Greater collaboration between fintech and established players expected

There are widespread concerns that fintech startups have already hit incumbents’ bottom lines, with 88% of financial services executives surveyed saying that revenue is at risk; that’s why 82% intend on brokering more deals with fintech firms over the next three to five years to counter that threat, the report finds.

“Mainstream financial institutions are rapidly embracing the disruptive nature of fintech and forging partnerships in an effort to sharpen operational efficiency and respond to customer demands for more,” the PwC report says.

Incumbents see the potential for a “symbiotic relationship” with fintech firms, the report notes; in exchange for offloading some of the research and development work onto fintech firms, incumbents give fintech firms access to an established customer base.

Indeed, the PwC report suggests there are signs that a shift to a more collaborative landscape is underway as 45% of established players, globally, have entered into a partnership with a fintech firm, which is up from 32% in 2016.

In Canada, the deal struck between robo-advisory firm Wealthsimple and Power Financial Corp. in 2015 is an example of this growing trend. Power Financial’s majority stake in Wealthsimple gives the robo-advisor firm access to a larger pool of clients.

Changing consumer expectations, especially as younger generations look to align themselves with more innovative firms, are fuelling the establishment’s push to break new ground and offer sleek, convenient digital solutions.

Banks stand to see the most disruption, the PwC report notes, as more consumers are expected to migrate to fintech companies to secure loans and deal with personal finance concerns.

To address issues around customer retention, most banking executives are engaging with fintech firms, with 63% saying that the rise of fintech is an opportunity to expand their products and services.

Read: Joining the revolution

Still, there are holdouts within the financial services sector, namely among asset and wealth managers, which the report singles out as “too complacent” to take advantage of fintech developments because they prefer to stick to “short-term initiatives” as opposed to heavy investments in the fintech field.

Although 60% of executives in the wealth-management space anticipate fintech firms will grab a share of their business, just 30% have formed partnerships. In contrast, about 54% of those in the banking industry surveyed are working with fintech companies.

That may be because wealth-management and insurance fall on the lower end across the spectrum of financial activities seen to be at most risk for disruption, with 38% of incumbents in both areas saying that clients are already doing business with fintech companies. That’s in contrast to activities involving payments and personal finance, with 84% and 60%, respectively, saying that their customers are conducting business with fintech firms in these areas.

Although established financial services institutions are still playing catch-up, they’re attempting to narrow the innovation gap with increased investment in artificial intelligence (AI), data analytics and mobile technology.

There may be much appetite for greater collaboration, the report notes, but there are significant hurdles, such as bureaucratic management culture and regulatory considerations to which established firms are beholden.

“The financial services industry will be unrecognizable in five years,” the report says. “The innovators will not necessarily be the innovators of tomorrow.”

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