Hu Yoshida

FinTechs: Disruptive Innovation In Financial Services

Blog Post created by Hu Yoshida Employee on Aug 7, 2015

Every meeting I have had with customers in the financial services sector recently has touched on the impact of FinTechs. FinTech stands for Financial Technology and refers to the software companies that provide financial services. These companies are generally startups, which have sprung up since the banking failures of 2008 and are beginning to disrupt incumbent financial corporations. Recently Forbes reported that investments in FinTech startups have quadrupled, growing from just over $3 billion in 2013 to over $12 billions in 2014. Another trend showed that crowdfunding, a form of FinTech, will surpass VC funding for these startups by 2016.

 

Here is an example of FinTech companies and the financial services that they provide according to Venture Scanner: http://www.dreamincubator.co.jp/next_g/24446.html

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This list does not include established players who provide financial services like Amazon, Apple, Baidu, Google, eBay and Ali Baba.

 

Up to now the FinTechs have been specialized and disparate. While financial businesses are heavily regulated, FinTech companies deliver new innovations, which fulfill financial needs that are not currently being met. As this market matures and consolidation platforms develop, FinTechs will be a much larger threat to financial services companies. One only needs to look at examples like AirBnB in the hospitality business and Uber in the transportation business as examples of how quickly traditional businesses can be impacted.

 

Banks are beginning to realize that they are competing against agile technology companies without legacy systems and structures. In China, anyone with an Alipay account (an affiliate of Alibaba Group Holding LTD, similar to PayPal’s Internet payment system) can transfer money from their bank to Alipay’s investment platform Yu’E Bao, and earn 6% interest, 17 times the usual interest paid by the banks! Yu’E Bao means leftover treasure, and there is no minimum amount or time frame required which makes it a great place to park spare change. In its first 6 months Alipay drew $31 billion from 43 million users.

 

Last month I was in Singapore where the Monetary Authority of Singapore (MAS) announced the formation of a new FinTech & Innovation Group effective from August 2015. Instead of trying to stop the FinTechs from disrupting financial services, this new organization will be responsible for regulatory policies and development strategies to facilitate the use of technology and innovation to better manage risk, enhance efficiency, and strengthen competitiveness in the financial sector. The banks in Singapore are looking for creative ways to apply technology and ride the FinTech wave.

 

Instead of limiting our choices, banks will need to be more responsive to their customers. The Financial Services market must focus on services. Social media, mobile, analytics, and cloud are the tools, which will help provide the innovation required for a healthy financial services industry. Already we are seeing increased adoption of cloud and analytics by IT in this sector. The first adopter of our Live Insights for IT Operations, was a global FSI.

 

The conversations with CIO’s, in all sectors, are becoming less about infrastructure and more about Innovation and transformation.

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