FinTech continues to shape the future of financial services
In an evolving financial services landscape, FinTechs are becoming a force to be reckoned with. According to the PwC FinTech Global Report, executives at financial institutions fear that it is possible that by 2020, they will have lost nearly a quarter of their business to new market entrants. This increases to 28% of their business when looking at the payments and transfers market. In addition to this, more than 60% of all survey respondents highlighted payments as the most likely sector to be disrupted by FinTechs.
Consumers are driving innovation, and FinTechs are better placed to meet these needs as they lack the restraints of legacy systems that burden their incumbent counterparts. The increase in mobile adoption globally has created a generation of consumers who expect immediacy, convenience, and security to be integral to payments. Unfortunately, it has been difficult for the traditional banking industry to keep pace with these innovations, with cross border payments often taking days to be settled.
Security and privacy are still absolutely crucial when it comes to processing cross border transactions, but speed, cost, and convenience are also major factors. Banks used to enjoy having the monopoly on payments, meaning that no one challenged the status quo, but as the disruption in the B2C/P2P payments space has demonstrated, B2B payments are ripe for innovation too. Regulation has stopped FinTechs from gaining ground so far, but as the barriers begin to be removed with Faster Payments and PSD2 both working in favour of newcomers, banks are beginning to see the benefits of collaborating with FinTechs to avoid losing market share further down the line.
By partnering with banks, FinTechs have access to experienced professionals in the field of finance, and can often receive funding, increase reach, and utilise licenses necessary for them to scale far more quickly than if they were going it alone.
A wealth of opportunities
It’s not all doom and gloom for traditional financial services. Products and services developed by FinTechs can offer them a myriad of possibilities. B2B FinTech companies, in particular, can create real opportunities for incumbents to improve their traditional offerings and increase efficiency without having to make significant changes to existing infrastructure – something that would be incredibly costly for banks to change.
By applying agile technologies capable of solving long-term problems at a low cost, banks are able to pass these savings on to customers. By collaborating with FinTechs, incumbents could simplify and rationalise their core processes, services, and products, and consequently, reduce inefficiencies in their operations – and banks have recognised this. 73% of respondents rated cost reduction as the main opportunity related to the rise of FinTech.
The benefits don’t stop there. FinTechs can bring new ideas to the table that put the customer at the heart of everything they do, helping banks to improve customer retention and generate additional revenues. In this regard, 74% of fund transfer and payment institutions consider additional revenues to be an opportunity resulting from the rise of FinTech. This is already true in the B2C payments industry where innovation allows FinTechs to dominate and capitalise on generating additional revenue streams by providing merchants, and in turn their customers, with faster and easier payment solutions.
But there is still a long way to go
Although the most widespread form of collaboration with FinTech companies is joint partnerships, it appears that some traditional organisations are still digging their heels in and are not ready to invest fully in FinTech. According to the survey, 25% do not liaise with FinTechs at all. This is despite joint partnerships offering incumbents a flexible way to test the water before investing too heavily – all while they harness the capabilities within a safe test environment. Given the speed that FinTechs can develop and deliver new technologies, and the restraints of the legacy systems that form the backbone of established financial services companies, banks simply cannot afford to ignore FinTech.