Silicon Valley is taking on Wall Street right where it lives: in financial services that big banks either have ditched or haven't latched onto yet.
Tech-focused venture capital firms poured some $12.2 billion into financial services start-ups in 2014, more than triple the amount in 2013, according to numbers from Accenture and CB Insights that Wall Street brokerage Convergex cited in a note Monday.
The "fintech" interest is broad based, from mobile payments to peer-to-peer lending to cryptocurrencies and a handful of areas in between. At the root of the interest is an effort to capture the way millennials want to do banking in the future.
Surveys repeatedly have shown that this cohort, generally identified as those who came to young adulthood around the turn of the century, is avidly looking for alternatives to traditional banking. One in 3 would switch banking in the next 90 days, according to a survey from Viacom's Scratch. Earlier this year, SNL Financial reported that 1 in 4 millennials changed banks solely because of an institution that offered a better app.
It's all led to money sniffing out opportunities in the burgeoning $75 trillion shadow banking industry.
Tighter regulations and increased costs have pushed traditional banks out of some services. In other instances, banks simply have been slow to respond to changing customers demands.
"Financial services will dramatically evolve over the next 10 years as millennials age and use more banking services compared to the last 50, enabled by advancements in technology. No doubt traditional banks remain entrenched and there's a plethora of regulatory hurdles standing in the way of this industry and new entrants," Convergex said. "Numerous startups, however, have created more efficient, cost effective, and tech-savvy versions of the verticals currently on offer."
Consequently, investors including Google Ventures, Andreesen Horowitz and Sequoia Capital have become players in exploring new opportunities. Convergex analysts identified seven key areas: