May 12, 2016
As relationships between banks and FinTech startups evolve, the strategies for adjustment are actively changing. While some financial institutions have taken a sit-and-wait position, others have responded to the FinTech disruption in various ways, including working with startups by having some sort of an engagement model like startup contests, hackathons, incubators, accelerators and investments.
The one way of response that didn’t quite catch up was the work on core transformation, complete reimagination of banking services and competing truly on the digital front. Meanwhile, according to some estimations, close to 20 to 30% of the retail banking revenues will be at risk from FinTech disruptors by 2020.
While some are observing and trying to catch up, other large international financial institutions have explored an interesting way to engage in a cold war (if there is one) – through active patenting of technology for financial services. Previously, pure tech companies like Apple to Google have engaged and amassed extensive experience in patent wars; now, banks have just started the race and seem to be quite aggressive in their desire to control innovation.
In December last year, we performed a research on patents in FinTech which revealed that Visa was the top patent holder. The card provider had around 1,342 patents filed within its name. Following Visa at that time were Bank of America and Hitachi with 1,052 and 1,048 patents respectively.
The following table draws a picture of patent applications from 2013 to 2015 by major financial institutions, indicating their strong desire to book a sweet spot in the rapidly changing industry.
Source: The WSJ
Among banks, Bank of America is one of the most powerful players that have been aggressively filing patents. In February, the banking industry giant filed 20 patents related to blockchain in addition to the 15 that it had submitted to the US Patent and Trademark Office (USPTO) earlier.
We have tried to stay on the forefront. I think we have somewhere around 15 patents; most people would be surprised at Bank of America with patents in the blockchain or cryptocurrency space. (It’s) very important in the intellectual property world to reserve our spot even before we know what the commercial application might be, commented Catherine Bessant, COO and CTO at Bank of America.
At the end of 2015, the USPTO revealed a list of 10 patent applications that were filed by another major bank—US bank. Submitted earlier that year, the patents covered a range of applications from a cryptocurrency transaction payment system to offline storage risk detection.
Goldman Sachs is not falling behind either. In December 2015, the company filed a patent application with USPTO called Cryptographic Currency for Securities Settlement for a cryptocurrency called SETLcoin (Paul Walker and Phil J. Venables are listed as the inventors) that will allow P2P transfers with cryptographic tokens representing securities with instant settlement.
As described in the application, the technology provides a virtual multi-asset wallet as a traditional securities and cash account for an individual, investor and/or trader. The wallet has technology to generate, manipulate, and store the SETLcoins for exchanging assets via a peer-to-peer network. The technology facilitates transactions between virtual wallets and non-virtual wallets. Traders will no longer need to visit an exchange to trade securities—the wallet allows securities to be settled within seconds.
Another major institutions engaging in a patent race is JPMorgan. The company is carefully looking after internal innovators to catch the moment something patentable is encountered. JPMorgan was reported to file 22 patent applications related to analytics, Internet of Things, mobile, security, cloud and cryptocurrency technologies in 2015. This year, that number is expected to surge 50%. Moreover, the bank plans to pour $9.4 billion on technology in 2016, out of which 40% will go into new technologies and investments.
Clearly, network providers like Visa, MasterCard and AmEx— along with a range of other major financial institutions—have decided to reserve their leadership position in the financial services industry as well. The companies are massively patenting innovative tech-powered solutions and took leading positions in holding ownership over innovation. Altogether, Visa, MasterCard and AmEx are estimated to own 1839 US patents.
MasterCard applied for 500 patents in 2015, which is 10 times the number in 2010, according to Colm Dobbyn, head of the company’s patent program.
According to the World Intellectual Property Organization (WIPO) report published last year, the highest number of patents has been filed/granted in Payments Architecture (1711) and Access Security/User Authorization (1432). One of the most interesting categories is Platforms, in which the highest number of patents/applications has been in E-commerce (1365).
Since 2013, large financial institutions have applied for at least 2,679 patents retailed to blockchain, analytics and cybersecurity and other hot areas. The number indicated an 83% surge from three years ago. It appears that a patenting hype could not only be a pure interest in securing IP and innovation but an attempt to slow down the disruptive potential of emerging startups. Well, if banks can’t beat startups, they certainly can put chains on the source of their innovative and disruptive power—technology.