Around 83% of traditional financial services firms and 95% of banks believe part of their business is at risk of being lost to fintech companies, according to a new PwC survey.
Respondents to PwC’s Blurred Lines: How FinTech is shaping Financial Services survey said that 23% of their business could be at risk due to further development in the fintech space. Those in the fund transfer and payments industry anticipate that in the next five years, they could lose up to 28% of their market share to fintech companies, while bankers estimate they are likely to lose 24%. This compares to around 22% in the case of asset management and wealth management, and 21% in insurance.
More than two thirds of financial services companies ranked pressure on profit margins as the top fintech-related threat, followed by loss of market share (59%).
Meanwhile, fintechs anticipate they could capture 33% of the incumbents’ business.
“FinTech is shifting the paradigm of traditional intermediary roles by making them obsolete. While FS organisations have acted as intermediaries in the financial system by providing an invaluable service to clients, their functions are being usurped by new technology-driven business models,” said Manoj Kashyap, global financial services fintech leader at PwC. “Given how fast technology is developing, incumbents cannot afford to ignore fintech. With the pace of change now occurring at increasingly faster intervals, no FS business can rest on its laurels.”
Although 32% of financial services firms have formed joint partnerships with fintechs, almost 53% of respondents cited IT security as the top challenge for collaborating with these startups. Regulatory uncertainty and differences in business models were noted as barriers by 49% and 40% of companies respectively.
In the case of fintechs, differences in management and culture (54%), operational processes (47%) and regulatory uncertainty (43%) were deemed the top three challenges when dealing with traditional financial services firms.
“PwC estimates within the next three to five years, cumulative investment in fintech globally could well exceed US$150 billion, and financial institutions and technology companies are a stepping over one another for a chance to get into the game,” said Steve Davies, EMEA fintech leader at PwC. “As the lines between traditional finance, technology firms and telecommunications companies are blurring, many innovative solutions are emerging and there is clearly no straightforward solution to navigate this fintech world.”
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