This "Cutting through the Fog: Finding a Future with Fintech" case study examines the scope, history, and scale of the fintech industry, while also defining what fintech may be, and what it is not. The provided material includes an overview of the fintech market, including an analysis of entrants from start-up incubators, banks, and technology companies. The case figures and exhibits provide data to allow students to analyze the current market saturation and consumer needs in regard to fintech products.
Yiorgos Allayannis; Kayla Cartwright
Harvard Business Review (UV7225-PDF-ENG)
December 12, 2016
Case questions answered:
Case study questions answered in the first solution:
- What is Fintech, and how has it evolved over time? Who are the major players, and what conditions have led to its emergence? What areas of the industry are poised for additional growth?
- What is an appropriate strategy for a financial institution to use regarding FinTech? What are the 4 options that Costa has considered? What are the pros and cons of each? Which option should she recommend?
- What lessons can we learn from the historical M&A FinTech landscape? What can the banks do to create value in this space? What will be the role of traditional banks and these newer FinTech players for the economy and society as a whole?
- How are companies in this industry currently valued? What are typical multiples, and why do you think they are priced at these multiples? What is the magnitude of capital investments/acquisitions in the FinTech space?
- What is the financial outlook for legacy banks in light of these new entrants into the financial services industry? Do you think they are in panic mode, or do you think they believe this is a fad or temporary trend?
- What is the potential long-term impact of FinTech on the banking industry? How will FinTech companies and activities in banks be regulated?
Case study questions answered in the second solution:
- Who are the key players and stakeholders?
- What are the key issues presented in this case?
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Cutting through the Fog: Finding a Future with Fintech Case Answers
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In our analysis of Cutting Through the Fog: Finding a Future with Fintech, we focus on several key aspects of the Fintech industry: emergence and current standing, the future growth potential for the industry itself, and the growth potential that it offers to the established financial institutions of the past (banks).
The case writers have offered a thorough and in-depth look at the beginnings and the evolution of the Fintech industry, which we’ll touch upon in our introduction.
But most importantly, they’ve delved into how Fintech is currently affecting and changing the whole landscape of the financial services and tech industries and what this means for the evolution of banking.
More specifically, our analysis will attempt to offer insight and recommendations for which path the baking industry should take for adapting to Fintech and how to go about achieving growth and stability in the new technological age.
Additionally, we’ll discuss in-depth the overall current financial impact of the Fintech industry on society and the projected growth of the industry, noting specifically the current usage of Fintech applications and services and which areas offer the most potential for expansion.
Finally, we’ll discuss current regulatory issues and how both government agencies and the banking industry can best remedy these to offer better protections and fairness to consumers while also ensuring security and stability in the industry.
Introduction and Overview
Fintech arguably emerged with the creation of PayPal almost two decades ago. Today, its definition, scope, and influence have grown immensely to include a vast array of different types of services, companies, and functions that are attracting billions of dollars a year in funding and the attention of technology and financial giants such as Google, Amazon, Wells Fargo, and Goldman Sachs.
While PayPal may have been a major innovator in the industry in the late ’90s, the real emergence of the Fintech industry, as we know it today, has been dated to the mid-’00s; 2005, to be more precise (Cartwright, K., & Allayannis, Y., 2017).
Today, Fintech start-ups are emerging daily, offering all types of services, including person-to-person money transfers, investment advice, wealth management, online banking, and alternative lending.
Billions of dollars are being poured into these start-ups. Based on a recent article from Inc. magazine, as much as $117 billion dollars was invested by venture capitalists in Fintech companies between 2012 and 2016 (Chaparro, 2017). These trends don’t show any signs of slowing down anytime soon.
Most of the industry strongly believes that there is immense room for continued growth, and banking giants believe that the industry will take “up to $4.7 trillion in annual revenues and $470 billion in profits” (Cartwright, K., & Allayannis, Y., 2017) from the banking industry.
Some of the major players right now include Square (for payments), Lending Club (alternative lending), Betterment (wealth management), and Kraken (cryptocurrency) (Landers, 2017). Banks and technology giants are not getting left behind, though, with most banks developing their own banking apps and person-to-person money transfer services.
Companies like Apple are developing payment technologies such as Apple Pay. They’re keeping up and paying attention to the trends of the industry and the wants of the consumer.
Assumptions and Methods
When considering an approach to Fintech, banks create a list of strategies and analyze if and how these options will fit into their organizations and if they are aligned with existing goals. One option is to…
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