As the fintech market continues to gain steam and digitize money management, banks have begun to shift their organizational structure and focus on technological innovation. The world is starting to explore new ways of handling and exchanging money with the help of technology – and banks are not planning on being left behind. It’s now safe to safe Banks are betting on Fintech’s for survival.
The banks are getting involved in fintech startups for a couple main reasons including the potential for ROI, and, perhaps most importantly, strategic partnerships. Many of the most prominent investments conducted by banks were due to the fact that these companies were furthering technology that was in line with the bank’s internal goals for the future.
There are many different areas of Fintech that are rapidly evolving.
These include sectors such as:
Of all of these categories, banks showed especially heavy interest in payment and settlements as well as data and analytics. One of the most notable investments in this sector was the $700M round that Square received from Goldman Sachs, JP Morgan Chase, Morgan Stanley, and others.
Square leveraged two distinct products that were both simple and new enough to skyrocket them to the top. Their Cash App, which enables simple P2P or P2B transactions has received millions of downloads in the app store. Also, Square’s in-store kiosk for businesses was a cheap and affordable way for small businesses to accept card payments and organize their cash management in a sleek and modern fashion. These two products gave consumers and businesses the ability to more fluidly transact amongst themselves with minimal bank interference – which is something that most certainly caught their attention and resulted in the giant acquisition.
The Dark Horse Technology
Another important technology that banks are still keeping a close eye on is blockchain. While it wasn’t in the public eye as much as payment processing or analytics and AI, banks are expected to account for nearly 30% of the total amount of money flowing into blockchain technology research and implementation.
Why are they so interested?
For starters, blockchain technology is more than the underpinning of bitcoin. At its core, it is able to make people’s data and financial information completely secure, enable trustless transactions, and has promised to get rid of the centralized control banks have on money. This is one of the most popular claims about blockchain, so of course, it caught the bank’s attention.
The ability for blockchain to provide immutable identity verification, trustless agreements for trade, and permanent databases paint it to be the tech that could take us to the future of a financial system that is not run by banks. While the technology is still ironing out the kinks, the banks have shown that they aren’t going to wait around while this new technology uproots them from their throne.
For startups looking to innovate the fintech sector, these two examples are a great place to take some inspiration. The common theme between these two innovative technologies was their ability to provide open-source tech and autonomy away from the banks. With Square, people loved the personal ability to send money back and forth easily and simply set up a clean and modern payment kiosk in-store that also provided digital management services. Blockchain inspired people to create tools that spread out the control of power rather than centralizing it with a board of directors at a bank.
Fintech is evolving similar to how computers and software did in the 90’s and early 2000’s. It started off as siloed-off hardware and evolved to open source and interoperable SaaS that was usable by companies across the globe.
If you are looking for an entry into this hot market, start thinking about how you can provide open-source infrastructure tools and embedded fintech technology that can integrate into the existing ecosystem. Historically, tech monopolies were broken by the open-source layer and now banks are spending billions to ensure they don’t suffer the same fate.