It is a great time in alternative finance, crowdfunding and Fintech having reached the point where innovative ideas become reality and really take off. There is off course evidence these concepts have already “taken off” with a vibrant growing industry reaching + – $30 billion in 2015 having started with $2 billion in 2012. And in fact these are great numbers and an argument for a phenomenon that has matured and grown in popularity, a regulatory environment that has changed dramatically and investor interest that continues to evolve and grow.
On the other hand, there is a school of thought that the phenomenon is so real, so good and so important that we have not seen anything yet. In fact there is a growing sentiment among industry leaders that the next generation of this phenomenon is here and the shakeout and consolidation phase is in full swing.
So who will ultimately own the industry? A lot has been written about disrupting the banking system, disruption of financial technology industry and changing the game for venture capital and angel investing. In fact, the disruption of these sectors has been predicted – but have all these predictions been just a bit too early?
So let’s take a look at some segment fiction and fact:
Fiction: Major retail banks will be too slow and cumbersome to pay attention and move into alternative finance and crowdfunding.
Fact: ING, JP Morgan Chase and Barclays are already in one segment or another of alternative finance and crowdfunding.
Fiction: Fintech is a wide open 4 Trillion disruption opportunity for new players.
Fact: Goldman Sachs has 11,000 engineers and an estimated budget of $2-3 billion dollars a year working on financial technology. An example of the drill down effect of this is Goldman is an investor in OnDeck, a marketplace lending platform that recently announced a deal with JP Morgan Chase to provide funding services to SMEs. Bank of America has a $3 billion dollar Fintech budget and JP Morgan Chase $3 billon.
My point is that alternative finance, crowdfunding and Fintech are very real and stand to change the capital markets but the Wild West opportunity allowing small startups to dream of their place in industry is facing a reality check. The phenomenon has entered a phase of consolidation and shake out.
My guess is very few will survive on their own and only those that have achieved a large critical mass will be left standing; well positioned, well managed and planned ventures will partner, merge or be acquired and go on to play large roles in the future; and smaller ventures will begin to disappear.