According to a new PricewaterhouseCoopers’s survey on the rise of new technologies in the financial services (FS) sector and their impact on market players reveal 25 percent of bank’s market share is at risk to financial technology firms (Fintechs).
The survey report reveals that 83 percent of respondents from traditional financial services (FS) firms believe part of their business is at risk of being lost to standalone Fintech companies, while a staggering 95 percent of bank respondents believe so.
The report titled, ‘Blurred Lines: How FinTech is shaping Financial services’, features the responses of 544 CEOs, Heads of Innovation, Chief Information Officers (CIOs) and top management involved in digital and technological transformation across the financial services industry in 46 countries.
Incumbents believe 23 percent of their business could be at risk due to further development of FinTech who anticipate capturing 33 percent of the incumbents’ business.
Fintech firms use technology to make financial services more efficient for clients and enterprise users. They offer payment/transfer platforms and automated payment solutions.
According to the report, respondents from the fund transfer and payments industry anticipate that in the next five years, they could lose up to 28 percent of their market share to them, while bankers estimate they are likely to lose 24 percent. This compares to around 22 percent in the case of asset management and wealth management and 21 percent in insurance.
It further states that two-thirds (67 percent) of financial services companies ranked pressure on profit margins as the top FinTech-related threat, followed by loss of market share (59 percent).
“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,” noted the report.
Andrew Nevin Partner and Financial Services Advisory leader at PwC Nigeria says: “Nigeria is just as threatened by Fintech companies as their global counterparts. We expect Nigeria to leap frog and adopt the rapidly changing technologies as they emerge, driven primarily by consumers’ demands”.
The report also considered block chain, a distributed ledger technology, and noted it represents the next evolutionary jump in business process optimisation technology.
According to PwC, it could result in a radically different competitive future in the FS industry, where current profit pools are disrupted and redistributed towards the owners of new, highly efficient blockchain platforms.
However financial institutions are responding to the threat. CB Insight Data reports that six other American banks have made strategic investments in 30 Fintech start-ups since 2009.
Nigerian banks funded technology start-ups in the early 90s. Fintech companies such as Interswitch, ValuCard and ATMC were bank rolled by consortium of Nigerian banks.
Nevin gives insights on dealing with disruptive technologies, ““When faced with disruptive technologies, the world’s leading companies succeed by rapidly weaving them into their DNA, as part of their ‘business as usual’ process.
In our view, the lack of understanding of blockchain technology and its potential for disruption poses significant risks to existing business models and the firms that do not take the time to understand the impact will underestimate the opportunities and threats that blockchain can provide.”
PwC says its Global Blockchain team has identified over 700 companies entering this space, 150 of whom it says are ‘ones to watch’ and 25 of which it expects will likely emerge as leaders.
Steve Davies, EMEA FinTech Leader at PwC comments: “FinTech is changing the FS industry from the outside. PwC estimates within the next 3-5 years, cumulative investment in FinTech globally could well exceed $150bn.”
