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It may seem an odd time for the Financial Times to launch its Future of Fintech awards.

Since the start of the year, sceptics have been asking whether the “fintech” bubble is bursting. A crisis at Lending Club, the biggest online lender in the US, has been pounced on by critics to argue that the potential for digital upstarts to seriously disrupt the financial services industry has been greatly exaggerated.

Shares in many of the biggest peer-to-peer or ‘marketplace’ lenders have been hit by a corrosive combination of rising borrower defaults and shrinking investor appetite for their loans as well as concerns about governance lapses and a looming regulatory clampdown.

This has prompted some experts, including auditors Deloitte, to declare that these digital platforms lack the scale and competitive advantage to mount a serious challenge to the old guard.

Meanwhile, the big banks — often portrayed as being paralysed by a spaghetti of legacy IT systems — are fighting back. Recent examples include JPMorgan Chase’s tie-up with OnDeck Capital to offer digital loans to its small business clients and Goldman Sachs’ launch of online savings accounts for retail customers.

Yet the FT believes that fintech has substance as well as hype. Here are five reasons why digital innovation is likely to produce the biggest upheaval in financial services since the credit card was invented more than 60 years ago.

1. Finance is ripe for disruption

Paul Volcker, former chairman of the US Federal Reserve, summed it up soon after the financial crisis when he told a room full of stunned bankers: “The most important financial innovation that I have seen the past 20 years is the automatic teller machine, that really helps people and prevents visits to the bank and it is a real convenience.” Banks remain deeply unpopular. Their business models are under threat from tightening regulation and low interest rates. Profitability has for years lagged behind most banks’ cost of capital. If ever an industry was ripe for disruption, this is it.

2. Regulators are pushing for change

From New York and San Francisco to London and Singapore, politicians and regulators are competing to attract the flashiest fintech start-ups to their cities. Digital upstarts are being courted to provide much needed competition for the traditional banks. In the UK, for instance, the Financial Conduct Authority has created a “sandbox” allowing start-ups to experiment in a regulatory-light space. A European Union directive is set to force banks to make customer data more freely available to so-called “digital aggregators” that allow consumers to manage all their financial matters via a single application and to compare products more easily.

3. Money keeps pouring in

Venture capital funding continues to pour into fintech companies in ever-greater volumes. VC-backed companies raised $14.4bn of financing last year — almost double the previous year — according to a report from KPMG International and CB Insights. Funding doubled again to $4.9bn in the first quarter of this year and since then Ant Financial — the fintech arm of Chinese ecommerce group Alibaba — raised $4.5bn, making it one of the world’s most valuable private technology companies. “We are starting to see fintech move into the megadeal space,” said Warren Mead, global co-leader of fintech at KPMG International.

4. Big name bankers believe in it

The list of top tier bankers who have joined the fintech crowd is impressive. Since stepping down as co-head of Deutsche Bank last year, Anshu Jain has become an adviser to SoFi, one of the biggest US online lenders, and now plans to launch a similar venture in India. Equally, Antony Jenkins is launching his own fintech start-up a year after quitting as Barclays CEO. Other big name bankers that have switched into fintech include Vikram Pandit, the former Citi chief, John Mack, the ex-Morgan Stanley boss, and Blythe Masters, who left JPMorgan to lead a blockchain start-up.

5. It is happening already

Marketplace lenders issued $23.7bn of loans globally in 2014, of which half were in the US and almost 40 per cent were in China, with most of the rest in the UK, according to Deloitte. That represents a compound annual growth rate of 120 per cent since 2010. While these loans remain a small fraction of the total loans from banks, they will soon become systemically significant if growth continues at the same pace. In China, the growth of mobile payments by the likes of Alipay and Tencent is already staggering, rising fivefold to Rmb6tn ($960bn) in 2014, according to iResearch.

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