BANKS IN­VEST IN FIN­TECH TO OFF­SET DISRUPTORS

▶ Cit­i­group ex­ec­u­tive says start-ups who aim to ‘kill the banks’ have failed

The National - News - - BUSINESS - SARMAD KHAN London

Global banks are in­creas­ingly in­vest­ing in bank­ing tech­nol­ogy as they seek to dom­i­nate the fin­tech space through col­lab­o­ra­tions to off­set the dis­rup­tion from start-ups, the Cit­i­group global head of re­search said.

“Citi is among the top banks along with San­tander and Gold­man Sachs in­vest­ing” in fin­tech com­pa­nies, Ronit Ghose, the bank’s global head of re­search told the Citi an­nual me­dia sum­mit in London on Mon­day.

“The busi­nesses-to-busi­ness space is not done by ven­ture cap­i­tal [firms], it’s done in­house by banks. Of­ten through part­ner­ships, of­ten through in­cu­ba­tors in-house.”

Cit­i­group, with about 200 mil­lion cus­tomer ac­counts across the world, is among top global banks to in­vest in fin­tech firms. Fi­nan­cial in­sti­tu­tions fo­cus on busi­nesses-to-busi­ness so­lu­tions while ven­ture cap­i­tal (VC) firms con­tinue to in­vest in pay­ments and e-com­merce star­tups, Mr Ghose said.

In­vest­ment by fi­nan­cial in­sti­tu­tions in fin­tech is on the rise to counter start-ups with dis­rup­tive so­lu­tions who aim to “kill the banks”, but failed, said Mr Ghose. Lenders glob­ally have re­alised “there are a lot of in­ter­est­ing things hap­pen­ing, so we will col­lab­o­rate”.

The revo­lu­tion of fin­tech star­tups in the emerg­ing mar­kets has been a wa­ter­shed mo­ment for the de­vel­oped mar­kets, he said. Emerg­ing mar­kets reimag­ined fi­nance, while de­vel­oped mar­kets have been fo­cused on re-en­gi­neer­ing the fi­nan­cial spec­trum in ex­is­tence. Com­pa­nies sup­ported by VC fund­ing were mostly fo­cused on de­vel­op­ing so­lu­tions in the busi­ness-to-cus­tomer space, es­pe­cially in the pay­ment so­lu­tion seg­ment of the mar­ket. About 93 per cent of VC in­vest­ments went into re­tail and e-com­merce, he said.

“VC un­der­stands con­sumers. From the VC per­spec­tive, fin­tech is about busi­nesses-to-cus­tomer be­cause the mo­bile de­vices and the smart­phone in the last 10 years have changed our re­la­tion­ship about how we in­ter­act with fi­nan­cial prod­ucts.”

While China has led the way with fin­tech evo­lu­tion, the growth of the in­dus­try has been sub­dued in the Mid­dle East.

The global fin­tech sec­tor has at­tracted more than US$50 bil­lion in in­vest­ment since 2010, ac­cord­ing to Ac­cen­ture, but the Mid­dle East and North Africa re­gion (Mena) has re­ceived about 1 per cent of this fig­ure.

Most of the at­ten­tion fi­nan­cial tech­nol­ogy has re­ceived in the Mid­dle East has been from on­shore fi­nan­cial hubs in the UAE with both Dubai In­ter­na­tional Fi­nan­cial Cen­tre and the Abu Dhabi Global Mar­ket run­ning ac­cel­er­a­tor pro­grammes.

Fin­tech has also grabbed at­ten­tion from in­vestors like bil­lion­aire Mohammed Alab­bar, who plans to in­vest in the emerg­ing tech­nol­ogy firms from the broader Mena re­gion and Tur­key through Mid­dle East Ven­ture Part­ners. The firm has al­ready launched a $250 mil­lion fund to in­vest in the tech­nol­ogy com­pa­nies.

The VC in­vest­ments in Mena were less than 0.03 per cent of the GDP in 2016, sig­nif­i­cantly lower than 0.2 per cent in In­dia and 0.4 per cent in the United States. Bil­lions of dol­lars in an­nual in­vest­ments are re­quired in the VC space to bring the Mena re­gion, where there has been a sig­nif­i­cant rise in de­mand for tech­nol­ogy prod­ucts and ser­vices over the past few years, in line with other parts of the world.

Still, with all the in­vestor at­ten­tion and push by fi­nan­cial hubs, the Mid­dle East is far be­hind the global leader China, where Ten­cent, one of the big­gest in­vest­ment cor­po­ra­tions and one of the largest in­ter­net com­pa­nies, has amassed more than 600 mil­lion ac­tive cus­tomers.

“No one gets close to that,” Mr Ghose said. “Hy­per-scal­a­bil­ity, the speed at which these com­pa­nies have on-boarded clients is some­thing we haven’t seen. It took us [Citi] about 200 years to get 100 mil­lion clients,” he said. Other emerg­ing mar­kets com­pa­nies, such as Ali­pay, has 400 mil­lion users, while, the Kakao Bank in Korea, had 1 mil­lion clients signed up in a week, he added.

“China is the Gala­pa­gos of fin­tech,” he said.

The coun­try cre­ated a mid­dle class, its e-com­merce sec­tor took a start from a stand­ing po­si­tion to be­come the world’s big­gest mar­ket and mo­bile pen­e­tra­tor, which ri­vals mar­kets like the UK, con­tribut­ing to its suc­cess in the last decade.

“Re­ally unique things hap­pened in China which is why it won’t be repli­cated one-for-one ex­am­ple in In­dia or the UK,” Mr Ghose said.

The suc­cess in emerg­ing mar­kets has caused a few prob­lems for banks in the de­vel­oped world who are fac­ing the pres­sure on mar­gins and may face the risk of los­ing some of their clients.

Bloomberg

Global fi­nan­cial in­sti­tu­tions such as Cit­i­group are in­vest­ing more in bank­ing tech­nol­ogy

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