Why FinTech Startups Get The Scraps Of Bank Investment

The financial technology sector is one of the hottest investment spots in the game, but you won’t often find banks jumping in on the action, according to a new report that surveyed 40 FinTech startups across 23 nations.

According to researchers, FinTech startups are most likely to see financial support in the form of an acquisition by major technology conglomerates like Google or Apple. The second-most likely funder is an already established payments technology vendor. Banks, on the other hand, are least likely to acquire these innovators.

“Large, regulated organizations answering to shareholders are not typically breeding grounds for innovation,” said one startup leader among the survey, the results of which were outlined by the Payments Innovation Jury Report.

But there’s a logical explanation for mainstream banking’s FinTech funding apprehension. According to the chairman of the Jury and the report’s author John Chaplan, “most FinTech firms partner with and/or supply multiple banks and therefore, being owned by a single bank could be a problem,” he said, adding that there are some exceptions to the rule, including Barclays’ takeover of Logic Group and BBVA’s acquisition of Simple.

These deals, however, are rare, Chaplan said. Instead, it’s much more common to see deals like Samsung’s takeover of LoopPay or Google’s acquisition of SoftCard. Similarly, MasterCard announced a new initiative last February to offer support for FinTech startups.

Among the innovators surveyed, the majority said that startups are the main driver of innovation in financial technology, which is disrupting markets like peer-to-peer, B2B and mobile payments. Technology giants like Apple and Google exploring entry into the FinTech market are considered the second most powerful driver of innovation. Just 2.5 percent of those surveyed, reports said, consider banks to be the largest proponent of FinTech innovation.

Among some of the responses highlighted by the survey include one participant who said, “evidence points to most recent payment innovations (like PayPal, Square, Stripe) all emerging from startups. There is no reason to think this would change.”

Another said, “Institutional players will always have problems being on the leading edge but will adopt innovations that scale.”