Which FinTech firms are disrupting UK banking?

In March, Santander Innoventures co-invested – together with Octopus Ventures, Paladin Capital Group, KRW Schindler Private Ventures, and the Digital Currency Group – £3.3m into bitcoin storage insurance provider Elliptic. The company also fights bitcoin crime by identifying suspicious deals.

 

“Elliptic is a game changer for blockchain and is already trusted by some of the smartest minds in law enforcement and compliance” says Kenneth Minihan, managing director at Paladin – and former director of the US National Security Agency.

 

BBVA has made 3 equity investments into SumUp, the London-based mobile point-of-sale payment processing system. The Spanish bank has also made a string of fintech acquisitions, including US company Simple – an online-only challenger bank – and Holvi, a Finnish startup that provides ‘online banking and financial planing services for small businesses’.

 

The Barclays Accelerator, powered by Techstars, is open to teams developing ‘the next generation of technology for the financial services industry’ across a variety of verticals within the space. High-growth companies currently enrolled in the 2016 programme include DigiSEq – a company that transforms any IoT or wearable into a contactless payment device – and Cuvva, the Edinburgh company that provides car insurance by the hour. Cuvva recently made tech headlines, when it CEO likened it to the Uber of car rental.

 

However, the motives behind these collaborations and acquisitions are less transparent. Are banks viewing these new FinTech challengers as a threat, or an opportunity, or both?

 

 

Daniel Doderlein, CEO of Norwegian cloud-based mobile payments platform Auka, warns fellow fintech companies:

 

“If you partner with banks too early on, they can basically poison the well for you – you effectively become a consultant. They take the air out of the innovation balloon and the project dies instantly.”

 

Of course, as with any established player within an industry being disrupted, a bank’s involvement with a high growth fintech company is largely defensive. By making investments, acquisitions, and running accelerator programmes, banks are able to direct, neuter, or quickly incorporate challenger companies.

 

But it’s not quite so one sided. There’s arguably a mutual dependency between banks and the high growth companies. Banks need fintech to remain relevant in today’s tech heavy society. And fintech companies often rely on banks to help launch their product on a large scale.

 

However, the European Commission’s forthcoming Payment Services Directive 2 could tip the scales against banks’ favour. Coming into force from early 2018, the directive aims to disrupt the electronic payments space by forcing banks to open up their IT systems to new entrants, thereby encouraging innovation.

 

“If you don’t provide a mobile payments app to your customers, you risk being marginalised,” warns Doderlein. “It’s going to be a bloodbath.”