Disruptive innovation from FinTech firms has shaken the foundations of financial services organizations to the point that 60 percent of banks would now consider partnering with a FinTech company, with 25 percent of these willing to consider buying one and another third willing to collaborate with one, according to Business Insider.
North American financial institutions are even more interested in FinTech acquisitions, with 30 percent of banks indicating that they’d be interested in buying a FinTech company. However, in Europe, the Middle East and Africa (EMEA), 30 percent of financial institutions see FinTech firms primarily as competitors, and therefore aren’t interested in collaboration.
CB Insights reports that more than $24 billion was invested in FinTech companies between the beginning of 2010 and the third quarter of 2015. These firms offer a wide variety of disruptive innovations, from mobile payments to free credit scores to blockchain technologies.
What Makes FinTech Companies So Attractive?
FinTech companies offer many benefits for those in the financial services industry. They don’t have the same regulatory constraints as traditional banks and credit unions, and because they use the latest technologies, they’re unencumbered by costly legacy technology systems. They also offer disruptive innovation that appeals to the growing number of millennials, who are moving into their prime wealth-generating years, and they don’t have expensive existing infrastructure and overhead such as underutilized branch systems.
By acquiring a FinTech company, a financial services firm can offer the technology under its own brand while also continuing to control the customer relationship. Without acquisitions or collaboration, traditional financial services firms risk losing the customer relationship and the business, cautions McKinsey & Company.
Smartphones have been critical to the rise of FinTech companies and to the continuing relevance of traditional banks. They provide users with the ability to handle most of their financial services needs anytime, from any place. Additionally, mobile payment solutions like Samsung Pay offer consumers the convenience of paying with their smartphones on most existing POS devices — whether they use magnetic stripe, NFC or EMV card reader technologies. As FinTech Ranking points out, many financial institutions prefer the Samsung Pay approach over working with financial services firms because they’re seeking a more collaborative relationship.
Learn more about blockchain and disintermediation, which are changing the way we manage our finances.