Banks Admit They’re Scared of Startups

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If you cannot keep up with everything that is happening in fintech, you are not alone.

In the post financial crisis world, fintech startups perched themselves in the crevice between the big world of banks and the regulatory reform which controls their free reign. And since then, financial upstarts have only multiplied.

From P2P insurance, realty crowdfunding, marketplace loans and not to forget bitcoin, the capital infusion in fintech testifies for the market hype. In its report in November last year, CB Insights estimated that $24 billion has been invested in fintech startups and half that amount  ($12.2 bn) was invested in 2015 alone.

It can be argued that some of these startups with multibillion dollar valuations are essentially smaller banks without the frills. Take SoFi for example, the San Francisco-based online lender is which worth $4 billion known for its touting we-are-not-a-bank image but provides most services from student loans, mortgage lending, personal loans to loan refinancing without the “bank branch.” The company also wants to start a hedge fund.

So, are the banks feeling left out? It depends on whom you ask, but a recent report from PwC surveying 544 CEOs, revealed that 23 percent believed their businesses were “at risk” by fintech innovation and 67 percent of the respondents said that they were under profit margin pressure.

“We thought we knew our customers, but FinTechs really know our customers,” the report quoted a senior bank official as saying. The report ranked consumer banking, payments and wealth management to be disrupted the most by these fintech startups.

The big bucks and the hype that follows it has made regulatory authorities sit up and take notice of the financial services upstarts and bring them under the supervisory purview. And while that may be legitimizing their foothold on the industry, the real questions around project revenues, possible exits and the companies’ wherewithal to handle a complex credit market remain unanswered.

Are we really at a tipping point of innovation or is it just new wine in old bottles?

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Last modified: March 16, 2016

Category: banking, startups

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