Garnet Capital Advisors Blog

There are many pundits out there today who are eager to announce the end of the traditional bank model, set to be replaced by financial technology, or fintech. However, there are a number of partnerships popping up between fintech startups and the big banks, and that is a sign that these two sides may be more amenable than previously thought.

This could come as a bit of a surprise, in part due to the origins of fintech. In the beginning, these tools were designed to replace the traditional bank, not work with it, and the disruptive nature of the segment could have been viewed as cause for concern. 

At the moment, though, it seems that traditional banks are actually excited about the potential offered by fintech startups.

Fintech gains ground throughout world
Fintech has quickly become one of the biggest financial trends in the world. Not just here in the U.S., but in Europe, Asia and South America, fintech startups are jumping headfirst into the market.

According to Forbes, Accenture's FinTech Innovation Lab, which helped start the entire trend, has been responsible for millions in investments into these startups. For example, 24 alumni companies of the lab have raised as much as $176 million in financing. Accenture is also holding a FinTech Innovation Lab in Hong Kong, set to include seven startups. 

Accenture isn't alone, either, as other programs are appearing throughout the world. On a large scale, fintech has captured the hearts and minds of banks and investors alike.

Big banks hop on fintech bandwagon
Furthermore, instead of major banks running away from fintech, these firms are embracing the trend. According to CB Insights, a number of big financial institutions are actually investing in fintech startups.

There are six recent ones, specifically: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. These banks have invested in 30 fintech firms over the past six years, according to CB Insights.

One of the busiest banks has been Citigroup, which has invested in fintech such as Betterment, Jumio and Square. Overall, favorite investments for the big banks include payments, data analytics, P2P lending and personal finance. From loan sales to POS systems, fintech is a lucrative opportunity for financial institutions.

Fintech has a bright future
With or without big banks' involvement, fintech appears to have a very bright future. One example of the potential in this segment is the recent IPO for Lending Club, a widely popular P2P lender in the fintech space.

According to Business Insider, Lending Club had the best tech IPO of 2014 this past December, when it began trading at $15 a share and quickly rose to $24 - above expectations of just $12 to $14. In fact, the massive jump actually ended up costing Lending Club money, which raised just $800 million compared to the potential of $1.35 billion had it priced its IPO where the shares eventually ended up.

Over the past several quarters, fintech has only gained awareness and popularity. And if the involvement of big banks and individual investors are any indicators, there is a lot more to come.