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Banks face threat as consumers warm to fintech providers

13 January 2016  |  10147 views  |  1 chess

Fintech providers could pose a real threat to banks within five years, according to new research which shows that by 2020 half of consumers expect to use a technology outfit for at least one service their bank would usually provide.

The research - from TransferWise, one of the firms hoping to cash in on the changing landscape - suggests that while the much hyped fintech explosion is yet to truly disrupt banking, it is on the cusp of the mainstream, providing people with a genuine alternative to banks.

Of more than 9000 people surveyed in Europe, Asia Pacific and North America, 32% have already used a fintech alternative to traditional providers for some service - be it payments, lending, wealth management.

In five years’ time, 48% of respondents expect to use a technology provider for at least one service their bank would usually provide, while 32% expect to use a technology provider for half or more of their financial needs.

Taavet Hinrikus, CEO, TransferWise, says: "In five years’ time, some parts of the sector will be almost universally controlled by non-banks; other parts will be a mix. The most important result will be the true democratisation of finance. The nature of the current “bundled” model of banking is fundamentally unfair. But this is changing - and the consumer will benefit."

Similar research published in December by EY of 10,131 digitally active consumers in Australia, Canada, Hong Kong, Singapore, the UK and the US, found that 15.5% have used at least two fintech services — defined as financial services products developed by non-bank, non-insurance, online companies — in the past six months. EY expects this number to double over the course of the coming year.

The TransferWise research shows that older people are less likely to trust technology providers to handle their financial needs, although even among over 55s, only a third of respondents say that nothing would motivate them to use the upstart rivals ahead of their banks.

The most common experience of using a technology provider to date for a financial service is for payments in-store, with 15% having used something like Apple Pay or Android Pay. Meanwhile, 12% have used a technology provider for international payments, six per cent for a loan, and four per cent for personal investments or wealth management.

Asked what would prompt them to switch to tech provider, 34% of those quizzed say a more secure service than banks offer; 29% better cost than banks; 26% better convenience; and 18% better customer service.

Read the full report here.

Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 15 January, 2016, 11:29

Why has TransferWise recently started tying up with banks if enough people are willing to use its service directly?

15% of Apple Pay usage? Even if TransferWise's survey sample comprised solely of owners of iPhone6 & above, 15% is not compatible with other reports e.g. PYMNTS.com article (http://www.pymnts.com/opinion/karen-webster/2015/five-from-15-the-2016-payments-pace-setters), according to which Apple Pay usage is 5% of eligible users. Besides, Apple Pay usage has actually dropped in Year 2 compared to Year 1 (https://twitter.com/s_ketharaman/status/685484148631453696), which does not bode too well for its chances of greater adoption in the future. 

Fact is banks are shedding customers in order to stay profitable (Are Banks Losing Customers Or Shedding Customers?). They're also exiting cross-border remittances due to mounting regulatory pressures (e.g. HSBC). Wealth managers are not touching people with less than US$ 20K portfolios (http://qwt.io/s_ketharaman/LcMY). This creates a market at the bottom of the pyramid that banks are not interested in serving. This could comprise a sizeable market for fintech to capture but it's silly to claim that fintech is posing any threat to banks since banks are not interested in this market in the first place.

Right now, fintech is sitting on top of billions in VC funding and can service this market without concern for revenues / profits. Question is how long this luxury will last. When it ends, it's questionable whether fintech can make profits from this segment of the market.

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