Fintech: Collaborate rather than compete, says VC

• Fintech, FSIs want to cooperate to innovate for the good of the industry
• Regulation, compliance are minefields that fintech startups must note

FINANCIAL technology (fintech) has been hailed as the next frontier in the financial services industry (FSI) and rightfully so as it has the potential to shake up incumbent businesses. But fintech isn’t just about disruption to FSIs, according to a venture capitalist.

Speaking at a forum at the recently concluded Oslo Innovation Week (OIW), veteran Norwegian venture capitalist Tellef Thorleifsson (pic, below), co-founder and general partner of Northzone, noted that there is great potential and “a lot going on” for fintech but it is not all that straightforward.

“There is huge growth and a lot going on [in fintech] but it's not as rosy [as people think],” he said during a panel on Getting Fintech Right. “There is a need to scale up on skill and market knowledge.”

Thorleifsson, who has been investing in technology since 1996 and counts amongst his investments  Kahoot, Fusetools, mCASH, and Distribusion, said there are fintech startups that are directly challenging banks because these FSIs, which should be venturing into new financial services, aren’t doing so.

He noted that while chief executive officer (CEO) of JP Morgan Chase Jamie Dimon was famously quoted as saying, “Silicon Valley is coming [to Wall Street] and big banks like Chase has to change fast or partner with startups to retain relevance,” not all startups are challenging incumbents aggressively.

Many fintech startups just want to form symbiotic relationships – either by selling their solutions or partnering with FSIs – with existing incumbents, he added.

For example, startups such as BehovioSec sell the solution to banks and large incumbents on a business-to-business (B2B) basis, he noted. Sweden-based BehovioSec uses behavioural biometrics to help banks authenticate their customers. 

 

And then there are incumbents that are actively partnering with fintech companies, such as HSBC with UK-based marketinvoice, a business finance intermediary. marketinvoice allows small businesses to sell their unpaid invoices to provide working capital, Thorleifsson said.

Finally, Thorleifsson said companies such as Swedish startup iZettle, which provides micropayment services via an app and card readers, are directly invested by FSIs the likes of MasterCard and American Express, he added.

To see if this trend is true here in South-East Asia, Digital News Asia (DNA) reached out to fintech industry professionals within the region.

“Yes, this is true to a large extent,” says one co-founder of a fintech company. “It’s not all about challenging big banks. Startups may have the agility to harness and develop technology faster but that doesn’t mean we’re in it to take down banks.

“We’re in it to innovate but we still need banks to partner with as they still have the brand, customer base, financial might, distribution channels and regulatory know-how to help us succeed.”

Said another senior industry insider in the FSI sector, “Many fintech startups are open to partnership with larger traditional FSI players and IT vendors because contrary to popular belief, they don’t necessarily see them as competitors, and most banks C-level and fintech founders are willing to work together.”