Accenture’s Sinead Barry on how fintech is impacting on the traditional bank services industry.
The emergence of fintech over the past decade as one of the hottest sectors in venture capital highlights a profound change underway in the role of technology in financial services. It is no longer just about efficiency. Digital technology now lies at the heart of the industry and how banks and other financial services companies interact with their customers.
Financial services companies have long been among the largest buyers of information technology. Global investment in fintech ventures tripled from $4.05 billion in 2013 to $12.2 billion in 2014, with Europe the fastest-growing region in the world, according to an Accenture report. Last year, fintech investment increased at more than three times the rate of overall venture capital investment.
In the past, the lion’s share of this was directed at ensuring that what went into the back office functioned effectively – keeping the cogs of the machine turning smoothly, processing billions of transactions and ensuring efficient internal communication between the banking headquarters and the branches.
‘Last year, fintech investment increased at more than three times the rate of overall venture capital investment’
Meanwhile, a host of regulations has put new pressures on the banking industry, requiring enormous data collection, complex analysis and rapid reporting. Once again, advanced technologies provide an invaluable opportunity to automate regulatory processes so they can be met with minimum disruption and cost.
However, there is another dimension as well, which now makes technological innovation more urgent.
It’s the customer’s call
The rapid rise of new technologies in the digital age is transforming the banking marketplace and changing the structure of the industry. Customers are in the driving seat, demanding mobility, transparency and instant access from their financial providers. In this environment, where loyalty and past affiliations count for little and disruptive competitors are challenging the incumbents, technology has become a vital source of competitive advantage. At the same time, the advent of digital distribution and mobile banking is raising sophisticated new cybersecurity threats and challenges for banks.
Much of the innovation in the digital space is now coming from outside the big financial firms. On the one hand, the big banks can no longer afford the level of internal investment to develop everything themselves. On the other, the emergence of cloud computing, open software, easier access to computing power and data servers all mean that it’s become much easier for small, innovative technology start-ups to turn their ideas into products.
The result has been the growth of fintech and the emergence of new venture ecosystems. The UK and Ireland accounted for more than 42pc of the total European fintech investment in 2014, as investment in the region rose from $264 million in 2013 to $623 million in 2014.
Ireland is establishing a strong global reputation for innovative fintech start-ups. The start-up rate for Irish-owned fintech companies is accelerating rapidly. In 2014, Enterprise Ireland supported twice as many early-stage fintech start-ups as the previous year.
‘Much of the innovation in the digital space is now coming from outside the big financial firms’
In turn, many of the world’s leading and emerging technology and financial services companies have strategic international operations in Ireland, delivering on the opportunity for them to incubate, invest and collaborate.
This combination of start-ups partnering with large organisations is a key pillar of the Government’s IFS 2020 strategy, which recognises the potential to leverage such partnerships to significantly develop the wider financial services sector in Ireland.
However, for small start-ups, doing business with large, complex, regulated companies poses significant challenges and the Fintech Innovation Labs are a way of addressing this. The initiative started in 2010 with Accenture and the Partnership Fund for New York City, the investment arm of the Partnership for New York City, New York’s leading business organisation.
The success of the New York Lab was followed by labs in London, Hong Kong, and now Dublin, which is into its second year. The Fintech Innovation Lab Dublin is supported by Enterprise Ireland, as well as nine leading payment companies and financial institutions.
Big financial services companies are sophisticated buyers that work at enormous scale and are not traditionally structured to do business with small start-ups. By bringing fintech entrepreneurs together with their potential clients and providing high-level mentoring from chief technology officers and other senior figures in the banks, it has proved possible to help them structure and modify their products to the clients’ needs.
‘Bringing big financial institutions together with innovative tech companies is a powerful concept’
Frederick Herrera, CEO of Videobot, participated in the inaugural FinTech Innovation Lab Dublin in 2014, and he has strong views on the benefits of the programme. “Taking part in the FinTech Innovation Lab last year was a hugely beneficial experience for us. From continuous mentoring and advice, to access to senior executives from some of the largest banks in the world, the support we received was invaluable,” he said.
There are many interesting applications in development among the companies that have passed through the Labs around the world – technology from the defence industry that can help combat fraud, software to enable banks to adopt cloud computing more efficiently, behavioural biometrics to improve security and mobile and online payments technology using mobile barcodes.
From a larger perspective, the Labs can help accelerate the adoption of leading-edge technology, with a positive impact not only on the banks and fintech companies, but also on the broader economy. Bringing big financial institutions together with innovative tech companies is a powerful concept. It helps create a virtuous circle where the bank’s technology needs attract innovative companies to meet those needs and also develop the next level of innovative products to better serve their banking customers and the communities in which they do business.
Sinead Barry is a Managing Director in Accenture’s Financial Services group and Programme Lead for Accenture FinTech Innovation Lab Dublin
Fintech Focus is a week of fresh fintech-focused content hosted on Siliconrepublic.com from 19 to 23 October. Stay up to date with the latest stories by subscribing to our news alerts, or follow the hashtag #FintechFocus from @siliconrepublic on Twitter.