Now is the time to embrace the opportunity: how FinTech is shaping financial services

23 March 2016

Are innovative and entrepreneurial FinTech start-ups about to steal the financial services sector’s lunch? Established market players are certainly feeling threatened: our new research, Blurred Lines: How FinTech is shaping financial services, reveals that 83% consider themselves at risk of losing some of their business to standalone FinTech firms over the next three to five years.

The stakes are high. Our research shows that today’s financial services companies fear losing up to 23% of their business as FinTech develops. The fund transfer and payments sector is feeling the pressure most, fearing a 28% loss of market share, while bankers think 24% of their business is at risk. In asset and wealth management, this falls marginally to 22% - and to 21% in insurance.

Note too that the FinTechs themselves are more ambitious: they expect to capture as much as 33% of the incumbents’ business – almost half as much again as the established sector fears is threatened.

In some areas, it’s the FinTechs that are making all the running. Blockchain is a stand-out example. Our global Blockchain team has identified more than 700 companies entering this space – 150 are worth watching especially closely, with 25 or so likely to eventually emerge as leaders.

Blockchain has the potential to transform financial services, delivering substantial cost savings and much-needed improvements in transparency. But while Blockchain start-ups are flocking to the sector, established financial services don’t really get it: while 56% say they recognise the importance of Blockchain, 57% don’t know how (or even if) they’ll respond. More than a quarter (27%) of asset managers are not at all familiar with Blockchain, while 61% of insurers are not at all or only slightly familiar with the technology.

How, then, should financial services companies respond to the threat posed by FinTech? For many, the answer is to collaborate with the innovators, though 25% concede they have, as yet, had no interaction with new market entrants. Partnerships with FinTechs are currently the most popular type of collaboration. The survey reveals that almost a third (32%) of established companies are involved in a partnership with a FinTech.

Still, these alliances aren’t necessarily straightforward. IT security (cited by 53% of financial services companies), regulatory uncertainty (49%) and business model differences (40%) are all potential challenges for incumbents as they work with FinTechs. Nor will working together always be easy – more than half (54%) point to differences in management and culture, which seem inevitable as large, hierarchical companies come together with small, flat start-ups. Many companies also point to problems with operational process compatibility.

Still, these challenges have to be overcome: there is now a pressing need for established financial services businesses to capture the benefits FinTechs offer. The disconnect between the sector and its customers has widened in recent years – with trust and engagement in increasingly short supply – and traditional players are finding it difficult to offer the service required.

FinTech poses a threat to established companies that don’t respond in the right way – now is the chance to embrace the opportunity that the FinTech phenomenon offers.

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