Fintech: Here to Stay?
The World Economic Forum published on WEforum.org a report into Fintech: beyond-fintech-a-pragmatic-assessment-of-disruptive-potential-in-financial-services, in late August. One of their key findings was that Fintechs have not yet materially changed the competitive landscape, even though they have driven the direction and pace of change of financial institutions in a huge way.
This is certainly the case for the incumbent consumer banks where digital transformation projects, for the most part, have happened in segments and siloes or for specific products.
But does this matter for the success of the sector?
Growth in Fintech suggests that many see its value. Global Fintech funding continues to grow with $8.4Bn invested in Q2 2017 alone. 64% of global insurers had already made investments in Insuretechs by middle of 2016. Regtech, still in its infancy, attracted $678m of investment into 70 Regtechs in 2016, 38.5% CAGR on 2012.
In consumer banking, champions invest continuously to offer digital platforms to their customers from top to bottom, BBVA being a long-standing example. Santander, which recently announced a doubling of its Innoventures fund to $200m is another.
In insurance Aviva leads the charge with its Insurancetech programmes and Digital Garages in London and Singapore.
China’s digital payment and social media leaders, Alipay and WeChat have enjoyed steep growth through a combination of blistering innovation and a captive market of 710 million internet users enthusiastically adopting the new.
Global investment banks are responding to the digital opportunity by launching new digital wealth management offerings, Goldman Sachs amongst the latest.
All the above are examples of where you would expect to see Fintech making its mark.
Where next for the Financial Services sector?
Unexpectedly regulation has become a force behind Fintech growth.
Regtech dives straight into the hottest technologies – Big Data Analytics, Machine Learning and Cloud Computing – to create solutions designed to make regulatory compliance easier for financial services organisations through better risk prediction and keeping up with regulatory change.
Payment Services Directive 2, PSD2, shortly to land in the European Union, places the ball firmly at the feet of banks, telcos, retailers and, yes, fintechs, to radically change the relationship between consumers and their bank.
This regulatory framework will actually drive further change in the industry and lead to more need for Fintech as a customer services differentiator.
By forcing banks to share customer and transaction data, with other regulated entities (the ‘Payment Initiation Services Providers’ and ‘Account Information Payment Services Providers’) banks will lose a unique advantage.
PSD2 will create another wave of Fintech offerings related to the AI or ‘Concierge’ services, which will in the long term do more to disintermediate retail banks than perhaps any other competitive force yet seen in the industry.
In this way the sector is likely to continue to react and grow through both necessity and invention, as Fintech, Insuretech and Regtech have the talent, drive and access to global capital to increase the choices corporate and retail customers have in where they place their business now and in the future.
So, if Fintech is here to stay, it is likely to continue to surprise us, catalysing innovation in ways we would not expect and progressively reshaping the landscape.