In 2016, global market uncertainty seemed to make investors somewhat more cautious, thanks to the results of the votes in the UK and the USA. However, fintech’s stellar run did not come to a halt. According to the February report by KPMG, venture capital investment in the space rose 7%, totalling $13.6 billion. Overall investment in fintechs hit $24.7B, thanks to evolving technologies, and the success of companies focusing strongly on providing outstanding user experiences.

The only one among all regions, Europe saw its fintech venture investment grow in volume. It grew from 230 financings in 2015 to 242 in 2016. While 2016 almost amounted to a “golden age” for attracting venture capital investment, 2017 is expected to be even more impressive. This time, however, the focus lies in cooperation. Traditional banks, financial institutions and insurance companies seem to recognize the importance of being efficient and customer focused. However, more often than not, these institutions lack the knack for UX and innovative design that fintech thrives on. Many of these ‘traditional’ institutions have realized they cannot make this transition alone. Instead, they have started partnering with fintechs in order to advance their own capabilities.

The desire to innovate versus the ability to do so

Banks are highly regulated and usually unable to offer fast, customer-oriented service. But banks have been the backbone of modern economies and count with large sales and customer service forces. Fintechs, on the other hand, are flexible and generally successful at focusing on specific segments with unmet needs. Most banks see AI & machine learning as a way to to reduce costs. They are targeting promising fintech companies as a means to expand globally.

Case in point: Santander doubled investment in its fintech fund. Goldman Sachs invested in startups ranging from financial product comparison platforms  to commercial real-estate investment startups. Creamfinance, a European alternative lender, has recently managed to snap an impressive €21M investment from the third biggest South African bank. Once ranked as the fastest growing fintech in Europe, the company capitalizes on machine learning and advanced smart data algorithms to evaluate and score personal loan applications in an individualized manner.

The early bird gets the worm

Matiss Ansviesulis, co-founder & CEO of the Poland-based Latvian company, announced that the recently concluded €21 million deal was part of a series B financing with Capitec Bank Holdings Limited. This sizeable investment in just one company serves as a sort of confirmation of KPMG’s prediction that slower funding in the online lending space could be a sign of market consolidation. A select group of companies is already emerging as winners.

“Given their expansion and focus on operational excellence, Creamfinance has emerged as a leading personal finance provider in Europe.” said Gerrie Fourie, CEO of Capitec. “We are impressed by Creamfinance’s focus on Smart Data scoring.  Their business model was developed in such a way that new countries can be entered swiftly and efficiently. This requires limited investment in local infrastructure”.

Using the power of fintechs to go global

The motivation behind the bank’s investment becomes a little more evident. Creamfinance’s business model is a very attractive one. Besides, the long-term interests of both companies converge in a very simple point: Capitec wants to integrate cutting-edge financial technology in its worldwide operations. The biggest incentive for banks to join forces with their more agile counterparts is getting to test different solutions quickly and cost-effectively. This, in turn, accelerates market entry throughout the whole process –  from idea to execution.

“We believe that Creamfinance will provide Capitec’s management the opportunity to gain experience in entering and operating in foreign countries. Specifically, in advancing credit in the international and online environment and to work with a foreign partner to manage an international business,” Capitec said.

Creamfinance anticipates that the investment will allow the company to expand faster. This will facilitate their global mission to make finance more accessible.

“We are excited about this investment from a leading bank that emphasizes technology and operational efficiency, and that acknowledges our ability to scale fast”, said Matiss Ansviesulis. “This investment also marks a potential new beginning in fintech and banks cooperation, especially since so many hold opposing views“

Banks and fintechs, instead of Banks versus fintechs

Ansviesulis’ point is but a clear sign of the current climate in fintech. The most important implication of the Capitec investment in Creamfinance for financial service providers and consumers is that it attests to the growing momentum that bank-fintech cooperation is gaining, after years of perceived rivalry.

Working with startups positions banks as more innovative. Such partnerships create value for banks as the solution is often designed around model innovation and operational excellence. For startups, the union brings stability and financial backing. It’s rather a win-win partnership where both sides add value. Collaboration in Europe has seen many different iterations. We’ve read constant news about new fintech accelerators, the acquisitions of promising companies, and direct investments in startups through corporate funds. “There’s a lot of potential for even more significant changes”, Ansviesulis says. “Building effective partnerships between banks and fintechs will create a new, re-invented digital future”.

We can expect this digital future to reach us sooner rather than later. The ongoing trend of banks and fintechs instead of banks versus fintechs has already started yielding results for adopters. As Business Insider reports, 54% of incumbents in the UK reported increasing revenues and decreasing costs. They also reported an overall boost to their brand after forming partnerships with fintechs. Research by Finextra shows similar sentiment rising in the Nordics. There, 74% of banks have set their sights on collaborating with fintechs in 2017. The possibilities for innovation seem endless. The majority of interviewees for the 2017 Fintech Disruptors report agree that this phase of increased collaboration is creating a “virtuous circle of technology adoption.” This will increase profits and help define new technology standards.

The outcome will be a win-win-win

In the end, the biggest winner is the consumer. Further collaboration will bring forth better, faster, simpler, user-centric service. This will offer consumers new possibilities to improve the way they approach personal finance.   

Fintechs seeking investment could learn a thing or two from Creamfinance and other bank-friendly startups. For banks and fintechs, cooperating instead of disrupting each other’s business seemed unfathomable a few years ago. Now, it increasingly looks like a match made in heaven.  

Like this article? Subscribe to our weekly newsletter to never miss out!

Follow @DataconomyMedia

Patrick Koeck is a Chief Operating Officer and a previous Chief Risk Officer in European Smart-data powered lender Creamfinance. Before coming to Creamfinance he tested his mettle in companies such as Alkoe GmbH, the Coca-Cola Hellenic Bottling Company and KPMG Austria, where he focused on database management and Financial Controlling. At the moment he is responsible for improving automation and development of all 5 countries where company is located – Latvia, Poland, Czech Republic, Georgia and Denmark.

Patrick, please tell us a little bit about yourself

My name is Patrick; I work as a COO in the fastest-growing European Fintech Creamfinance in Latvia but I tend to spend a lot of time across all the operating countries. At the moment I’m responsible for improving operational development in all 5 countries where company is located – Latvia, Poland, Czech Republic, Georgia and Denmark. We’re also now about to open an office in Mexico, which is exciting. Before coming to Creamfinance I worked in Alkoe GmbH, the Coca-Cola Hellenic Bottling Company and KPMG Austria, where I focused on management reporting, customer behavior databases and controlling.

What topic will you be discussing during Data Natives Berlin?

I will be talking on Smart Data and its benefits. I believe the topic is both relevant and interesting to the great majority of Fintech startups and scale-ups along with anybody using data sources. If you miss the speech you will not know about the benefits that Smart Data can bring for the company and, believe me, there are many!

What is Smart Data? How does it compare to Big Data?

We all probably have heard of Big Data, which is usually defined by four key elements – data volume, velocity, veracity and variety. Whereas volume and velocity refer to data generation process, veracity and variety deal with quality and type of the data overall. Since the amount of data is huge, one can make conclusions that not all of it is valuable. Smart data starts by collecting data mostly from internal sources which are highly related to the outcome. Therefore, veracity is highly reduced and also the variety is reduced as you gather on your own terms. Overall it results in highly trustable and stable data sources with low level of noises generated by unrelated data.

How is Smart Data being applied to FinTech? What other approaches to data are being applied to create change in this field?

I would say that Smart Data is actually the future of Fintech: it minimizes the effect of data leakages events, focuses on quality (disregards and filters noise) and overall, is a lot more economical. Generally speaking, Fintech is changing very rapidly as technology develops, so companies need to adapt to changes and be flexible to accommodate these occurring changes (e.g. privacy terms of social media, etc.). Generation and aggregation of that data is what the finance industry needs, and that’s where Smart Data delivers.

What do you hope to gain/learn during Data Natives Berlin?

First of all, I want to get acquainted with great minds working in the industry with data, meet like-minded people and expand my network. I am open for new ideas and want to absorb as much news and ideas as possible. In addition that, I’m excited to share my experience working with Smart Data on the big stage during the conference and I’ll be more than happy to spark some discussions! So drop by and say hi if you’re nearby 🙂

What data-driven technologies are of particular interest to you and why?

Homepage analytics (specifically mouse movements/individual behavior) and statistical methods, especially with R. That’s just my personal and professional interest.

Do you believe that Germany is a strategic market for showcasing data-driven technologies?

Yes, I do. It’s a high-technology market, so it’s natural that the country is cultivating and showcasing data-driven technologies.

How is data driving the FinTech revolution?

Data is the main element within the Fintech revolution. The biggest difference comparing Fintech players to other financial institutions is the ability to change and adapt fast to changes, and generation, aggregation and analytics of the data.

Can you offer advice for others wanting to get involved in this particular field?

Be active & proactive – read, explore, attend conferences, meet experts & try to broaden your knowledge. Start by doing what is necessary, then do what is possible, and suddenly you are doing the impossible.

Like this article? Subscribe to our weekly newsletter to never miss out!

Follow @DataconomyMedia

Image: Tech In Asia