How Fintech Startups are Ushering In A New Relationship With Finance
Fintech startups are rapidly changing the relationships between consumers and finance. By improving user interfaces, updating anachronistic processes and providing products on better terms, they are making the services of many billion-dollar financial institutions appear cumbersome and transforming the way consumers utilize financial products.
This success has won both customers and the attentions of large external investors; in 2018 alone, almost 1,300 venture capital deals in North America and Europe involved fintech companies, while total global investment in fintech exceeded $52 billion. Now traditional financial institutions are joining the party, acquiring or merging with some of the most promising fintech startups in order to harness their technology and expertise.
Notable Mergers and Acquisitions in the Fintech Industry
Fintech mergers and acquisitions are taking place across all sectors of the finance industry, but few have been more covetous than the banking sector as major firms seek to bolster their own services:
BBVA
BBVA has been prolific in its pursuit of fintech startups, acquiring companies with specializations ranging from online banking to real estate valuation in Europe, Mexico and the US.
Goldman Sachs
Goldman Sachs has also made multiple fintech acquisitions, primarily with a view to strengthening the consumer loan portion of its business; recent activity includes taking a majority stake in Financelt, a point-of-sale lender, purchasing the personal finance app Clarity Money, and acquiring the team responsible for credit card startup Final.
The investment banking company only launched its retail offshoot in 2016 and is placing fintech at the heart of a strategy to not only entice new customers but to become their sole purveyor of financial products.
BNP Paribas
French banking giant BNP Paribas dipped its toe in the water of fintech acquisitions in 2017 with the purchase of online bank Compte Nickel, following it up that same year by purchasing a majority stake in “robo advisor” Gambit Finance.
JPMorgan Chase
JPMorgan Chase also made two fintech acquisitions that year as part of a bid to expand its digital payments solution Chase Pay. Initial uptake of Chase Pay had been underwhelming, prompting the firm to obtain the expertise of WePay and a payments service created by the consortium MCX.
Beyond the banking sector, the past year has seen firms across all parts of the finance industry making major fintech acquisitions, with several deals valuing several companies at tens of billions of dollars. Among the most notable are:
The purchase of eCommerce and payments processor Worldpay by FIS in a deal pricing the company at $43 billion.
Market data provider Refinitiv was acquired by the London Stock Exchange for $27 billion.
Global Payments purchased Total System Services for $21.5 billion
First Data, another payments processing company, was acquired by Fiserv for $33 billion.
Plaid, a firm specializing in payments authentication, was purchased by Visa for $5.3 billion.
In addition to investors identifying fintech startups as a potential moneymaker, traditional financial institutions evidently see them as an invaluable source of innovation and expertise. Fintech is changing the way consumers interact with financial products, presenting long-established firms with the need to modernize or risk being left behind.
How Fintech Is Changing the Relationships Between Consumers and Finance
While fintech startups have successfully transformed multiple sectors of the finance industry, this is perhaps most pronounced in the mass markets, where innovations have improved both the products and the levels of service afforded to customers, revolutionizing the relationship between consumers and finance:
Transforming the Way Customers Interact With Financial Institutions
Among the most prevalent innovations are those which affect the way financial institutions serve their customers; chatbots and virtual assistants are becoming more common, aided by improvements in artificial intelligence, network connectivity and the widespread use of mobile devices.
When consumers contact a financial product or service provider they are often seeking guidance, and well-engineered chatbots and virtual assistants can answer these kinds of queries quicker than human advisors and more effectively than FAQ pages.
Augmented reality is being used to similar effect. Accessed via mobile devices, it aims to create interactive experiences by combining the digital and physical worlds in ways that make consumers feel more connected to an institution than if they were accessing it solely through a screen.
Changing How We Pay for Financial Services
Consumers are accustomed to paying for services such as foreign transactions, cross-border payments and access to overdrafts, but numerous startups have sought to win market share from established providers by offering products and services with much lower fees — in some cases, abolishing them altogether.
People are discovering a world without maintenance fees and ATM surcharges, and are becoming more informed about how to manage their money with the help of tools such as financial tracking apps and prepaid debit cards. A recent market analysis estimated that banks across 12 major markets, including the US, will lose around 5% of their revenue from service fees in the next three to five years as consumers become savvier and switch to younger, more innovative competitors. As such, traditional banks will likely be forced to update their own practices and reduce their reliance on fee-based income.
Taking Financial Services Online
Another major disruption to the traditional banking system is the way that many fintech startups operate entirely online — offering services such as banking and in-store payments, and even facilitating stock and cryptocurrency investments, solely via mobile phone apps.
Maintaining an entire financial platform online not only gives consumers greater convenience, but underpins the fee-based advantages that a number of these companies offer; by abandoning the traditional model of operating physical branches, fintech startups are able to shed the considerable overheads accrued by their rivals, and many turn this saving into a competitive edge by passing it on to their customers.
We’ll see more innovations like these as investment in fintech continues to soar. The industry has provided new products and services while improving traditional ones, making them simpler, more accessible and cheaper than ever before, and this prioritization of customers has been key to its success. Fintech startups have revolutionized the finance industry by first transforming the relationship between consumers and finance. And it feels like these changes are only the beginning.