Fintech has received $25 billion in venture capital funding in recent years and is targeting all areas of banking. While Fintech companies see their strengths as innovation, technology expertise, and agility, banks believe their strengths are an existing customer base, deep financial pockets, and experience with regulation. However, surveys of bankers and Fintech executives found that neither side wants direct competition and that partnerships between banks and Fintech are the best approach, with over half of each group supporting partnerships or acquisitions. Successful Fintech companies will be those that can partner well with banks, which remain the strongest players in the banking industry.

1. But this creates a dilemma for the Fintech entrepreneur
Fintech is serious, well-funded,
and coming fast
-target for venture
capital in 2014.
• Targeting all
banking products
• Expected to
gain traction in
3-4 years
$25 billion in investment
And what do banks see as the greatest advantages
of Fintech?
In fact, when you compare the weaknesses of Fintech with
the strengths of banks, one sees a lot more mutual interest
than head-to-head competition.
$12.1
$4.0
$2.5$2.2$1.8
2009 2010 2011 2012 2013 2014
$1.9
Banks and Fintech: Complement each other in their
strengths and weaknesses
There is acceptance on both sides that the best route forward is not
head-to-head competition – but instead partnership and collaboration.
Banks who would partner/acquire Fintech 45%
53%Fintech executives who believe banks should partner or acquire
Why are banks finding it difficult to meet the Fintech
challenge?
The perspective of Fintech executives
Disruption in the
banking industry
In June of 2015, The Economist Intelligence Unit (sponsored by HP)
conducted in-depth surveys of over 100 global bankers and Fintech
executives on the future of retail banking. This is what we found.
Fintech threatens to disrupt the entire industry –
how will banking be transformed?
70%
83%
66%
81%
82%
80% 80%
Limited line of products
Full line of banking products
Lack of investment capital
Deep financial pockets
Lack of experience in risk management
Effective risk management programs
Existing customer base
Lack of customer trust
Reputation for trust and stability
Inexperience with regulation
Experience with regulators
Need to build customer base
Where banks believe they are weak Where Fintech believes it is strong
79%
80%
74%
79%
75%
2013 to 2014
Venture funding
300%
believe banks will be
strongest players or
share the market
believe banks will
become “minor players”
95%
5%
The Fintech firms that succeed will be the ones that
partner well – and their natural partners are the banks.
Fintech firms do not
foresee banks being
“Ubered” or “Amazoned”
– they see banks as
continuing to be the
strongest players in this
market.
What do banks perceive as their weaknesses as they
face the digital future?
Banks admit that they are having trouble facing the
Fintech challenge on their own:
Capacity to innovate
Technology expertise
Agility and speed to market
Scalable, flexible technology
Absence of legacy systems
51%
48%
46%
35%
35%
Lack digital strategy
Culture not suited to rapid change
Constrained by legacy technologies
Lack of agility/slow to market
Recruiting/retaining tech talent
49%
38%
33%
35%
35%
Over 4,000 firms vying for
success – a crowded market
Funding that demands
success in just a few years
Banking culture – risk averse
culture makes it difficult to
develop and execute vision
Concerns about security risks
Unable to attract
the right people
Lack of agility. Slow to market
Technological expertise and agility
Entrepreneurial cultures Flexible technology
Banks are not going to be Ubered or Amazoned. Instead,
their path will be to combine forces with Fintech through
acquisitions or partnerships. Some thoughts on
“Fintegration”:
Include IT in due diligence
and integration planning
Ring fence the new culture
Make regulatory
integration an early priority
Make data security an
early priority
Data integration
Integration of enterprise
infrastructures
Combining a bank and Fintech is at its heart combining two
technologies - start early with a tech-driven roadmap to the end state.
Keep the innovation of Fintech alive within a risk-conscious
banking environment.
The exception is regulation – it is mandatory to bring the acquired
entity under the bank’s regulatory standards and systems.
Security is top-of-mind for both parties, and for good reason. Bring the
combined entity up to the higher security standard of the two.
Create a data integration plan, with early priority on creating one
customer. Flexible cloud systems should help.
Once these priorities have been met, the process of integrating the
two infrastructures – data centers, data networks, network and
application architecture, etc – begins.
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