office;
such as customer identity checks. • Banks lose their customer-facing
core processing functions are
This starts to question the current relevance and their industry foothold
changing too. Traditionally, banks
industry data model where each as more-nimble tech / processing
have controlled most end-to-
bank attempts to control and own companies create better platforms,
end processing themselves, but data to support services they offer. but retain a core role as highly
with the increasing divestment
regulated entities that integrate
of their processing operations Tech players may provide some
complex supply chains of
– either through choice or platform services more efficiently
platform providers
under regulatory pressure – this than banks. However, they will truly
model is starting to change. begin to compete with the banks There is no reason why different areas
once they achieve the scale and of banking will follow the same scenario
In 2009, the European Commission capabilities required to serve the – the competitive dynamics for retail
ordered RBS to sell its payments industry as a utility, rather than banking are different, for example, from
processing company, RBS Worldpay, as fragmented players scattered those in corporate banking and more
as part of a larger state aid ruling6. between individual banks. Banks that different still for prime brokerage.
This year, the UK regulator has hang on to platforms, rather than
opened up the UK payments system sourcing them from better providers, Banks must learn lessons from GAFAA
to further competition by compelling will struggle to compete, while about how to reach, interact with and
Lloyds, Barclays, HSBC and RBS to others will efficiently orchestrate delight their customers. By forming
divest their joint stake in VocaLink, a set of best-of-breed services. partnerships with these firms, they can
the company providing the UK’s access their deep pools of customer
payments infrastructure7. By the time Likely Landing Points data and drive future products and
Payments Services Directive (PSD2) We see one of the following services. If banks surrender parts of
rolls out in 2018, the UK payments three scenarios as the most likely their supply chain that they possess
market may look very different. to emerge: neither the appetite nor the capability
to run efficiently, they could concentrate
Previously, such back office functions • Banks remain relevant to their instead on driving higher returns
were not a revenue generating part of customers and adopt fintech from other, more valuable
the business model and seen instead much more aggressively, parts of their business.
as pure processing functionality. enabling radical
However, through divestment, a productivity improvements.
new breed of free-standing, profit- This would happen quickly
hungry businesses are being created, enough to pass efficiencies on
which could pose a threat to the to customers through lower
status quo for banks. Elsewhere, in transaction fees
investment banking, companies like • Banks become less directly
Markit are looking to significantly relevant to customers, but
expand the services offered on retain end-to-end platform service
an industry basis, by pooling data provision by creating value-added,
5
https://livingservices.fjordnet.com/media-files/2015/09/living-services.pdf
6
“RBS to sell WorldPay to Advent”, Domain-B, August 7, 2010. Factiva, Inc. All Rights Reserved.
7
“UK regulator urges banks to sell stakes in VocaLink to increase payments competition”, Banking Service Payments,
February 26, 2016. Factiva, Inc. All Rights Reserved.
9The emerging
bank reactions
In our report “The Future of Fintech and Banking”⁸,
we identified three critical behaviours of banks
that would successfully seize the opportunities
presented by the digital revolution. These were:
Act Open • Act Open
• Collaborate
• Invest
Over the past year, we have seen year technology scanning,
successful financial institutions investment and adoption
continue to pursue these behaviours. programme. Banks should also place
However, building out a set of themselves closer to the centre
strategies to stay relevant and of their customers’ digital lives;
endure the pace of change will help embedding customer-centric
banks emerge as digital winners. thinking at the core of the corporate
While no strategy can be dogmatic, strategy. New technologies require
Collaborate
as the landscape will move quickly, new skills, so banks must invest in
banks need to take a position on their people to ensure they have
what the future looks like and act the right skillsets for their new
accordingly. Below we have outlined digital environment at every level of
an emerging set of strategies for the organisation
the near, medium and long-term.
• For the longer-term: banks will
• In the near-term: banks are starting need to consider how they will
to look at tactical ways to improve expand their franchises to develop
their business models by investing a service ecosystem around their
in easily adoptable technologies customers. They need to challenge
Invest
within the industry. No regret their own business models,
actions, such as RPA, and ensuring potentially cannibalising short-
that the digital disruption message term revenue in order to be become
is amplified across the agenda of more relevant to their customers
banks’ leadership are imperative to and access longer-term, but larger,
addressing these industry dynamics revenue pools. Banks will also
need to make higher risk
• In the medium-term: banks will investments in innovation and
benefit from developing a multi- not wait until the return on these
8
https://www.accenture.com/gb-en/insight-future-fintech-banking.aspx
10investments is as clear as historically where talented people who are best
demanded for ordinary ‘Run’ able to adopt innovation, no longer see
or ‘Change the Bank’ projects or the bank as an attractive place to work. The FinTech
investments. Using historical
The analysis of the outcome scenarios
Innovation Lab
investment assessment criteria
may optimise the bank, but it will and the management of execution The FinTech Innovation Lab is an
not truly challenge or change the risks can seem daunting, but we annual mentorship programme
business model believe that for now, the incumbent for entrepreneurs and early-stage
banks remain in a strong position to companies that are developing
The approaches to execution and influence and determine their own cutting-edge technologies for the
strategies for investment that are destiny. The current wave of disruptive financial services sector. The Lab
currently being deployed amongst innovation will be seen in five years’ brings senior executives from the
banking incumbents suggest that time as having delivered safer, more world’s leading financial services
many, though not all, have yet to transparent, efficient and responsive firms together to identify the most
develop a clear ’house view’ on the banking services to retail consumers, promising financial technology
likely outcomes for themselves or for businesses and market participants alike. innovations, mentor a handful
their respective markets. They are also of aspiring entrepreneurs, and
unconvinced about their ability to drive Fintech start-ups themselves are not help them refine and test their
emerging as the main competitive propositions over a three-month
their own destiny. We believe this lack
threat for most areas of banking. Banks period. The FinTech Innovation Lab
of strategic clarity is the biggest threat
that can assess, adapt and adopt these began in New York in 2010, founded
to the future of incumbent players.
new technologies most quickly will be by the Partnership Fund for New
For some, this is leading to confused best positioned to achieve their desired York City and Accenture. In 2012,
execution whereby top level statements position in the new industry structure. Accenture launched the programme
of bold intent, investment and in London, and then Hong Kong
innovation-driven change are not and Ireland in 2014. More than 50
matched by actions on the ground. This financial institutions participate
risks leading to a knock-on constraint in the programme globally.
11About Accenture Methodology Acknowledgements
Accenture is a leading global This report used investment data This report and the research would
professional services company, from CB Insights, a global venture not have been possible without the
providing a broad range of services finance-data and analytics firm. The generous participation of many
and solutions in strategy, consulting, analysis included global financing people from the financial services
digital, technology and operations. activity from venture capital and industry and beyond.
Combining unmatched experience private equity firms, corporations Authors
and specialized skills across more and corporate venture-capital Julian Skan
than 40 industries and all business divisions, hedge funds, accelerators Managing Director
functions—underpinned by the and government-backed funds. The Accenture Financial Services
world’s largest delivery network— investment figures exclude global
Accenture works at the intersection exit activities of fintech companies James Dickerson
of business and technology to help Accenture Financial Services
– M&A and IPOs – and a number
clients improve their performance of regional tracking dimensions Luca Gagliardi
and create sustainable value for their however analysis has been conducted Accenture Research
stakeholders. With approximately on these activities. Fintech
Key Contacts:
373,000 people serving clients in companies are defined as those that
Loren Naish
more than 120 countries, Accenture offer technologies for banking and
Marketing
drives innovation to improve the way corporate finance, capital markets, Accenture Innovation
the world works and lives. Visit us at financial data analytics, payments loren.naish@accenture.com
www.accenture.com. and personal financial management.
The list of deals included are Petra Shuttlewood
dynamic and constantly changing, Media and Analyst Relations
as new companies are added to the Accenture Financial Services
database. All publicly known fund petra.shuttlewood@accenture.com
raising for a company, which can www.fintechinnovationlab.com
include earlier rounds, are back filled fintechlondon@accenture.com
into the database. @FinTechLabLDN
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