Banks have allowed fintechs to take a large portion of market share, according to Paul Maley, managing director, head of corporate bank UK and Ireland at Deutsche Bank
“[Banks] have as a community allowed the fintech and certain providers to actually take away a lot of market share, a lot of access to clients, and therefore, a lot of profitable revenue streams,” said Maley speaking on a panel at the Capital Market Innovation Summit in central London this week.
“I think it is the way in which we reacted to the financial crisis through things like central clearing, through things like the way we do OTC price discovery. I think we just gave away too much, and there was often a mindset - and I don’t think this was exclusive to my firm but it was across the whole street - where it was about meeting the requirements of the regulation rather than being in front of it, and thinking about the business models that were going to come as a result,” he said.
No longer can banks rely on investing $2m or $5m into individual businesses and running a portfolio for $20m or $50m, with the hope of reaping the benefits five years down the line, according to Maley.
“There has been almost too much money now moving into this space. It has been a real search for yield and a lot of non-financial companies moving closer and closer into our domain - and a lot of those are extremely well capitalised businesses,” he said.
“To be successful now you actually do have to be bigger, you’re going to have to go in with a $20m plus strategy – that doesn’t mean that is just an outright equity stake, that could mean that you are actually going to go away and build something yourself or you are going to do something in a partnership model maybe as a syndicate or even a consortium.
“I was criticised only last week that we weren’t talking a stronger view on the returns and the monetisation of the individual holdings in the portfolio,” he said.
On October 7, Reuters reported Deutsche Bank had published an internal memo announcing the launch of a central technology division aimed at transforming the bank’s IT systems.
“At its heart, our technology strategy empowers our businesses to control ‘what’ is produced, while technology has control of the ‘how’. In the past, the ‘how’ offered too much optionality and did not consistently follow group-wide architecture and tooling,” the internal memo read.
Maley said the bank was going through a “renaissance” period.
Andrew Murray, European head of market infrastructure investments, Citi, said his teams’ focus was on strategic return rather than financial returns in fintech investment.
“Our teams’ investments are not going to move the dial for the overall bank, whereas the partnerships that are catalysed and the initiatives that are kicked off as a result of the investing activity can have more of an impact,” he said.
“The types of benefits that we are looking for, some of it can be insight, so the company are experts at what they do, and we want to learn more about it and learn how to deploy it in a tighter relationship. It can also help speed adoption in having alignment, so it makes us more comfortable to have a material reliance on what may still be a small company.”