Yesterday evening was the opening reception for the 7th annual FinTech Innovation Lab, which the Partnership Fund for New York City runs with our partner, Accenture. Since the early years of the program, activity in fintech has exploded and we have seen a few major shifts in the overall landscape:
1). We no longer have to explain what “fintech” means. Believe it or not, as we were planning our launch in 2010, we actually had a discussion about whether anyone would know what we meant by FinTech Innovation Lab… and we used the descriptor “financial technology” a lot in the early days.
2). Fintech is now its own investment asset class (pre-2010 it was usually lumped into general tech) and venture investment in fintech has skyrocketed. Fintech secured investment of $23.2 billion globally in 2016, which is 12 times more than the $1.9 billion invested in 2010. Of particular note is Asia-Pacific, where fintech investment came from nowhere in 2010 (only $103 million) to $11.2 billion in 2016— surpassing both North America ($9.2 billion) and Europe ($2.4 billion).
3). The expectation in 2010/2011 was that fintechs were going to completely upend the financial services sector and put most major banks out of business — or at least eat into their business in a significant way. Today the chatter is as much about partnerships between financial institutions (FIs) and fintechs. The potential for disruption is still there, but we’re seeing increased collaboration, especially in New York, that promises to enhance client offerings.
4). Within financial institutions, conversations about new technologies used to happen primarily with the technology groups and occasionally new product teams. Now fintech has become a key component of an FI’s business model. Most institutions have an accelerator, an innovation group and a “fintech strategy,” and those that don’t are drafting one.
5). “Bitcoin” has morphed into blockchain and distributed ledger—moving from the Wild West and sometimes murky world of cryptocurrencies to the established space of core tech infrastructure. The blockchain is now at the center of several large FI consortia and will likely result in a major transformation of financial services – but at the hands of the FIs (plus some tech forward VCs) rather than the anarchists.
6). Insurtech startups were few and far between. Only five years ago insurance company executives in our program were suggesting insurance use cases to fintechs that were mostly focused on bank use cases. Today there is a new group of entrepreneurs explicitly targeting insurance companies as partners and developing new industry models.
7). In 2010, when we asked the CTOs of six major banks where they looked for new technology, all six answered: “the West Coast, Boston, sometimes London.” No one mentioned New York City. Today, New York City is one of the leading centers for fintech, and we now receive inbound calls from bank executives across the country interested in getting involved in the New York FinTech Innovation Lab in order to see the innovation bubbling in New York City.
8). U.S. regulatory agencies are now paying attention to fintech and adding resources to increase internal understanding of trends and new products as well as improving access for and communication with fintechs. The OCC is opening fintech offices in New York and San Francisco and is considering applications from fintechs to become special-purpose national banks. The CFTC also has designated a liaison for fintech. As a result, the Lab has created a new position, Regulator-in-Residence, to help our companies better understand the regulatory landscape and mindset. Jonah Crane, who recently stepped down from U.S. Treasury as the Deputy Assistant Secretary, joins Andy Brown, Cris Conde and David Mordecai, who all serve as In-Residence execs for the Lab.
9). With respect to our program, we started with 10 financial institutions – basically all money-center banks headquartered in New York City. Today the Lab is supported by 33 financial institutions, including insurance companies, asset managers, hedge funds and banks with principal operations elsewhere.
10) Lastly, though we’ve changed a few things at the Lab, our original premise has held up. By explicitly connecting New York’s extensive customer concentration and deep domain expertise in financial services with the city’s growing entrepreneurial community, we could grow great fintechs in New York. The program’s 39 graduates have raised nearly $400 million post-program and created nearly 400 jobs. Graduates such as CB Insights, Digital Asset Holdings, Digital Reasoning, Enigma and Kasisto are changing the landscape of financial services and developing products on their way to being industry-standard.
All in all, the situation bodes well for the eight fintechs that started the Lab yesterday— lots of interest from financial institutions in partnering and plenty of investment capital for those that successfully convert that interest to purchase orders.
We’ll be providing highlights of some of the Lab’s activities over the coming 12 weeks and look forward to introducing the class at Demo Day on June 22.