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At the start of 2015, there was a sense that Silicon Valley would soon rule the world of finance and that banks risked irrelevance. A year later, a more balanced picture has emerged.
January 5 -
For all the attention nonbank fintech firms get, they still have a long way to go before winning over key customer segments, such as business banking customers.
January 8 -
The blockchain could move from testing to reality, APIs are likely to expand, and more functions will move to the cloud as banks look for ways to fend off fintechs in 2016.
January 4
Most of the public discussion about fintech innovation and investing over the past year has focused on "disruptor" companies that have raised enormous sums from the venture capital community with a promise to deliver revolutionary changes in relatively unsexy areas like payments, banking, investment and insurance. That is why we can all be forgiven for sometimes thinking that fintech is entirely about these blockchain, marketplace lending and digital investment startups.
But the recent 2015
Here are just some examples of Fintech 100 companies that merit the enabler label. The U.K.-based Bankable allows financial services companies to provide cutting-edge multicurrency digital services to companies, including virtual currency services, plastic cards, e-wallets and mobile payments through multiple digital channels. Payrange, in Portland, Ore., allows mobile and card payments to be accepted by millions of "old technology" vending and laundry machines around the world. Personetics, based in Israel, enables banks around the world to deliver personalized customer experiences across all digital channels.
These fast-growing companies are in the business of using technology to help incumbent financial services players compete effectively in the digital customer wars. And these early leaders are being followed by dozens of new fintech companies with similar goals. Why are fintech enablers rising so fast? It is because banks have woken up to the new competitive reality and are making up for lost time. Eight years after the 2008 crisis, incumbents in financial services finally have enough operational and managerial bandwidth to focus on the digital future of their businesses, after years spent complying with new regulatory mandates, cutting costs, dealing with credit and compliance problems and resolving litigation.
The incumbents must act quickly because their main advantage — ownership of customers and customer data — is under threat. They know that the only way to keep customers from defecting to disruptive alternatives is to quickly provide great digital experiences comparable to what is available in other parts of the tech economy. Most important, banks realize that they can't do it by themselves. For reasons of size, culture and regulation, the industry incumbents will never have the in-house technology expertise, bias toward speed and innovation mindset needed to create products and experiences comparable to those coming out of Silicon Valley and other global tech centers.
But they can buy that expertise and mindset from the new class of fintech enablers. Enablers exist to provide all the benefits of Silicon Valley — speed, technology and culture — to the development of digital solutions that support, not supplant, the current financial services ecosystem. Their business model is collaboration. So it's no wonder that incumbents are supporting these companies with both capital and contracts. The well-documented surge in digital innovation efforts and investments by established financial players like BBVA, Axa, Visa, Capital One, Santander and Goldman Sachs is evidence that the development a new generation of fintech enablers is an industry priority.
The impact of this shift in focus may be most clearly seen in disruptors that appear to be pivoting toward enabler status. OnDeck Capital's
OnDeck's pivot suggests that the best enablers — those that become indispensible parts of the current ecosystem — can look forward to a long life, even as some promising new disruptors fade from view.
Todd H. Baker has been chief strategy and development officer at three of the largest U.S. banks and a partner at two leading international law firms. He is currently the managing principal at Broadmoor Consulting LLC.