After stints at some of the world's biggest banks, Udayan Goyal is now helping to build up a new generation of challengers through his roles at Anthemis Group and Apis Partners. He talks to Finextra about how technology is changing the financial services industry and what the established players need to do to prosper in the digital age.
In 2010 Goyal teamed up with fellow industry veterans Sean Park and Nadeem Shaikh to set up Anthemis Group, which advises and invests in startups aiming to shakeup the financial services market through clever use of technology.
At the heart of the group's philosophy is the belief that we are in the midst of a revolution that is changing how businesses are built and run, with monolithic giants challenged by loose, fluid collectives. Traditionally, banks have been built top down but, in an age of networks and connectivity, Goyal argues that now is the time to invert the process - to go from the bottom up.
To do this, Anthemis is busy building a network of companies that specialise in different areas of the financial services ecosystem, backing startups in areas such as retail banking (Simple), trading (eToro), and remittances (Azimo).
Explaining the thinking behind this approach, Goyal cites Dave Gray, the author of 'The Connected Company', who argues that the future of large companies is actually a series of small outfits that collaborate loosely.
"The advantage is that you build it with people who are truly passionate about what they do, who are innovative and challenging existing business models," he says. In contrast "the big institutions that are command and control from the top and don't have those kinds of people on the frontline...they really struggle to be nimble in a highly connected networked world".
Goyal isn't writing the big banks off - he worked at Deutsche Bank and Credit Suisse in a previous life, and believes that many leaders understand the challenge. But the structure that they have built up over decades means that adapting to the new world is "like turning a super tanker".
To illustrate the challenge and how banks can meet it, Goyal uses the example of Simple, the digital banking service in which Anthemis was an early investor. In February BBVA paid $117 million for Simple, a figure which raised eyebrows in the industry, especially when it later emerged that the much-hyped startup had only around 33,000 active customers.
But the numbers are beside the point, according to Goyal. A bank with 10 million customers may not be threatened by an upstart with 100,000 but if enough clever new rivals begin poaching young, profitable users, that bank will find itself facing a "chasm" when its older clients die off.
"What BBVA gets to understand [by buying Simple] is actually how to acquire those customers because they're high quality customers. They want to understand the experience of acquiring those customers. And then they want to scale that so that they don't end up with this problem that will happen five years down the line when they're looking for a particular vintage of customer and that vintage of customer is missing."
If banks want to thrive in the digital age they also need to do something unfamiliar - open up. Gartner recently predicted that in the next two years, 25% of the top 50 global banks will have launched app stores.
Says Goyal: "I think that's the only choice they have. Because the basic infrastructure that banks trade on, which is their balance sheet, their payments infrastructure, is a commodity business. And, so their ability to price at any premium is eroded."
So to prosper, banks need to have compelling customer facing propositions, and they are just not as good at this as smaller, nimbler developers. Their best bet is to let the developers ride off their infrastructure and then to reap the benefits.
Goyal is now setting out on a new venture, one focussed less on disrupting the traditional banking world and more on creating a brand new one. He has teamed up with private equity veteran Matteo Stefanel in a bid to raise $250 million for a growth fund targeting fintech startups in the developing world.
The Apis Partners fund hopes to spread financial inclusion throughout Africa and Asia through innovative technology. However, Goyal argues that because emerging markets don't have the established infrastructure that is seen in developed markets, more imaginative ideas win through - ideas that are starting to creep back west. And that means that the real threat to big banks may not be from Silicon Valley or Silicon Roundabout, but from Nairobi.