BY Fraser Tennant
Global investment in FinTech is set to top $150bn over the next five years, putting one in four financial services (FS) companies potentially at risk, according to a report published this week by PwC.
The report, ‘Blurred Lines: How FinTech is shaping Financial Services’, is based on a survey of 544 respondents across 46 countries and examines the development of new financial services sector technologies and their potential impact on the FS market.
Pointedly, 83 percent of survey respondents said they felt at risk of losing some of their business to standalone FinTech firms, with 67 percent citing pressure on margins as being the top threat to business, followed by loss of market share (59 percent).
In terms of the relationship between FS firms and FinTech companies, while the report notes that joint partnerships are “the most common way” in which collaboration takes place, it also makes clear that there are particular challenges to overcome. Chief among these are IT security, regulatory uncertainty and differences in business models.
“Given how fast technology is changing and lines are blurring, no business can afford to rest on its laurels,” said Steve Davies, EMEA FinTech leader at PwC. “As competition hots up, the result will be a reduction in margins and a loss of market share for traditional financial institutions. Those who do not act now are at risk of falling behind as FinTech changes the industry from the outside. Incumbents cannot afford to ignore this trend. Nevertheless, our survey shows that 25 percent of firms currently have no interaction at all with FinTech companies.”
The PwC report also identifies the distributed ledger technology Blockchain as being the next evolution in the FinTech story, with huge cost savings and improvements in transparency being real possibilities – a “once-in-a-lifetime opportunity”, according to Mr Davies. Testament to this belief is PwC’s identification of more than 700 companies that have recently entered this space.
Mr Davies concluded: “In the past, financial services companies have provided invaluable services to clients by acting as intermediaries in the system. Their functions are now increasingly being usurped by technology-driven business models. Before these traditional intermediary roles become obsolete, firms need to wake up to the once in a generation opportunity provided by this changing financial landscape.”