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This is the third in a series of articles comparing the COVID-19 crisis in Healthcare to the financial crisis in 2008 that led to an industry-shaping boom in FinTech. Find the first article in the series “Crisis Leads to Innovation” here and the second article in the series “The Guilty and the Innocent” here.
To quickly summarize my first article in this series, the financial crisis led to distrust in existing institutions, which led to the unbundling of banks, which led to innovative, user-experience driven startups gaining popularity and attracting large quantities of venture capital dollars.
Some of the industry defining startups that were born just before, during, or shortly after the financial crisis can be found below.
- 2006: LendingClub
- 2007: Braintree, Credit Karma, OnDeck
- 2008: Betterment, Indiegogo, Wealthfront
- 2009: Kabbage, Kickstarter, NerdWallet, Personal Capital, Square, Venmo
- 2010: FundingCircle, GoFundMe, WorldRemit
- 2011: CommonBond, SoFi, Stripe, TransferWise
The additional bit of gasoline on the FinTech innovation fire was the adoption of smartphones and better access to mobile data and WiFi. This created new possibilities for mobile financial experiences that banks simply had not taken full advantage of.
A lack of trust and improvement in access to technology in 2008-2010 brought mobile financial tools to a larger user base than ever before, and I believe we can draw a direct parallel to the current healthcare environment. With emerging anger and distrust at the existing ecosystem, and the growing ability to exchange data in secure ways, we will be able to move healthcare online, allowing a wide opening for telemedicine and other services that have the potential to reach more patients than ever before.
But how do we get there?
Following the financial crisis, global investment in FinTech companies increased more than 5,600% from $1.2 billion in 2008 to more than $69 billion in 2019, reported Accenture. FinTech companies in the United States alone raised $12.4 billion in 2018, a 43% increase over 2017 figures, per CB Insights.
This kind of activity might lead one to believe that the entire industry was rapidly changing, perhaps even that incumbent financial institutions were eager to scoop up new technology to enhance and fortify their offerings. However, peeking into the archives reminds us that banks did not begin to catch onto the new innovation wave for a few years.
The most immediate M&A activity in financial services following the crisis was consolidation of lagging branches and smaller banks by larger institutions.
A few years later, we saw more mature FinTech companies acquiring younger FinTech startups, such as Braintree acquiring Venmo in 2012, followed by PayPal acquiring Braintree in 2013.
One of the first recorded acquisitions of a crisis-era FinTech startup by a premier bank was of Simple by BBVA in 2014. However, activity with the other large banks didn’t see a real uptick until 2017 with JP Morgan’s acquisition of WePay, Goldman Sachs’s acquisition of Financeit, and BBVA’s acquisition of OpenPay, a decade after the start of the crisis.
This isn’t to say that banks were asleep at the innovation wheel, just perhaps reticent to acquire. As an example, Citi, a major player in the crisis hot seat, established its first innovation lab in Dublin in 2009, made its first investment through its VC arm Citi Ventures in 2010, and launched its first accelerator in Tel Aviv in 2013.
The venture industry noticed consumers flocking to these new FinTech services, and assumed that before long, banks would begin to pay attention. With these assumptions, the accelerators, incubators, and FinTech-specific funds emerged. Early to market, the NYC FinTech Innovation Lab launched in 2010, Startupbootcamp’s FinTech Accelerator launched in London in 2013, the Barclays FinTech Accelerator was established in 2014, the Plug and Play FinTech Accelerator was founded in 2015, and 500 Startups announced a $25 million FinTech fund in 2016.
To bring it all together, a timeline of the FinTech industry following the crisis :
- 0-2+ years after: Startups capture venture funding to pursue new opportunities in the ecosystem, focused on providing a great customer experience in a new, digital way.
- 0-2 years after: Fallout from crisis continues. Existing institutions consolidate, collapse, and shutter. Many smaller, regional players disappear. Most large institutions keep their place in the pecking order.
- 1-3+ years after: Banks realize the need to innovate and quietly, slowly put internal programs together to show progress.
- 2-5 years after: Startups gain market share and define new categories. Banks start paying more attention, but don’t rush.
- 4+ years after: More mature startups begin to fortify their offerings by acquiring other startups and niche technologies. Acqui-hires abound.
- 5+ years after: Vertical specific funds, accelerators, and incubators join the party.
- 5+ years after: Incumbents begin launching products that seek to mimic trends started by FinTech startups.
- 6-9+ years after: Incumbents begin to warm up to partnerships, M&A, and external innovation initiatives.
This timeline helps us consider how the same journey might play out in the healthcare industry.
We frequently see that large institutions are slow to adopt outside technology, especially in conservative industries like finance and healthcare. Many will likely try to build before they consider buying or partnering. They might “keep an eye” on innovative developments from cutting edge HealthTech startups for the next few years.
The next article in this series will explore what might stand in the way of healthcare innovation. Stay tuned.
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