FinTech companies are more bullish, believing they could capture a third of incumbents’ business.
Results from a PwC survey released today, Blurred Lines: How FinTech is shaping Financial Services, which assesses the rise of new technologies in the financial services (FS) sector and their impact on market players, reveals 83% of respondents from traditional FS firms believe part of their business is at risk of being lost to standalone FinTech companies, reaching a staggering 95% in the case of banks.
Two-thirds (67%) of FS companies ranked pressure on profit margins as the top FinTech-related threat, followed by loss of market share (59%). One of the key ways in which FinTechs support the margin pressure point through innovation is step function improvements in operating costs. For instance, the movement to cloud-based platforms not only decreases up-front costs, but also reduces ongoing infrastructure costs.
“As with all markets around the world, the emergence of FinTech companies in New Zealand is increasingly redefining customer expectations, with customers now expecting real time responses, simplicity, increased functionality and usability in ways that can make it difficult for our larger FS players to respond,” says Andy Symons, PwC New Zealand Financial Services Leader.
“Ultimately, what we need in New Zealand is a strong financial ecosystem where FinTechs can continue to innovate and do things differently, but equally, FS companies continue to operate and retain their financial strength and provide market stability and meet the financial needs of millions of individuals and businesses.
“We should encourage FinTech start-ups to leverage new technologies, provoke and encourage innovation, support new ways of meeting customer needs and role model modern approaches to driving customer satisfaction.
“At the same time we should acknowledge the big FS players that are quick to adopt new behaviours, are open to new technologies, are developing new partnering skills and are continuing to evolve their business models. Let’s not forget, New Zealand’s big FS players also innovate and manage scale and operational complexity in a competitive market relatively well,” says Mr Symons.
PwC’s survey shows the most widespread form of collaboration with FinTech companies is joint partnership (32%), which, says PwC, is indicative FS firms are not ready to go all in and invest fully in FinTech.
Asked what challenges they face in dealing with FinTech companies, 53% of incumbents cited IT security, regulatory uncertainty (49%) and differences in business models (40%).
In the case of FinTech companies, differences in management and culture (54%), operational processes (47%) and regulatory uncertainty (43%) were deemed the top three challenges when dealing with traditional FS firms.
“It’s about genuinely and authentically building a customer-centric offering. FinTechs are very focussed on attracting customers and retaining them, whereas the larger FS organisations have a more complex hierarchy of levers and stakeholders to satisfy,” says Mr Symons.
The survey shows the banking and payments industries are feeling the most pressure from FinTech companies. Respondents from the fund transfer and payments industry anticipate that in the next five years, they could lose up to 28% of their market share to them, while bankers estimate they are likely to lose 24%. This compares to around 22% in the case of asset management and wealth management and 21% in insurance.