Last year, we saw a surge in financial technology (fintech). The technological development, together with changes in consumer behavior and expectations of Millennials, has resulted in the founding of many and diverse fintech start-ups, some of which have made major changes in the consumption of banking services.
Banking has become increasingly digitalized, and financial services which were once the preserve of banks are now made accessible to customers by startups which offer simplicity and an improved customer experience across a range of banking services, from loans, through trading and investment, to payments and money transfers, and more. The services are also offered on the basis of business models and at prices that challenge the models of traditional banks.
Global investment in fintech has jumped by 46% a year since 2010, to $13.7 billion in 2014. More than 12,000 fintech startups have been founded worldwide, and accelerators for fintech entrepreneurs are established every day somewhere in the world.
Traditional banks have realized that a bank-fintech startup connection has immense potential for creating value for both sides. Banks gain innovation and technological flexibility, and startups are given the chance of leveraging the banks’ knowhow and infrastructures to create suitable markets.
This realization has resulted in the drawing up of several strategies, some of which the world’s top banks are already implementing. “If you can’t beat them, join them” is as valid an adage in fintech as anywhere else. Diversified strategies signals a change in attitude and a switch to more open banking in which financial services are offered to bank customers by third parties.
The banks’ strategies run along an axis of a bank’s commitment to a startup. At one end of the axis we see banks cooperating with accelerators, such as Techstars, Startupbootcamp, and Accenture’s FinTech Innovation Lab. At these accelerators, a bank gains experience working with fintech companies and gives them exposure and experience, but the bank’s level of commitment is limited. A strong commitment is found at the end other end of the axis, and there are direct collaborations between a bank and startups, including investments in and acquisitions of startups.
In the past three years, banks around the world have establishing fintech investment funds with $1 billion in total assets. Top banks in this area are Banco Bilbao Vizcaya Argentaria SA (NYSE; SME: BBVA), which has invested in 13 startups to date, including one of the leading robo advising companies, Personal Capital, and acquired digital banking experience company Simple. Russia’s Sberbank (MCX: SBER) and Spain’s Santander SA (NYSE; BME: SAN; LSE: BNC; Euronext: SANT), as well as HSBC Holdings plc (LSE: HSBA; NYSE: HSBC; HKSE: 0005), and Citigroup Inc. (NYSE: C) have also founded $100-200 million investment funds and become active fintech players.
As part of the worldwide fintech trend, Israel has become an important global fintech center, developing ecosystems that accelerate development in the industry as a whole. The Office of the Chief Scientist has declared fintech a strategic target, and multinational banks, such as Citi and Barclays plc (LSE: BARC) have established innovation centers and accelerators. Independent institutions spotting the business opportunity have also established accelerators, there are fintech-focused investment funds, and the number of fintech start-ups is growing along with the interest of foreign banks and financial institutions.
Bank Hapoalim (TASE: POLI) was the first Israeli bank to launch a fintech program to open the bank’s doors to outside innovation. During the bank’s three years of fintech activity, we have created an organized and extensive relationship with start-ups and intensified our commitment toward the companies. We have undertaken proof of concept (POC) procedures with a great many companies, installed diverse technologies as part of offering value to customers, and, as part of the bank’s fintech strategy, we have made direct investments in five companies with strong growth potential big data company ThetaRay Ltd.; capital market e-trading company Tipranks Ltd.; smartphone bus fare payment app developer HopOn; social payments solutions developer Paybox Ltd.; and e-wallet anti-fraud solutions developer OffLA Ltd.
Bank Hapoalim is now, for the second time, kicking off one of the most prominent acts that expresses its leadership in the switch to open banking. Following the success of the BankAPP competition last year, for which 1,000 entrepreneurs signed up, BankAPP2 a competition to develop mobile financial apps based on the bank’s unique Open API - is being launched. The competition allows entrepreneurs seeking to invent the next financial app to obtain access to the bank’s information and capabilities under the required privacy protection and information security blanket.
BankAPP2 will focus on diverse banking content worlds with an eye to the future: adapting apps for digital customers seeking a new banking experience; solutions for small and large business customer needs; consumer and payment apps; and other creative solutions across the financial and banking fields. The participants in BankAPP2 will receive expert advice from bank and Israeli high-tech executives, who will help them hone their ideas to achieve an applied high-quality product.
We at Bank Hapoalim consider the expanding openness and cooperation with fintech entrepreneurs and start-ups as an important growth engine for the bank, and one of the critical means to strengthen its leadership in the banking of the future. We are witness to the strengthening of our fintech activity and we will continue to support the development of the fintech industry as a key pillar for Israel’s high-tech industry.
The writer is a VP and Head of Corporate Strategy at Bank Hapoalim
Published by Globes [online], Israel business news - www.globes-online.com - on November 22, 2015
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