Top banking executives fear that up to a quarter of their business could be at risk from emerging fintech firms, according to research conducted by PwC.
For the study, PwC interviewed 544 CEOs, heads of innovation, CIOs and top management involved in digital and technological transformation across the financial services industry in 46 countries.
Incumbents believe 23% of their business could be at risk due to further innovation in fintech, with traditional banking and payments feeling the most heat.
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 standalone fintech companies, 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.
Two-thirds (67%) of incumbents ranked pressure on profit margins as the top fintech-related threat, followed by loss of market share (59%).
Fintech companies are more bullish, believing they could capture a third of incumbents’ business.
A report by McKinsey last year forecast that as much as 60% of bank profits in five retail businesses - consumer finance, mortgages, small-business lending, retail payments and wealth management - are at risk from a combination of shrinking margins and competition from fintech startups.
Steve Davies, Emea fintech Leader at PwC comments: “Fintech is changing the FS industry from the outside. PwC estimates within the next 3-5 years, cumulative investment in fintech globally could well exceed $150bn, and financial institutions and tech companies are a stepping over one another for a chance to get into the game. As the lines between traditional finance, technology firms and telecom companies are blurring, many innovative solutions are emerging and there is clearly no straightforward solution to navigate this fintech world.”
Indeed, PwC’s survey shows the most widespread form of collaboration with fintech companies is joint partnership (32%), which, says Davies, is indicative of a reluctance among incumbents to go all in and invest fully in emerging technology startups.
Asked what challenges they face in dealing with fintech companies, 53% of incumbents cite IT security, regulatory uncertainty (49%) and differences in business models (40%).
In the case of fintech companies, differences in management and culture (54%), operational processes (47%) and regulatory uncertainty (43%) are deemed the top three challenges when dealing with traditional financial services firms.
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