There’s no question that financial institutions need cutting-edge technology to support growth. However, there is also no question that technology is not their core business. Therefore, it makes sense for them to partner – or even acquire – financial technology companies, which brings us to the topic of unicorns.
What do unicorns have to do with financial services? According to Investopedia, a unicorn is an organization that has a valuation of more than $1 billion; typically a technology company touted as a start-up with no proven track record of success.
In a recent article, VentureBeat indicated there are 229 unicorns at the moment, generating a total of $175 billion in funding. Of all of these unicorns, 18 fall into the FinTech category. FinTech companies, which Wikipedia defines as those “that use technology to make financial services more efficient,” were born with technology as their backbone, a big differentiator from traditional firms.
For financial services companies that are seeking growth, partnering with FinTech companies, or even acquiring them, can enable them gain new customers quickly, penetrate new lines of business, or boost those that are underperforming.
J.P. Morgan’s partnership with OnDeck Capital, a FinTech leader in online small business lending, is a great example of a win-win for the two companies, which were built on different business models. In a December 2015 article in Forbes, OnDeck CEO Noah Breslow said the J.P. Morgan-OnDeck partnership brings together “Chase’s relationships and lending with OnDeck’s technology platform” and “will be able to offer almost real-time approvals and same- or next-day funding.”
To highlight the interest that legacy financial services companies have in FinTechs, in a 2014 letter to shareholders J.P. Morgan’s Jamie Dimon said:
“There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking. The ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and — these entities believe — effectively by using Big Data to enhance credit underwriting. They are very good at reducing the “pain points” in that they can make loans in minutes, which might take banks weeks. We are going to work hard to make our services as seamless and competitive as theirs. And we also are completely comfortable with partnering where it makes sense.”
To learn about other priorities financial services organizations must have in mind in order to spur and sustain growth, fill out the form below or click here.