The Future

of Fintech
and Banking:
Digitally disrupted
or reimagined?
Global investment in fintech ventures
tripled to $12.21 billion in 2014

2014
$12.21bn

2013
$4.05bn

2 2
2
Executive Summary

Investment in financial-technology recognise that merely navigating of legacy technology and managing
(fintech) companies grew by 201% waves of regulation and waiting a large infusion of new talent.
globally in 2014, compared to 63% for interest rates to rise won’t
growth in overall venture-capital protect them from obsolescence. Embracing these themes and creating
investments, confirming this sector the right foundations creates
as a hot ticket. Expectations for This Accenture report brings challenges to the rate of change
new digital start-ups in the industry together the views of 25 influential and approach to risk that are hard-
continue to swell, with the amount financial services executives wired into the way banks currently
of money flowing into first round involved in innovation, and adapt to innovation. This hands an
investments alone growing by 48%1. maps out the activities that advantage to challengers who only
established players have identified hit regulators’ radar once their new
It is clear that the digital revolution as necessary to allow them to business models have found ways to
in financial services is under way, disrupt their own business model cherry-pick services and customers.
but the impact on current banking rather than watch challenger Banks are anticipating this by
players is not as well defined. models disintermediate them. creating new businesses within their
Digital disruption has the potential existing structures that adapt and
to shrink the role and relevance of Openness, Collaboration and collaborate to meet these challenges
today’s banks, and simultaneously Investment are the critical themes and make better use, faster, of their
help them create better, faster, that emerge for existing banking enduring source of competitive
cheaper services that make them players if they are to benefit from advantage – customer insight.
an even more essential part of growth driven by new services and
everyday life for institutions and productivity. Banks also recognise Existing banks will know they
individuals. To make the impact two other fundamental steps are winning in digital when bank
positive, banks are acknowledging to ensuring that they are net valuations start to factor in the future
that they need to shake themselves winners from digital disruption: value of proven innovation, in addition
out of institutional complacency and successfully dealing with the issue to protecting the core franchise.

3
Introduction

Global investment in fintech Figure 1: Global FinTech Financing Activity

ventures tripled to $12.21 billion $14,000 800
in 2014, clearly signifying that the $12,000 750

Investment ($M)
700

Deal Volume
digital revolution has arrived in the $10,000 650
$8,000 600
financial services sector. It is still $6,000
550
500
unclear whether this presents more $4,000 450
400
of a challenge or an opportunity for $2,000 350
the incumbents in the industry. But $ 300
2010 2011 2012 2013 2014
established financial services players
are starting to take bold steps to Global - First Round Global - Non-First Round Global Deal Volume

engage with emerging innovations. Source: Accenture and CB Insights

The fintech sector is often

characterised as a battle between
the old and the new. But it’s worth
noting that the flood of new money By value, this only represents 11% new technology deployment cycles
going into the space is distributed ($1.38 billion) of total investments will be much quicker. However, 40%
across both parts – in fact, with in the space, but growth is an of respondents felt that the current
a slight bias towards investments impressive 48% year-on-year. time taken for their organisation to
in more established companies. deploy new technology was either
The concern is that established negatively impacting its value, or
financial services players are not providing no net benefit at all.
Two of the biggest successes of 2014
doing enough to keep up to speed
perfectly characterise this diversity in
with this surge in new innovation Skills and culture also present a
the market. On one hand, First Data,
investment. Accenture’s survey of challenge. Four out of five respondents
a provider of payment processing
senior industry executives involved felt that when it came to culture and
services founded in 1971, raised
in the FinTech Innovation Lab (see talent, they were only “somewhat” or
$3.5 billion2 in private equity led
page 7) reveals that 72% feel their “minimally” equipped for the digital
by KKR. On the other hand we have
bank has only a fragmented or age. Meanwhile, only half felt that
a true ‘new wave fintech’ poster
opportunistic strategy to dealing their procurement processes and
child, Lending Club, the peer-to-peer
within digital innovation (see figure 1). technology were up to scratch.
lending platform founded in 2006 that
raised $865 million on the New York Legacy technology and the difficulty
Stock Exchange, valuing its business of deploying new technology fast
at $8.5 billion and hitting the record is a big part of this issue. All of
for the biggest US tech IPO of 2014. the respondents felt that legacy Figure 2: Strategy in place for
technology presented an issue to digital and innovation
Lending Club’s successful IPO
their organisation, but only just over
shows that a new wave of financial 4%
half said their bank had a strategic
technology is building momentum, Comprehensive
approach to decommissioning this 28% strategy
and will have a significant impact
old technology (see figure 2). Fragmented
on the future of financial services. 68% strategy
In fact, two-fifths of all the fintech More worrying is the speed at Invest in one-off
venture-capital deals done in which these banks implement new opportunities
2014 were first round investments technology. The overwhelming
in early-stage companies. majority agreed that, in the future, Number of respondents = 25

4
Figure 3: How equipped do banks feel to address the challenges
associated with the next wave of digital innovations

100%
80% 80%
80%

60% 52%
48%
56% 36% 60%
40% 36%
48%
28%
20%
12% 24% 8% 20%
4%
0%
Technological Procurement Cultural Financial Talent/skills n Minimally equipped  
challenges challenges challenges challenges n Somewhat equipped

Number of respondents = 25

Regional Investment Data Figure 4: Global FinTech Financing Activity

14,000 800

12,000 700
600
10,000
Investment ($M)

Of the $12.21 billion invested in 2014, the US 500

Deal Volume
8,000
makes up the lion’s share, but Europe experienced 6,000
400

the highest level of growth, with an increase 300

4,000
of 215% (year-on-year). Fintech investment 200
2,000 100
growth in the UK and Ireland was slightly slower
0 0
(up 136% to $623 million) although the region 2008 2009 2010 2011 2012 2013 2014

accounted for 42% of European investment.  ther  —— Global Deal Volume

United States  n  Europe    n  Asia-Pacific  n  O
n 

Source: Accenture and CB Insights

Following a relatively slow 2013, fintech investment
in Silicon Valley more than doubled (117%), pushing
Figure 5: Top 5 European Regions for Fintech Investment
the start-up hotspot over the $2 billion mark, more
Activity, 2014 Bubble = Total Deal Volume
than the total investment in Europe ($1.48 billion).
800
Total investments ($M), 2014

700
Whilst the UK and Ireland dominate Europe’s 600
fintech investment, the rest of Europe is showing 500

promise: the value of fintech investment in 400

300
the region grew more than twice as faster the 200

UK and Ireland in 2014; the most significant 100

0
levels of investments were in the Nordic 0 10 20 30 40 50 60
countries ($345 million), the Netherlands Total Deal Volume, 2014
● UK & Ireland    ●  Nordics    ●  Germany    ●  Russia    ●  N
 etherlands
($306 million) and Germany ($82 million).
Source: Accenture and CB Insights

Figure 6: Five-year Growth in Fintech Investment ($M)

2,500%

2,000%

1,500%

1,000%

500%

0%
2009 2010 2011 2012 2013 2014
—— UK & Ireland  —— Europe (ex UK & Ireland)  —— Global  —— Silicon Valley

Source: Accenture and CB Insights

5
The future state How this digital revolution will
impact the established financial
Scenario 2: Digitally Reimagined
Innovations are embraced at the
Despite these complications which services industry is uncertain, business model level. The focus
the incumbent players in the but the following two scenarios is on making a customer’s life
industry are facing, three-fifths provide a structure for how things easier not on asset monopolies,
of respondents to the survey felt may play out. It is important to and sources of revenue change
that established financial services recognise that there is no reason over time as customer insight
players would survive and thrive in to believe either scenario will grows and the bank learns how
the digital future - either because apply to all banks – banks can to use collaboration with adjacent
new and existing banks would find still control their own destiny: business models to surprise and
ways to grow and enrich the market delight customers. Banks in
overall, or because the established Scenario 1: Digitally Disrupted this category see themselves as
banks would simply acquire the Caught in the headlights of having short term advantages
new players (see figure 3). regulation and cost reduction, the in infrastructure and customer
bank loses out to new players that data, but no long term right to
Yet it’s notable that the remaining
provide more effective financial exist without converting this
two-fifths (a significant minority)
products and services attuned to the into services that solve emerging
felt the future was much more
digital age. The bank continues with digital consumer frustrations.
bleak. One fifth felt that the industry
a product-based sales approach
would become disaggregated, When Accenture started its journey
rather than improving the customer
while the remaining fifth felt with the FinTech Innovation Lab
experience and as a result lacks
that traditional banks would lose in NYC in 2010, no bank we spoke
the motivation to deal with legacy
market share, revenue, scale - and with believed Scenario 1 could
applications. Banks in this scenario
importantly, that margins would happen to them. The overriding
compete for a diminishing share of
fall or banking services would be belief was that providing
wallet as their brands are relegated
added incrementally to non-financial sustainable banking services or
in customers’ eyes to that of
services offerings (see figure 7). sub-services was too complex,
commodity utilities. They continue
to believe in the impregnable risky and regulated for new players
These two camps represent the two
nature of their business model to threaten the existing players.
broad scenarios for the future of
and that fast-following strategies Few banks now feel that the
financial services in the fintech age.
will remain the most successful. outcome of digital is so clear.

Figure 7: Hypothetical banking future

8%
n Banks lose market share
n  Banks are dis-aggregated
20%
n  Financial services delivered at lower margin
56% n Core banking services are added to non-fs offerings
8% n Challengers acquired by incumbents
4% n All players position themselves to add-value
4%
Number of respondents = 25

6
The FinTech Sachs, HSBC, Intesa Sanpaolo,
JP Morgan, Lloyds Banking Group,
Innovation Lab Morgan Stanley, Nationwide,
RBS, Santander and UBS.
The FinTech Innovation Lab is an Graduates of the programme
annual mentorship programme enjoy a number of successes.
for entrepreneurs and early-stage On average, London start-ups
companies that are developing grew staff numbers by 55% and
cutting-edge technologies for increased revenues by 170% since
the financial services sector. graduating from the programme.
The lab brings Chief Information The Lab also sets them up well to
Officers and senior IT decision raise significant levels of capital.
makers from the world’s leading To date, the 14 London graduates
financial services firms together have raised more than $35 million.
to mentor a handful of aspiring
entrepreneurs, and to refine
and test their propositions
over a three-month period.
The FinTech Innovation Lab began
in New York in 2010, founded
by the Partnership Fund for
New York City and Accenture.
In 2012, Accenture launched the
programme in London, and then
Hong Kong and Ireland in 2014.
In London, senior executives from
15 major global and domestic
banks participate, including Bank
of America, Barclays, Citi, Credit
Suisse, Deutsche Bank, Goldman

7
Three behaviours enabling banks
to be digital winners

Our interviews and analysis system, unbundle relevant services, In the retail banking space, French
and build new services based upon bank Credit Agricole launched an
point to three behaviours the bank’s platform facilitating open API as early as 2012, enabling
in relation to fintech considerable innovation. The bank developers to build apps on top of
that banks believe could has also moved into partnership its services, and now has a range of
with foreign exchange specialist apps providing expense management,
allow them to reimagine Currency Cloud4 to offer a current social payment and finance analysis
themselves digitally: account product that can be viewed tools to customers7. Not far behind,
in seven currencies and offers BBVA launched the Innova Challenge8,
Act Open foreign exchange transactions. a competition that involves software
developers building new platforms
Open innovation is at the heart of Similarly, two former senior staff at and apps based on anonymised
the digital revolution, exemplified Simple, the online bank acquired by client data from the bank.
by the open source movement that Spain’s BBVA in 2014, have launched
has supported so much of the new a new business bank in the US called Possibly the biggest opportunity from
technology development in recent SEED which has a customisable taking an open approach to innovation
years. For large organisations this interface5 to better allow small is in the area of the Blockchain,
translates as a process of engaging businesses to develop their own the protocol that underpins the
with external technology solutions, tools and services. Firms have to distributed architecture of the Bitcoin
knowledge capital and resources apply for membership of the bank, at cryptocurrency. It is early days for
early on in an innovation process. which point they can use the bank’s cryptocurrencies, and it is unclear
Often it involves opening up the API to build their own banking tools. what the long-term effects of their
organisation’s own intellectual adoption will be on the financial
property (IP), assets and expertise to Established banks have also been services industry. However, it is clear
outside innovators to help generate getting in on the act, and the open that if established players are going
new ideas, change organisational approach to innovation is gaining to benefit from this revolutionary
culture, identify and attract new skills, significant popularity amongst the approach to finance, they will have to
and discover new areas for growth. survey respondents. Forty percent of engage with a much wider range of
the banks we surveyed already have technical specialists and developers
The open concept is embedded in some open technical innovation outside their own organisations.
many of the new fintech companies’ activities, while another 56% will
approaches. For example, Germany’s set one up in the next two years.
Fidor Bank has established FidorOS3, a
middleware with an open Application A great example in the capital
Programming Interface (API) that markets field is Goldman Sachs’
can connect to existing core banking placement of its proprietary source
platforms to offer a range of modern code on the online collaboration tool
services including lending money to GitHub6. This allows external coders
friends, sending money via Twitter and to try and optimise it, fostering
arranging an emergency 24-hour loan. competition amongst erstwhile
Goldman Sachs programmers
Their open API also allows third and while potentially seeing
parties to access all areas of the bank improvements from their efforts.

8
Collaborate The big challenge and services to be created when
combining the assets of two
The concepts of collaboration – or
for established industries. For instance, mBank,
“co-innovation” – are becoming players is their part of Commerzbank Group and
Poland’s fourth largest by capital11,
more important within the financial organisational partnered with telco Orange Polska
services and technology industries.
This is confirmed by the survey, culture’s ability to in 2014 to begin offering a joint
which reveals that three-fifths of adopt a collaborative (white-labelled) banking service
respondents support the “Digitally for phones and tablets. mBank is
Reimagined” scenario for the
approach with seeking to enhance mobile banking
future, where the addressable new innovators through an app that allows full
market for financial service grows and start-ups. online banking functionality using
a smartphone and a PIN code.
through complementary alliances
between different players.
Yet collaboration will need to The big challenge for established
Traditionally, financial services go a step further in future. In players is their organisational
incumbents have been comfortable order to maintain and grow culture’s ability to adopt a
partnering with others in their value in these times of change, collaborative approach with
own industry - especially where established players should look new innovators and start-ups.
there is an opportunity to share to collaborate more closely with Over half of the respondents to
processes or services that are those in different industries and the survey believe they should
considered “non-core”, and which with different outlooks to identify collaborate “fully” or “extensively”
help all collaborators either new ways to generate value. with other industries, while 80%
reduce their costs or create a believe the value in working with
new market opportunity. Collaborative engagement with start-ups is bringing new ideas
start-ups has already become to their business. Yet 56% claim
There are many examples of these particularly popular. Take the that organisational culture is the
partnerships in capital markets FinTech Innovation Lab model, which biggest area of their business
and retail banking, but the most brings together multiple banks to that needs to change in order to
commonly known examples collaborate and provide mentorship work effectively with start-ups.
are in the payments space. For to start-ups that could potentially
instance, MasterCard was founded help their businesses. And the
by a consortium of banks to FinTech Innovation Lab is not
support interbank card payments alone in this approach. In February
for consumers in 1966, having 2015, Australian banks helped to
realised the potential it had for set up a AUS$2million not-for-
customer service and spending. profit start-up centre in Sydney
Another is SWIFT, the interbank to support new fintech firms10.
payments network founded
in 1973, which functions as a Cross-industry collaboration is also
shared utility owned by banks, a crucial for future value generation.
communication standards authority Digital technologies thrive by
and connectivity systems provider9. enabling interesting products

9
Invest capital invested through their equity
stake, or as a measure of the value
A Desire to Reimagine
Venture investing has always generated for the parent business. Accenture believes that banks
been at the heart of the start-up have recognised the threat posed
While the former measure of ROI is
innovation model. But now more than by digital and that they are avidly
well understood, an investment return
ever, established financial services exploring the opportunities. They
here does not necessarily result in an
firms are taking this route to try have recognised that, as John F.
innovation for the parent business.
and generate innovation for their Kennedy once said, “Those who make
In fact, the two businesses may
business. Corporate venture arms are peaceful revolution impossible will
never collaborate, yet still an ROI on
used by one-third of the surveyed make violent revolution inevitable.”
paper is achieved. But, for the latter
bankers and further third expect to
approach, measuring the innovation Most have also concluded that we
launch one in the next two years.
value for the parent business, are only beginning to understand the
American Express, BBVA, HSBC, there is still no consensus amongst full impact of digital technologies
Santander and Sberbank have all corporate venture arms about how an on society, let alone in the financial
developed corporate investment equity stake can be translated into services space, and that for the
vehicles over the last four years, each improvements in innovation culture, most part early-stage fintech
with at least US$100 million to invest. technology or processes. There is also innovators need the support of
In February 2015 AXA, the insurance the risk that a strategic investment large established banks as much as
and investment management firm, will constrain the bank’s ability to those large organisations need the
launched a €200 million fund to act adopt new technology as it develops. start-ups’ new ideas and energy.
as “an accelerating force for start-up
The fact remains that innovative start- Furthermore, three-fifths of
companies” in its areas of business.
ups have a high innovation quotient, respondents said they were “somewhat”
As with all investments, however, but need capital, and established or “extensively” open to sacrificing
the value can go up as well as financial services firms have lots of revenue in order to move to new
down – and with venture investment capital, but need to increase their business models. And a further quarter
the risks are significantly higher ability to innovate. In such a situation were comfortable with this revenue
than when investing in established it is inevitable that we are now seeing sacrifice to a “minimal” degree.
businesses. Yet there is a further so much interest in financing fintech
complication for a corporate venture companies – and we do not see this Re-imagining a business model
arm, because the return on investment ending any time soon. What has yet to is exhilarating and exhausting.
can be measured in two ways: either be proved is how the innovation flows Many battles must be fought and
as a traditional direct return on back to those that are funding it. won to get momentum, to fail fast
and to learn from mistakes.
In conducting this research we have
discovered a committed sense of
purpose amongst leading bankers
to do just this and we hope the
FinTech Innovation Lab programme
has and will continue to justify
and reinforce this commitment.

10
 Methodology The list of deals included are
Acknowledgements
This report used investment data dynamic and constantly changing, This report and the research would
from CB Insights, a global venture as new companies are added to not have been possible without
finance-data and analytics firm. the database; all publicly known the generous participation of
The analysis included global fund raises for a company, which many people from the financial
financing activity from venture can include earlier rounds, are services industry and beyond.
capital and private equity firms, back filled into the database.
corporations and corporate In addition to this data,
venture-capital divisions, Accenture conducted a survey
hedge funds, accelerators, and of 25 innovation-focused senior
government-backed funds. banking executives from across
The research also includes the banks that participate in
global exit activities of fintech the FinTech Innovation Lab
companies – including M&A London and Dublin. The banks
and IPOs – and a number of involved represent 40% of the
regional tracking dimensions. top 10 global banks by market
Fintech companies are defined capitalisation including two of the
as those that offer technologies world’s top five banks; however,
for banking and corporate these survey responses do not
finance, capital markets, financial represent a statistically significant
data analytics, payments and sample size, and should be used
personal financial management. only as an indicative guide.

CB Insights
1
https://github.com/goldmansachs
6

First Data Holdings, company

2 https://www.creditagricolestore.fr/
7

announcement ‘First Data Announces

http://www.centrodeinnovacionbbva.
8
$3.5 Billion Private Placement
com/en/innovachallenge/home
Led By KKR’, 19 June 2014

Fidortecs.com ‘fidorOS - the fast

3 http://www.swift.com/about_swift/index
9 

and flexible middle ware’ 10 

‘New Knowledge Hub to strengthen Sydney’s
www.currencycloud.com/
4 position as a global financial centre’, http://
case-study/fidor-bank www.trade.nsw.gov.au/, 3 March 2015

‘API Banking With SEED’ http://docs.

5 11 
The Banker magazine, 2014
seed.co/v1.0/docs/getting-started

INNOVATION
11
About Accenture Authors
Accenture is a global management Julian Skan
consulting, technology services Managing Director
and outsourcing company, with Accenture Financial Services
approximately 319,000 people
serving clients in more than 120 James Dickerson
countries. Combining unparalleled Accenture Financial Services
experience, comprehensive Samad Masood
capabilities across all industries and Open Innovation Lead, UK&I
business functions, and extensive
research on the world’s most Key Contacts:
successful companies, Accenture
collaborates with clients to help Stephanie Lee
them become high-performance Marketing
businesses and governments. Accenture Financial Services
The company generated net revenues Stephanie.x.lee@accenture.com
of US$30.0 billion for the fiscal year Francois Luu
ended Aug. 31, 2014. Its home page Media and Analyst Relations
is www.accenture.com. Accenture Financial Services
Francois.luu@accenture.com
For more information about the
FinTech Innovation Lab
www.fintechinnovationlab.com
fintechlondon@accenture.com
@fintechinnolab

Copyright © 2015 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Delivered
are trademarks of Accenture.