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Fintech Updated: 26 Sep 2018

The 'fintech' revolution: A threat for banks or an opportunity?

“Strategic alliances with fintech players” was one of the points highlighted by Carlos Torres Villa, COO of BBVA, at Money 20/20 Europe, the event of reference for the fintech sector, which held its first European edition in Copenhagen. At the meeting in Denmark, Torres Villa insisted that "BBVA will have an increasingly more important role in the innovation ecosystem thanks to our internal initiatives, our strategic alliances with fintech players and the use of our platform to build open APIs as a lever for growth".

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The relationship between banks and fintech companies is guiding the debate in the financial ecosystem. The article in The New York Times “Fintech firms are taking on the big banks, but can they win?” questions what the real threat is for banks.

“The real threat to banks is not from Washington or Brussels, but from startups all over the country creating interesting fintech startups that are chipping away at key parts of their franchise” said Steve Case, a founder of AOL and an entrepreneur with investments in several fintech businesses, who just wrote a book about the future, The Third Wave .

The data from Citigroup highlight that 19 billion dollars were invested in the fintech sector last year, up from only 1.8 billion five years ago. The New York Times defines the role of fintech firms: the promise of all these new technologies is to fundamentally disrupt the biggest players in finance.

That is why companies like Stripe, a payments company, hope to become replacement for PayPal and others. Lending Club wants to make getting a loan cheaper and easier. Wealthfront wants to advise you and manage your money from your phone. And, of course, Bitcoin and its many derivatives want to be the new gold, or better yet, digital cash.

According to another Citigroup report, the fintech firms may be on the cusp of an "Uber moment". According to the report, in a decade some 800,000 people will lose their jobs at financial services companies.

"Roughly 60 to 70 percent of retail banking employees are doing manual processing-driven jobs", as stated by the report. "If all the current manual processing can be replaced by automation, these jobs can disappear or evolve".

Others are less convinced. Wall Street denizens like the banking investor J. Christopher Flowers have declared that the fintech frenzy is simply that: hype that defies common sense and will leave a trail of failed companies in its wake.


A third view may have the highest likelihood of coming true: the big banks, so powerful and yet so anxious about the possibility of being disrupted by the upstarts, will gobble them all up in a spate of merges and acquisitions that puts the disrupters squarely inside the institutions they were supposed to overtake.

Witness JPMorgan Chase’s recent alliance with OnDeck, an online lending platform for small businesses. Rather than build the technology to squash OnDeck, JPMorgan became OnDeck’s “partner". For JPMorgan it is an experiment that gives it the chance to collect information and learn from the nascent fintech lending space and, supposing everything goes well, it may lead to the purchase of the company.

This is not to say OnDeck will be a willing seller, but given the money sloshing around in the financial services industry, it’s hard to believe that banks won’t be willing to pay big premiums. The fintech companies that are successful are still quite small. OnDeck is worth about $500 million; JPMorgan’s market value is $214 billion.

In fact, the valuations of fintech companies has fallen recently, like those of other private Silicon Valley companies.

The crucial question for the fintech industry is whether these businesses can grow fast enough while maintaining a disciplined approach and navigating the thicket of regulatory hurdles that very likely will stand in the way. Silicon Valley has always shunned regulated industries, but after having conquered a large part of the landscape in other industries, it now focuses on finance.

"Some banks will be smart and learn how to become partners with some of these entrepreneurs or acquire some of these companies or do joint ventures, but if they just think it’s going to stay the way it is, they will be surprised,” Mr. Case added.

The BBVA path

Leaving the debate to one side and returning to Torres Villa, these are the key points guiding BBVA so it does not get left in the background and learns to give its customers what they want

- Internal incubator. Designing, developing and applying internal initiatives with the collaboration of 'intern' entrepreneurs or developing projects in conjunction with strategic partners.

- Strategic alliances with fintech players. The goal is to explore new business opportunities, technologies and to share knowledge. BBVA already has alliances with startups like OnDeck or Dwolla and continues analyzing new possibilities in areas such as loans, payments or authentication.

- Digital M&A and direct investments. BBVA has reinforced its capacities and expertise in design, big data and user experience through the acquisition of innovative business models, such as Simple, Atom, Holvi or SpringStudio.

- Venture capital. In the current year, BBVA has reorganized its investments in venture capital through Propel, a new independent vehicle, whose mission is to invest in startups that will revolutionize financial services.

- Open platform. BBVA is committed to financial innovation. The Open Platformstrategy involves placing banking services in the form of open APIs at the disposal of fintech players so they can streamline their own developments, which will be provided with support for scalability, risk, regulatory compliance and processing by BBVA.