Results from a PwC survey, which assesses the rise of new technologies in the financial services (FS) sector and their impact on market players, reveal 83% of respondents from traditional Financial Services (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.
The report, ‘Blurred Lines: How FinTech is shaping Financial services’, features the responses of 544 CEOs, Heads of Innovation, CIOs and top management involved in digital and technological transformation across the FS industry in 46 countries. Incumbents believe 23% of their business could be at risk due to further development of FinTech. What’s more, FinTech companies themselves anticipate they could capture 33% of the incumbents’ business.
Banking and payments feel most heat from FinTech
The survey shows the banking and payments industries are feeling the most pressure from FinTech companies. Respondents from the fund transfer & 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 & wealth management and 21% in insurance.
Top threats from FinTech
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.
Blockchain untapped and underestimated by FS
Blockchain, a distributed ledger technology, 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. Not only could there be huge cost savings but also large gains in transparency. Yet it ranks low on the agendas of participants. While the majority (56%) recognise its importance, 57% say they are unsure or unlikely to respond to this trend.
“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,” says Haskell Garfinkell, US FinTech co-leader, PwC.
“Blockchain and disruptive ledger technologies offer a once-in-a-lifetime opportunity for financial services companies to transform the way they do business. 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.”
To put this into perspective, PwC’s 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.
Read the full PwC Press release here.
Download ‘Blurred Lines: How FinTech is shaping Financial Services’