The disruption in fintech is huge, for sure, but to many it is somewhat nebulous. We talk of bank branches closing, Unicorns rising, neobanks growing and everything going online.
Behind the scenes (and about to be in front of the scenes) there is a revolution happening that is a real game changer.
According to Anand Sanwal, founder of CB Insights, it is no coincidence. The disruption in fintech is being accelerated by two factors – the tsunami of fintech capital flooding innovative fintech start-ups and the ‘great financial services unbundling.’
Sanwal points to the number of Unicorns in fintech and it is by far the largest sector for Unicorn creation. There are 162 (out of some 300 or so).
The reason for this and the resulting disruption is how the really big players look at the market. They are only really interested in giant markets and giant opportunities, so they are happy to allow and even nurture smaller, innovative start-ups to launch, say, new BNPL services, or target a certain segment of the market such as home buyers who need to move fast.
The fintech sector is wide and varied and the opportunities in everything from insurance to wealth management (worth an eye-watering $63 trillion by itself) are huge. And the disruption in fintech creates new opportunities to massively scale ideas that the start-ups have proved to work.
The technology giants are at work here, too (they are everywhere). In the past few years, we have seen the creation of five giants, all of whom are worth around a trillion dollars, two of whom are worth over two.
Technology is, of course, the great accelerator. Even ‘legacy’ banks now refer to themselves as technology companies (more of a PR move than a real one perhaps). Thus, technology is also driving the disruption in fintech and, as Sanwal says, it is happening ‘gradually and then suddenly’ – which is how a lot of seismic disruption does happen.
For a decade or so not much happened. Now it is happening at breakneck speed. Unicorns are being created in four years. Stripe and Square (some laughed at their poor IPO performance) are now worth around $100 billion each.
The disruption in fintech is not confined to the US and Europe. Asia saw 2,577 deals done over the past year, resulting in investments of $42.4 billion.
The ‘gradually, then suddenly’ concept not only presents mega opportunities but also real risk. When Apple launched the first iPhone, RIM, the maker of Blackberry, saw nothing to be afraid of. The same is true of Blockbuster, who saw nothing threatening about Redbox or Netflix.
In Q2 last year, 23 Unicorns were created. This year, that figure was 136, up 491%.
The perfect storm of the flood of capital for innovative companies in fintech and the financial services unbundling means that disruption in fintech is now happening ‘suddenly’ and the next few months and years are going to be very interesting to watch.