PwC: FinTech is changing Financial Services
The majority of financial institutions believe they are losing business to new innovators, according to PwC, and it's driving the adoption of FinTech.
An increased number of leaders are acknowledging the impact of FinTech on the industry. In North America alone, 82% of respondents stated that they believe their business is at risk, up from 67% in 2016.
The annual Global FinTech Report from PwC, 'Redrawing the lines: FinTech's growing influence on Financial Services', has shown that combating digital disruption is an important business strategy for 56% of financial institutions.
However, other key findings have indicated that, rather than fighting against the tide, the financial services sector is embracing new directions for technology.
Collaboration overtaking competition
- 88% of incumbents are increasingly concerned they are losing revenue to innovators.
- 77% of financial institutions plan to increase internal efforts to innovate.
- 82% expect to increase FinTech partnerships in the next three to five years.
Consumer banking was identified by 72% of participants in the survey as the area most likely to be affected by technology advancements. Fund transfers and payments were highlighted as being at risk by 54%, and 68% see payments moving entirely to FinTech platforms within the next five years.
Speaking at an ICAS event earlier this year, former CEO of Barclays Banking Group and Founder and CEO of FinTech start-up 10X, Anthony Jenkins suggested banking is approaching an 'Uber moment'. He said technology can create a “significantly better customer experience and in doing so can disrupt the existing providers within the industry, effectively hollowing out the economics of the incumbents”.
31% of those surveyed by PwC have taken steps to purchase external FinTech services in order to avoid being phased out by these developments, and 45% have current partnerships with FinTech companies - an increase of 13% from the previous year's results.
Adapting to new technologies
- 30% of large financial institutions are investing in artificial intelligence (AI).
- 77% expect to adopt blockchain by 2020.
- 54% of incumbents see data storage, privacy, and protection as the main regulatory barriers to innovation.
Data analytics technologies were thought to be most relevant to financial services (74% of respondents) and as such will see a high level of investment in the next 12 months. A shift toward integrating legacy systems with advanced analysis capabilities, as well as mobile technology, is a priority for closing the gap between financial institutions and new innovators.
Artificial intelligence and biometrics as security and identity management tools are being developed by financial services organisations at almost the same rate as FinTech companies. However, regulatory restrictions are predicted to become an issue as rulings on FinTech usage are still an uncertain factor.
Failing to overcome these challenges could, as noted by Anthony, cause incumbents to fragment and leave behind a 'zombie core' of radically downsized financial institutions.
Expectations need to be managed
- Average expected annual return on investment (ROI) of 20% on FinTech related projects.
- 60% expected to expanded products and services through FinTech.
- However, Oceania respondents emphasised cost reduction rather than ROI.
The technology sector has a notoriously high turnover rate for employees which could prove an issue in developing and streamlining innovation processes.
The average expected ROI may be achievable in the future, but it's reliant on a combination of incremental returns from innovative adoption and transformational growth.