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There are now 22 fintech companies around the world that are worth more than a billion dollars, and banks are getting increasingly worried that these rapidly growing upstarts are going to put them out of business.
Should they be worried? Yes.
So far fintech has been just about nibbling around the edges of the banking sector, addressing niche functions such as making foreign exchange transactions less expensive, or providing bank accounts to people who previously had no access to finance. Last year, peer-to-peer lenders made $19 billion worth of loans in the US. But to put that into perspective, a big bank lends more than that amount every month.
So why are banks worried? Banks have always had a couple of advantages. They have long- standing relationships with their customers.
The bank is a good place to keep money.
Many people go through their whole life with the same bank, and they control all the customer data. But the EU has proposed legislation that would force the banks to open up their customer data to third parties, if the customer wants them to.
The banks are worried that under this open banking regime, they would suffer the same fate as telecoms companies. They would become just utilities, moving the money around in the background while the fintech start-ups have the relationship with the customer. That's why we're seeing them scramble to develop their own fintech products and to partner with start-ups.
According to a PWC study, 42% of banks now have a joint partnership with a fintech company. So far, the banks have kept their fintech rivals at bay. But in 2016, global fintech investment totaled $24.7 billion, fuelled by record venture capital investment of $13.6 billion.
Increasingly, it's a case of beat them, buy them, or watch them eat your business.
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