I was having a debate the other day with two bank CEOs. One runs a direct bank that is going digital and the other runs a branch-centric bank that is investing in digital. At one point in the conversation, we got into a discussion about coders and, in a surprisingly frank dialogue, both CEOs said that coders are the most critical resource for their bank today; coders make the difference.
That’s why Capital One has recently poached Google’s Head of Advanced Technology and Projects Dan Makoski, whilst JPMorgan Chase has been hiring a whole host of Silicon Valley talent including Tim Parsey, a senior vice president of design for Yahoo; Abhijit Bose, one of the founding team who helped develop Google+; and Josh Klenert, a designer of digital applications from the Huffington Post.
As Chase CEO Jamie Dimon puts it: “When I go to Silicon Valley … they all want to eat our lunch. Every single one of them is going to try.” Apparently, in order to avoid having the bank’s lunch eaten, the bank is hiring the best to beat the best.
Rock star coders are the future. They make the difference between a mundane and truly awesome digital service. It particularly interests me now that senior bank executives recognise this, as I had never heard such a conversation between top banking people before.
Mark Zuckerberg is a hero to many, as is Jack Dorsey, but what about Jan Koum, Evan Speigel, Sean Rad or Kevin Systrom? Never heard of them? They’re the founders of Whatsapp, Snapchat, Tinder and Instagram respectively. Also rock stars and billionaires. That’s what happens with a good coder – they can transform fortunes overnight.
So, if banks are going digital and they need reformation, the likelihood is that we will see a few rock star bankers who are pure coders in the not too distant future. But these coders are not necessarily going to work for banks. Many will start up their own firms, specialising in aspects of financial technology or, as it is generally known amongst this group, “fintech.”
This is why I find that almost everywhere I go, there’s a fintech start-up appearing. According to Silicon Valley Bank, the U.S.-based bank that supports investors in new technology ventures, over $10 billion has been invested in fintech start-ups since 2009. This amount has been spread across over 2,000 start-ups and makes it one of the top 10 investment areas for funds globally.
This analysis is echoed by Accenture, which reported that 2013 saw private fintech companies raise nearly $3 billion, more than tripling the $930 million invested globally in 2008, with most focus being upon payment processing companies, financial software and systems that provide strong data analytics for banks.
What is even more interesting is that the places where all this development is taking place are London and California. In 2013, nearly one of every three fintech dollars and one of every five deals went to Silicon Valley-based companies. Europe, meanwhile, accounted for 13% of all fintech funding globally in 2013 and 15% of deals. However, London’s five-year growth trajectory in fintech investments has outpaced Silicon Valley. Accenture’s analysis of European fintech data reveals that, since 2004, the lion’s share of Europe’s fintech deals and financing have taken place primarily in London and that, in 2013, the UK and Ireland represented more than two-thirds of Europe’s total investment in fintech (69%).
With such frenetic activity, banks are waking up to the opportunities in this field as well: SWIFT has an annual Start-up Challenge at SIBOS, with regional contests throughout the year; Barclays recently opened a fintech start up Accelerator laboratory in London; BBVA challenges developers to show their capabilities in an annual competition that offers a €30,000 prize fund; and so on.
Many of the largest banks are creating corporate venture capital firms. SBT Ventures, the venture capital arm of Sberbank, the largest bank in Russia, led the $8 million seed round for Moven, as part of its $100 million investment fund. HSBC’s fund runs at $200 million and Santander’s fintech fund has $100 million in capital. Amex Ventures joined in the financing of personal financial management tool LearnVest’s Series D $28 million investment earlier this year.
Citi Ventures has made two big investments this year: a $32 million Series C round in Betterment, an online financial advisor, and a $38 million Series C investment in Platfora, a company providing Big Data analytics. Finally, BBVA (the bank, not the venture capital group) acquired digital banking app Simple for $117 million, which is another example of the money big banks are willing to spend on fintech start ups.
In total, big banks are forecast to invest over $8 billion in seed funding between 2013 and 2018 so, all in all, this is a hot space to be. And, if you’re not a rock star coder or if you don’t have one, you better move fast as this space is definitely the new competitive battleground for banks.
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