Investment in financial technology groups triples to $12bn in year

By March 25, 2015Bitcoin Business
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Investment in financial technology companies trebled last year, providing a hint of the scale of digital disruption banks face, according to research from Accenture.

The total amount invested in the global fintech sector rose from just over $4bn in 2013 to more than $12bn last year, as record amounts were poured into companies developing technologies that promise to turn the financial sector on its head.

The rate of expansion far outstripped the 63 per cent growth in total venture capital investments last year.

Accenture said the biggest deals included a $3.5bn investment by KKR and others into First Data, the payment processor, and $865m raised on the New York Stock Exchange by Lending Club, the peer-to-peer lender.

But even without those two unusually big deals, total investment almost doubled in the sector. Accenture defines fintech businesses as companies that offer technology for banking and corporate finance, capital markets, financial data analytics, payments and personal financial management.

However, much of the growth has come from investments in relatively mature companies — the amount of money flowing into first-round investments in fintech companies grew only 48 per cent to $1.38bn, Accenture said.

“The obvious conclusion is that banks’ value chain is going to be disrupted,” said Julian Skan, managing director at Accenture. “The question this year in fintech is really much more about a challenge to the business model of banks.”

The consultancy said its survey of senior banking executives involved in technology innovation found that seven out of 10 felt that their banks had “a fragmented or opportunistic approach to dealing with digital innovation”.

Gonzalo Gortazar, chief executive of Caixabank, Spain’s biggest bank by market share, said: “They [fintech companies] are a threat for some business models, particularly those based on a low cost product offering, which will find it very hard to compete with these new entrants.”

However, Mr Gortazar said lenders with a dominant market share and active approach to investing in technology would be able to prosper, despite the threat from new players. “I don’t think we’ll be challenged, unless we are complacent.”

Many banks, such as Barclays and Santander, have established in-house venture capital funds to invest in fintech companies, hoping to learn from, and in some cases acquire, the top innovations in the sector.

The US had by far the biggest share of investment in fintech but the rate of growth was highest in Europe, where the UK accounted for more than $4 of every $10 invested in fintech last year.

The figures include financing from venture capital, private equity, corporations, hedge funds, accelerators and government backed funds.

to give developers access to its proprietary source code as an example.

The consultancy said the blockchain technology that underpins the bitcoin cryptocurrency was the next big area that banks would need to tackle to stay ahead of the competitive threat. “They will have to engage with a much wider range of technical specialists and developers outside their own organisations,” it added.

The total amount invested in the global fintech sector rose from just over $4bn in 2013 to more than $12bn last year, as record amounts were poured into companies developing technologies that promise to turn the financial sector on its head.

The rate of expansion far outstripped the 63 per cent growth […]

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