The regulatory environment for traditional financial institutions has become increasingly onerous. This regulatory burden has increased red tape and significantly increased the cost of compliance, reducing profitability.
This burden has also constrained the ability of these institutions to service both consumer and business banking needs, either through overly burdensome processes or the inability to provide products at all.
To address the issues of profitability and customer service, many financial institutions are increasingly deploying capital into new FinTech-related ventures that allow them to reach and service customers in a way they are unable to do themselves.
This trend is likely to continue and an increasing number of traditional bank functions such as credit assessment and decision making will effectively be outsourced to platforms that can complete the task in a more efficient and customer friendly way.
Interestingly, as demand for financing from both consumers and businesses is increasingly met by FinTech platforms, the pool of lending sitting outside this highly regulated environment will increase. As these platforms become further entrenched in our day to day use of financial services, it will be interesting to see how the regulator responds to this and the potential risk it could bring.
In 2014 Eastern set up an incubator, Eastern Labs, into which it has put 1% of revenue, or $4m a year. It grew to house 130 of its 1,900 employees. Last month Eastern span off its first startup, Numerated Growth Technologies, which raised $9m from Venrock, a Silicon Valley venture-capital firm, and other investors. Eastern is keeping nearly 25% and is planning what Mr Rivers calls “Labs 2.0”.