Fintech and the evolving landscape

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This is one reason the FinTech Innovation Lab, sponsored by Accenture and the Partnership Fund for New York City, which brings leading financial services firms together to identify and mentor the most promising fintech innovators, is such an important part of the growing ecosystem (see Sidebar 3). Now in its sixth year, The FinTech Innovation Lab has produced many successful collaborations for banks, with more than 90 graduates across the four Lab locations: London, New York, Hong Kong and Dublin. The ratio of competitive versus collaborative investment throughout the world differs dramatically from market to market. For example, the shift to collaboration has been particularly strong over the last five years in New York, where the proportion of investment in collaborative fintech companies has grown from 37% in 2010 to 83% in 2015. However, in the UK, where the regulatory environment is more favourable for those looking to compete directly with the industry, this trend is reversed, with more than 90% of investment going to would-be competitive fintech companies. Whilst the UK does not explicitly favour competitive fintech companies, initiatives such as the FCA’s Project Innovate 3 have helped to lower the barriers to entry for these firms. Interestingly, although not as pronounced, these trends are reflected regionally whereby the investment dollars have moved towards more competitive firms in Europe and more collaborative firms in North America, and to a lesser extent in APAC (Exhibit 6). Even though investment dollars still tend to favour those looking to compete with the industry, many are quickly acquired by or take significant investment from incumbents once market traction has been proven, and even sometimes before. For example, Atom bank – a UK mobileonly bank – will launch in 2016 after receiving a $68 million investment in exchange for a 29.5% stake from BBVA 4 . Nevertheless, while more fintechs wish to cater to the needs of the banking industry, they are not seeing reciprocal investment from banks in their businesses. Last year, banks participated in less than 10% of all reported fintech deals, totalling less than $5 billion. This pales in comparison to the $50 billion these banks spent on new technology investment during the same period (Exhibit 7). It is not possible to analyse how much of this $50bn is being spent on new forms of financial technology, or indeed invested in new home-grown bank intellectual property, but we believe from anecdotal evidence that much of bank investment remains tied up with adjusting legacy technology. Furthermore, banks continue to employ a static method of annual investment allocation for activities designed to ‘Change the Bank’. As a result, we observe that bank employees are encouraged to protect their existing multi-year programmes rather than adopting new technologies as quickly as those in specialist processing companies and other competing business models. This relatively low participation in external investment, combined with constraints on ‘Change the Bank’ internal investment now poses a significant risk to incumbent banks. subsequently hindering their ability to win the battle for customer relevance and radically improve the efficiency of banking transaction platforms. Exhibit 5: Collaborative Fintech Investments vs. Competitive Fintech Investments, 2014/15 ($M) 18,150 % Ch. 15-14 44% +138% 11,642 Collaborative 29% Competitive 71% 56% +23% 2014 2015 Note: total excludes Other segment Source: Accenture analysis on CB Insights data 3 https://innovate.fca.org.uk/ 4 “UK Mobile-Only Atom Bank Picks Up $128M Led By BBVA, Owner Of Simple In The U.S.”, Techcrunch.com, November 24, 2015. Factiva, Inc. All Rights Reserved. 6
The rise of InsurTech While fintech is relatively pervasive in banking and capital markets, it is still nascent in insurance. In 2014, tech companies targeting the insurance space received less than $800 million in funding, but in 2015 insurance tech start-ups attracted more than three times that, receiving approximately $2.6 billion. Most insurers are still tied to a business model based on pooling risk, calculating average pricing and generating gross premium income, which is increasingly threatened by digital technologies, such as wearable devices, smart objects and connected cars. However, these technologies also offer insurers a new, rich data source, providing new possibilities for underwriting, enhancing the customer experience and cutting costs. For example, Oscar Health Insurance partners with wearable-device company, Misfit, reward fit customers by automatically linking their biometric information to their health insurance. Meanwhile, Censio has developed software that automatically monitors and measures drivers’ data for auto insurers, which has been adopted by Progressive, a US-based insurer. Exhibit 6: Collaborative Fintech Investments vs. Competitive Fintech Investments, 2010/15 ($M) Collaborative Competitive Note: total excludes Other segment Source: Accenture analysis on CB Insights data Exhibit 7: Global Banks’ IT Investment by Type, 2015 Bank IT spending for new investments ~ $50Bn Fintech Investments ~ $22Bn 92 38% 62% Europe North Amerca APAC 2,897 1,118 11,387 43 3,781 14% 86% 2010 2015 Value of fintech deals with banks as investors ~ $5Bn 40% 60% 60% 40% 2010 2015 7% 93% 16% 84% 2010 2015 Source: 1. IT Spending in Banking, A Global Perspective, Celent, February 2015 2. Digital Disruption: How FinTech is forcing Banking to a tipping point, Citi, March 2016 3. Accenture analysis on CB Insights data InsurTech 7
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Fintech and the evolving landscape

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