Why banks need a strong patent portfolio

Banks are facing a fintech patent gap which could cost them dearly, but there is more to the disruptive tech story than that.
6 August 2018

Bank of America has several fintech patents in its portfolio. Source: Shutterstock

Ahe world’s 15 largest banks combined own five times’ fewer fintech patents than IBM, four times’ fewer than Microsoft and half as many as Google, according to research by AI and machine learning technology venture, Cipher.

Bank of America’s portfolio of 2,547 makes it the leader in this space. It boasts nearly as many as its 14 closest rivals combined.

Two European big hitters, BNP Paribas and Deutsche Bank, hold only one and three patents respectively. In Europe, Barclays is the leader, with 160 patents to its name.

“This patent gap leaves banks in a vulnerable position,” argues Nigel Swycher, CEO at Cipher.

“Fintech is key to the future of money and will disrupt every aspect of the financial services industry. Without a strong patent portfolio, banks will have less control and influence, leaving tech companies holding all the cards. This could cost them dearly as they are forced to pay out vast sums of money for royalties and licensing fees just to secure their standing in the sector.”

It could, however, be argued that patents are not the best way to measure innovation. And that comparing the number of patents on a company-by-company basis can be misleading. Just because you have lots in the bag doesn’t immediately mean you will end up with valuable products and services.

Let’s also not forget that banks have been devoting a huge amount of time and resources to fintech acquisitions and collaboration. For instance, late last week, Barclays took a significant minority stake in MarketInvoice, giving its customer base access to the fintech’s proprietary single invoice finance product as well as broader digital invoice finance facilities.

Anil Stocker, MarketInvoice CEO, said: “It’s exciting to be combining the knowledge and footprint of a 325-year old British banking institution with MarketInvoice’s tech-led online finance solutions. Barclays has a long history of innovation, being the first bank to introduce the credit card and the ATM. It makes total sense to partner, and introduce our online business finance solutions for their large customer base.”

Elsewhere, various banks have their sights set on the blockchain space.

Critics argue that it is nebulous technology, but we are seeing increasing use to conduct cross-border payments, share trading, securities, claims management, derivatives, asset custody across both public and private markets, currency, collateral management and corporate actions processing.

“There is barely a day that goes by without a fresh announcement about how banks and financial institutions are seeking to use blockchain technology to transform significant parts of their business,” says Don Tait, Senior Blockchain Analyst, IHS Markit. “The financial vertical market will be the largest value market to use blockchain.”

Have banks previously been guilty of complacency when it comes to emerging technologies? Without a doubt.

But don’t be fooled by the patent argument; many banks are racing to get ahead in the fintech game, taking heed of Amazon’s dominant position in the retail sector and Uber’s disruption of the taxi industry.