2014 has been a significant year for fintech – as a term, fintech has finally started to break through into mainstream conversations.
Evidence of this came earlier in the year, when George Osborne announced a new government trade body, Innovate Finance.
Funded with £600,000 from the City of London Corporation and Canary Wharf Group PLC, the organisation pledged to support financial technologies and promote diversity of choice to customers.
Most significantly, the move highlighted that the government has recognised the significance of the fintech sector and has started to support the development of further innovation in this space.
From government awareness to public market acceptance
As such, it makes sense that the year should end with a bang for the sector – and this came in the form of the Lending Club IPO on December 11th.
The US-based peer-to-peer lending platform closed an enormously successful public listing on the New York Stock Exchange, which saw the company’s share price shoot up from $15 to $23.42 on its opening day – valuing the company at just under $8.5 billion.
Over the past decade, we have seen a wave of successful technology start-ups sweep in, disrupt the market and go public all in less than ten years, but the IPO of Lending Club represents a significant milestone in this trend – the public listing of a fintech company was a world first.
Lending Club symbolises the very mind-set that makes fintech such a powerful movement. Against a backdrop of consumers and businesses struggling to secure loans from risk-averse traditional banks in the wake of the financial crisis, Lending Club created an alternative means of lending money.
Via its peer-to-peer model, which enables consumers and businesses to crowdsource loans, Lending Club has enabled over $5 billion worth of loans to date.
Lending Club’s bankers had no fintech example to follow when valuing the company and were instead required to use both financial and non-financial start-up companies as a benchmark. Watching this industry event playout was a significant moment for everyone in the sector.
Lending Club has formed a brand new benchmark for the industry on which future fintech firms that look to go public will be assessed.
Should banks be concerned?
Fintech may be in its infancy, but the potential of this sector is only just starting to be realised. The international payments market alone – in which Currency Cloud operates – is valued at $26 trillion annually.
As we move into 2015, banks that refuse to adapt to the changing industry landscape will struggle to compete. Traditional players will need to respond as their margins are eroded by newer players, who are showing their commitment to automation and transparency, without being held back by the burden of legacy systems.
Nonetheless, the rise of alternative players in the financial sector doesn’t have to mean traditional banks are side-lined in the process – in an industry where a P2P lending platform can be valued at $8.5 billion, it’s clear there’s room enough for everyone. In fact, both parties have a lot to gain from working together.
Fintech companies can benefit from the sophisticated history of banking operations, while traditional banks can simultaneously learn from the innovative practices of tech firms.
In 2015 we can expect to see an interesting blurring of the lines between competition and collaboration in the financial sector.
Mike Laven is the CEO of fintech startup Currency Cloud
Our latest print edition has a special report on fintech, subscribe here to get your free copy