In a report from Accenture, investments into fintech firms tripled in 2014 to $12.2 billion from $4.05 billion in 2013. The report, The Future of Fintech and Banking: Digitally disrupted or reimagined, was compiled as part of Accenture’s involvement in the fintech startup space of which they operate the Fintech Innovation Lab London.
The findings showed that the US continues to be the top spot for fintech investments taking place, but that growth in Europe is taking place faster. Within Europe, overall fintech growth in 2014 was 215%, with the UK and Ireland being the largest center of investments, with $623 million. Behind the UK and Ireland were the Nordic countries at $345 million, Netherlands with $306 million, and Germany at $82 million in investments.
As a result of the surge in funding, financial technology has become one of the hottest markets among startups, with 40% of the $12.3 billion going towards first round or earlier funding. Fintech is also currently benefitting from an entrance of banking firms becoming partners to the industry, becoming backers of accelerator programs as well as hosting innovation conference.
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While many of the products now emerging from the fintech sector such as marketplace platforms like P2P lending and crowdfunding compete against banks, there are also synergies being realized. Examples are the ability for traditional retail banks to refer customers to invest or receive loans from P2P lenders, where a bank has the opportunity to monetize customers that don’t meet their requirements.
On the dual nature of emerging financial technology being both disruptive as well as beneficial to incumbent financial companies, the Accenture report showed that 80% of banking respondents that were surveyed answered that they viewed working with startups “a valuable way to bring new ideas to their business.” The findings also showed that 60% of respondents were willing to sacrifice existing revenues to move into new business models.
Analyzing the future, Accenture painted two potential scenarios. The first, which was predicted as 56% likely, was that “innovations are embraced at the business model level.” The result is a focus on providing value to end user customers and ultimately add value. The second scenario is that banks get ‘digitally disrupted’, and end out losing market share or fishing to acquire fintech firms to protect their core businesses. According to Accenture, this scenario provides a long-term economic negative to banks, as by failing to provide value, their products become commoditized and it is harder for them to compete.