The global flourishing of financial technology (fintech) shows that the financial services industry is changing and accelerating every day. Technology drives the change and creates a broad cushion for activity of new players. In a short time and with limited resources, entrepreneurs can develop financial services or apps and get them to market. This creates a new living space for financial technology companies, which have the potential of connecting banks with technology start-ups.
The traditional financial industry realized a long time ago that investment in technology was a critical factor for further growth. This is seen in the dramatic increase in technology investments by financial institutions in recent years. Banks all over the world are becoming an active and dominant player in the fintech industry. They establish and are in involved in fintech activities in order to gain exposure to external technological innovation and install new technologies developed by financial start-ups.
Some leading international banks, such as Citigroup Inc. (NYSE: C) found their own independent accelerators, while others prefer to participate in programs managed by external parties, such as the Accenture Inc. (NYSE: ACN) FinTech Innovation Lab in New York and London, in which JPMorgan Chase Inc. (NYSE: JPM) and Barclays Bank plc (LSE: BARC) are among the participants. In addition to exposure to innovation, banks around the world are seeking to leverage the potential of financial investment in fintech. In 2013, Sberbank of Russia and Spain’s Banco Bilbao Vizcaya Argentaria SA (NYSE: BMAD: BBVA) each invested $100 million in a fintech venture fund.
The link up of banks and fintech start-ups has huge potential for creating value for both parties. The banks gain innovation and technological flexibility; the start-ups are given the chance to leverage the banks’ knowhow and infrastructures to shorten the road to market. Close training by bank experts, the possibilities for design partnerships and beta tests in a real production environment, and exposure to a large mass of customers are critical factors for a start-up with limited resources.
Two years ago, Bank Hapoalim's (TASE: POLI) strategic division in collaboration with Poalim Capital Markets’ technology division launched a fintech program to create this kind of connection between the bank and start-ups. In this way, the bank is exposed to innovation and can install new technologies as part of its offer of value to customers, while the new technology companies gain, at early stages, access to an important platform for building a product and the company toward a breakthrough in international markets.
In addition to installing the technology at the bank itself, a fintech investment fund was also launched with the objective of enabling Bank Hapoalim to invest in companies it sees during their work together as having potential international success. In the past year, a group at Bank Hapoalim has successfully installed ten new technologies of start-ups. A number of cyber companies in the design partnership stage are making progress with the bank, including Theta Ray Ltd., in which the bank has also made a financial investment. In these processes, the company receives intensive support from the bank’s experts to design the product to meet market needs.
Another example is the installation of the technologies of Personetics Ltd. and Walk Me Ltd. on Bank Hapoalim’s site as tools to improve the user experience. Successful joint work with a local financial institution constitutes proof of ability for the company about its product’s promise and ability to integrate with a large company’s computer system. These are valuable assets for a start-up in the growth stage and suggest its potential for success.
Global investment in fintech ventures has tripled in the past five years from less than $1 billion in 2008 to nearly $3 billion in 2013, and will continue to grow. The link-up between banks and fintech start-ups generates immense motivation for markets to continue to invest in and develop the fintech industry. Continued local support for the fintech industry through government support, private investments in fintech ventures, such as Bank Hapoalim’s fintech program, will contribute ensure Israel’s dominance in this industry.
The writer is the manager of the fintech program at Bank Hapoalim’s strategy division.
Published by Globes [online], Israel business news - www.globes-online.com - on June 26, 2014
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