International Corporate Finance

INTERNATIONAL CORPORATE FINANCE EXECUTIVE SUMMARY

 TWO EUROPEAN COUNTRIES AMONG THE TOP 5

Countries with the highest Fintech transactional value in 2016

Source: Statista

0 100 200 300 400 500 600 700 800

US 769

CHINA 443

UK 167

JAPAN 137

GERMANY 117

 According to The Finanser, the poten-

tial of Fintech has been well noticed by the

conventional banking sector, and 43% of

banks around the globe are planning their

own startup programs to incubate Fintech

companies. Another 40% are either setting

up venture funds to finance such compa-

nies or simply partnering up with leading

firms in this space. Acquisition as an option

of already established Fintech players is on

the cards at only 10% of global banks.

The low operating cost structure resulting

from a branchless network is key to the

success of Fintech firms operating in the

peer-to-peer/online lending and mobile

wallet space. However, lending money

and providing access to financial services

at leaner terms to those who would

otherwise not be eligible poses a risk of

default. This is not an impediment to the

growth of Fintech. Not lending is not the

solution, but establishing adequate len-

ding and investment limits as well as

sticking to those in boom times is.

Digital banks are another example of Fin-

tech players in the market which are on

the verge of disrupting banking as we

know it. For a long time, the term “digital

banking” has been used to refer to an app

that a regular bank would provide for its

customers’ mobile devices, which would

in turn help the customers track their

monthly payments, transfers, balances

and so on. This was the effect of an 84%

increase in innovation investment on the

part of traditional banks, between 2013

and 2015, in order to keep up with the

ever-evolving banking habits of millen-

nials, according to Fintech News. Recently,

UK based banking startup, Mondo Bank

created history by completing the fastest

crowdfunding ever, reaching its £1 million

fundraising target in just 96 seconds. This

mobile bank had 1,861 individuals invest

an average of £542, which stirred up the

digital banking field.

Mondo’s initial success gave new energy

to the founders of Fintech startups like

Atom Bank and Starling Bank, who had

already started creating mobile banks

from the ground up without having ac-

tual physical establishments in order to

reduce operating costs and live up to the

expectations of providing an application

and/or a website that is truly mobile. The

fact that there are currently more than

83,000 people in a virtual queue, waiting

for a chance to sign up for the Beta trial

version of the Mondo Bank app speaks

volumes about the effects it has had on

its target audience. It demonstrates a

changing market perception that there is

indeed a need for innovation from both

new and traditional banks, in order to

provide flexibility and alternatives to le-

vel the playing field.

The whole process of banks going digital

started in the aftermath of the 2008 fi-

nancial crisis, when the Bank of England

loosened regulations, which led to a new

breed of competitors coming into the

market. In 2013, in an attempt to intro-

duce more competition into an industry

that was progressively being seen as im-

peding transparency from the outside and

had almost lost touch with its customers,

the Bank of England revealed a simpli-

fied two-step process with lower capital

requirements for setting up new banks.

Fast forward to 2016, and some of these

new age banks are already on the verge of

getting actual licenses to handle the pu-

blic’s money. By creating the possibility of

taking brick and mortar branches in ex-

pensive locations out of the equation, the

market is now open to challenger banks

which can focus on providing easy to

set up accounts in the palm of their cus-

tomers’ hands, more attractive rates/fees

and encrypted security systems to protect

its customers’ liquid assets.

While banks have expertise in working

with regulators and provide vast cus-

tomer bases, Fintech startups come with

agility, innovation and flexibility. These

complementary skillsets, if leveraged,

could in turn create a better financial ex-

perience for customers and incite the

banking sector to innovate.

New Age Digital Players Enter the Banking Space

$bn