A recent PwC survey, Redrawing the lines: FinTech’s growing influence on Financial Services pin-points the relationship between and banks and fintechs and highlights the key challenges that will make an impact on the financial services industry.
The study reveals that 61% of UK financial services industry leaders believe they could lose as much as 40% of their revenue to standalone fintech firms, compared to 51% of financial services leaders globally. Additionally, financial services firms believe that up to 40% of their revenue is at risk of being lost to independent fintech terms.
The findings from the report show that almost half (47%) of UK financial services firms plan to acquire fintech firms in the next 3-5 years, with over a third (39%) planning to invest further in cybersecurity. The findings of the report also show that currently less than a quarter (22%) currently interact with customers via mobile applications.
Whilst there has been an increasingly growing demand for fintech firms in the financial services industry, it’s interesting to see the correlation between fintechs and banks will be key in the upcoming years. bobsguide spoke to Steve Davies, EMEA Fintech leader at PwC to discuss the recent report.
What are your main findings and thoughts on the report?
It’s the second time we’ve done this report and this year we had over 1,300 responses from 71 different countries. We spoke to incumbents, fintechs and investors, so we had a good mix of participants.
Over the past couple of years the theme for fintechs was taking over banks, the music has now changed a little bit. There is a much stronger theme both from fintechs and incumbents; The two are now coming to work together. From an incumbents' perspective, 88% of participants are increasingly concerned that they will lose revenue to innovators. About 82% expect increased partnerships with fintechs. It’s less about competing more and more about co-operating. If you’re a fintech, as well as having capital and a good digital platform, you need loyalty and customers. The banks still have those customer relationships. From a banks perspective, they’re trying to drive change in meaningful ways across their organisations.
In terms of technology, we see a big focus around AI and cognitive algorithms. The other focus is blockchain, and this is where there was a big finding for me. We asked participants when they expect to see blockchain as part of a production system or a process, and 77% of respondents said they expect to see a blockchain solution in production systems by 2020. The idea of blockchain being out of the lab and into the real world is where I think we’re going to see some traction in the next couple of the years. And then lastly in terms of the technology trends, well see topics around data. Not only data in terms of privacy and access, but also data in terms of insights; seeing what other people similar to you do.
The report states that less than a quarter of fintechs currently interact with customers via mobile applications. Do you think this will be a growing trend for banks?
The mobile statistic is quite interesting and it took me by surprise. Many of us still use internet banking and use our tablets and go in from the internet platform rather than the mobile-app platform, so I think it is a fair representative. The further down the age spectrum you get the more competition there is to use mobile platforms and be digitally native. We’re now seeing a lot of banks generating mobile- first platforms and then building onwards from those, because they’re simpler to create, more intuitive, more cost-effective and they can be safer. Yet for a lot of us we still go through the internet platform so it’s adapting the change. When we talk to a lot of fintechs, they are very much mobile-first.
A recent PwC report also highlighted that cybercrime was the second most reported crime in 2016. Do you think cybersecurity will be a growing concern for fintechs?
Yes definitely and on a couple of levels. I think that in terms of how fintechs impact the way customers interact, there’s a common expectancy over data, how it’s protected, and who has access to it.
Banks are still considered the most secure platform in relation to data protection, however this is gradually changing over time. So there’s a worry that if we’re completely mobile-first, is this safe? As we start to develop the insights from the data that there is, are they putting the data at risk? And the other concern is from an infrastructure perspective; I think fintechs have got a lot to offer in areas such as regtech- where you’re protecting these platforms from a cyber perspective, because they have less of a legacy system in place and are much easier to understand.
The report also shows that almost half of UK firms (47%) say they plan fintech acquisitions over the next 3-5 years. 81% say they plan to initiate strategic partnerships with Fintechs over the same period, according to the survey of more than 1,300 financial services industry leaders worldwide.
The report also states that start-ups, large technology companies and social media and internet platforms are expected to be the top fintech disruptors in the UK financial services sector over the next five years, with consumer banking, funds transfer and payments the top three areas of business likely to be impacted. The key challenges to the sector from fintechs are expected to come from increased price competition, loss of market share, and threats to information security and privacy.
The PwC survey finds that UK financial services firms currently dedicate 9% of their annual turnover to fintech and IT projects - well below the global average of 15%. UK firms are, however, more realistic in their expectations of return on investment (ROI) with fintech, with respondents saying they expect an annual ROI of 13%, while firms in the rest of the world expect an average ROI of 20%.
The opportunities to engage customers and investment for the future
UK financial firms believe the top three opportunities brought about by Fintech are expansion of products and services, leveraging existing data sets and increasing their customer base. Over three quarters (77%) of UK financial services firms say they plan to invest in data analytics in the coming year and more than a third (39%) plan to invest in cyber security.
UK financial services leaders believe many of their customers are already switching to Fintech in some areas. 92% think consumers use Fintech to conduct payments, 81% say it is already used for personal finance and 72% for funds transfers.
Mobile applications are the future, but UK firms have work to do
Under a quarter (22%) of UK banks, insurers and asset managers say they currently interact with their customers using mobile applications, compared to 28% globally. They clearly believe mobile is the future, though, as 89% of UK firms expect mobile channels to grow significantly over the next five years. As a result, 50% of UK firms say they plan to invest in mobile technology in the coming year.