According to Goldman Sachs, $4.7 trillion in revenue for traditional financial services is at risk of being displaced by new technology-enabled entrants.
By Anders Christjansen, Senior Advisor, Innovation Center Denmark, Silicon Valley
According to industry insiders, the changes in the financial industry over the coming 10-15 years are expected to be more profound than what has been seen over the past 300 years. As an example, it took a leading bank in Denmark ten years to get 1 million customers for its internet banking platform but only one year to get the same number of users on its mobile pay platform. Investments in Fin Tech are on the rise and peaked so far in the third quarter of this year.
Silicon Valley is playing an increasingly important role in the changing financial industry. To provide some perspective on the area’s importance, in 2013 Fintech investments in Silicon Valley amounted to $4B. This figure grew to $12B in 2014 and is expected to reach more than $30B in 2015. To better get an idea of the potential of Fin Tech, its disruptiveness can be seen at work in the following four areas that impact not only people in the industry but everyone around the world:
- Lending – New forms of lending based on peer-to-peer technology had a breakthrough with credit card loan replacement and are now moving into new segments such as auto and mortgage.
- Payments – are being transformed impacting the entire value chain including devices, wallets, POS, transfers and remittances.
- Personal Finance Management – This is an area impacted by developments in artificial intelligence and the enablement of so called robo-advisers. Brian Moynihan, CEO of America’s second-largest bank by assets, said that most of the robo-advisers are going after investors who aren’t rich enough for the bank to worry about. They are below the bank’s wealth “cut off,” Moynihan said on the bank’s quarterly earnings call, “for lack of a better term.” Over time we’ll see if this holds and if even America’s second largest bank will have to innovate in this space.
- Bitcoin – investments in this field have been cooling off due to the drop in price since the end of 2013 and lately the interest has mainly focused on the underlying technology called block chain. Some analysts compare the potential disruption of the banking world coming from block chain with the revolution that TCP/IP spurred in the sharing of information and the creation of the Internet. A few weeks ago, Nordic bank Nordea joined the international partnership Distributed Ledger Group (DLG). The purpose of the partnership is to develop common standards and applications for using distributed ledger technology as the next generation financial services transaction network. 25 international banks, including Nordea, Citi, Deutsche Bank, HSBC and Goldman Sachs, are collaborating with the company R3 in this partnership.
Furthermore, the insurance area is expected to be an area of major disruption but is somewhat trailing behind the developments in the traditional financial sector.
Over the course of a year, multiple conferences have covered the Fin Tech disruption. The largest event of them all has been Money2020, which was recently held in Las Vegas, Nevada. The next event in this series will be held in Copenhagen Denmark in April 2016 so make sure to stay tuned.
Contact Anders Christjansen for more information.