Corporate investors disagree on whether tech companies are competing with banks or helping complement the services offered by traditional banks as they rush into financial technology, “I think it’s more friendly than anything else,” said Jai Das of Sapphire Ventures, which is the venture capital arm of SAP. “At the end of the day, I think [tech companies are] filling a niche that the banks just do not address right now.”
“I don’t see how it could be friendly,” said Nagraj Kashyap of Microsoft Ventures, who expressed his group’s interest in fin tech. As an example, he noted that by targeting banking inefficiencies and helping underbanked customers access lower interest rates, startups like Even cut into existing bank revenue streams.
We’ve covered this trend in our unbundling the bank research “We’re not entering this market to make friends,” Kashyap added. “That’s what disruption is all about.”
The panel at CB Insights’ Future of Fintech Conference yesterday moderated by Chris Bishko of Omidyar Technology Ventures also included Brendon Kim of Samsung Global Ventures (center in the photo above, with Das to his left and Kashyap to his right). The panelists discussed the high potential for tech firms to establish fin tech service channels in the developing world, while noting the US market may be a longer play, given the deep penetration of credit card tech and the associated banking and payment processing infrastructure.
“The US has fairly well-established infrastructure, so new methods need to be so, so much better than what we’re already doing,” noted Kashyap of Microsoft. “Data from the US shows most [fin tech-based payments] are substituting for other methods, while in places like India it may be a net new payment that didn’t exist in the past.”
“In the US it will always be harder, because there’s always already someone established,” said Das of Sapphire. “I think it’s the long game… [but] there’s always more money in the US.” The speakers agreed services like Apple Pay and Google Wallet, despite waves of press attention, have shown minimal value-add in the US as compared to swiping a credit card. Furthermore, consumer adoption follows merchant installation, and merchants need a convincing reason to invest in new infrastructure to support fin tech payment methods. In Asia, Das noted, tech-enabled financial services have quickly evolved to become integrated platforms. Companies like Ant Financial and Alibaba have created integrated platforms that bring together merchants, consumers, and payment processing, which means all participants have an instant reason to adopt the technology, and less downside. Most US fin tech startups instead focus on one slice of the banking or payments ecosystem, often meaning that merchants and/or consumers are forced to navigate the switching between platforms (and accumulating fees) as they complete transactions. Rather than making users “move in and out of different apps” for different types of transactions, said Kim of Samsung Ventures, “whoever has a lean interface … with one UX,” will be most successful.