NEW YORK: Technology companies raised almost $1bn of investment last year to compete with British banks, according to a new report.
More than 90 per cent of the investment was going into financial technology companies that were direct challengers to traditional lenders, said Accenture, the consultancy firm.
The trend in Britain stands in contrast with other countries, such as the US, where 83 per cent of investment went into fintech companies seeking to collaborate.
“London in particular presents a welcoming regulatory environment for competitive ventures, making it a preferred market to test their propositions. But this is also a reflection of market maturity,” said Richard Lumb, head of financial services at Accenture.
“While markets like the US have tilted toward collaborative ventures in recent years, Europe is earlier in the fintech development cycle and is likely to become more collaborative over time,” he added.
Digital competitors in the UK such as TransferWise, which offers low-cost overseas money transfers, have emerged over the past few years to fill a gap left by the banks and fulfil customer needs.
The report warned that banks risk losing “the battle for customer relevance” if they do not work with fintech companies and invest in technology.
The problem for many traditional banks is that they are forced to spend significant resources supporting their existing technology platforms that are often decades old.
Tim Levene, founder of Augmentum Capital, which invests in fintech, said: “Existing financial institutions will find themselves at the centre of this disruption with innovative consumer propositions that threaten their dissatisfied customer base.”
Traditional financial companies are “often blighted by legacy problems with their systems, [and] are overwhelmed with regulatory and compliance challenges”, he said. “Many of the most talented innovators do not want to work within a traditional bank or an insurer.”
“However, the industry is waking up to the challenge and is trying to embrace change,” he added.
Atom Bank launched in Britain last week as the first mobile-focused operator in the UK. Mark Mullen, its chief executive, said Atom is aiming to “offer a genuine alternative to the insidious and self-interested banks that dominate the UK banking landscape”.
BBVA, the Spanish bank, took a stake in Atom at the end of last year before it had launched, in a sign of traditional companies backing technology start-ups to keep abreast of digital innovation.
The Accenture report showed there is still a low level of investment by banks. Last year, banks participated in less than 10 per cent of all reported fintech deals, totalling less than $5bn.
Mr Lumb said: “Banks need to recognise this as an opportunity to engage and study the competitive fintech players.”
Although Britain is the dominant fintech centre in Europe, Germany and France surpassed the UK’s investment growth rate last year, Accenture said.
The British government announced on Monday the launch of an industry-led panel that aims to ensure the country stays at the fore of financial technology developments.
