FinTech – the portmanteau of finance and technology – describes a thriving innovative industry that is disrupting financial services in the 21st Century.
There are more than 5,000 people employed in the FinTech industry in Ireland, a number expected to double by 2020.
Digital DNA partner Deloitte’s Centre for Financial Services created the report “Disaggregating the impact of FinTech: Brighter shades of disruption” to explore the impact that FinTech companies will have on financial services and, more importantly, how companies can benefit from them.
Why create such a document?
Well according to Deloitte two of the most common questions they are asked by clients include: “How is FinTech going to impact what we do?” and “What should we do to prepare for the disruption from FinTech companies?”
Deloitte would argue the need to ask a third question: “How will technology innovations developed by these new companies benefit my firm?”
In an attempt to more accurately answer all three questions for businesses, and provide specific action steps for traditional financial services firms, Deloitte decided to focus not on the disruption FinTechs are causing, but instead on the precise effects.
Deloitte’s report looked at six areas affected, specifically including payments, deposits and lending, investment management, insurance, capital raising, and market provisioning.
Here’s how FinTech is impacting just one of these areas specifically – payments – and how best to address the impact proactively:
FinTech Disruption in Payments
Although the threat of disintermediation is real, upgrading infrastructure is an opportunity for reinvention and long-term growth.
The payments industry is becoming much more competitive and fragmented in the medium term. Payment firms can counter FinTech’s growing clout by exploiting the ecosystem while leveraging their brand and data.
To stay relevant, integrated and digital payment solutions that coexist with alternative solutions should become an immediate priority. Recent innovations in mobile wallets and crypto-currencies will eventually reduce the reliance on cards, but the transition to a fully digital world of payments will take time. Value-added services like real-time personalised offers and rewards will be the key to differentiation.
However social media-based platforms are gaining prominence, especially among millennials. PayKey is an example of software that provides a secure environment for banks’ customers to make payments within any social network.
As mobile payments begin to dominate, this also means we lose control of the relationship and the ability to influence customer behaviour. But by providing access to transaction data, you can give consumers an insight into their budgeting and reap the benefits of targeted promotions.
In 2019, nearly 90 million consumers are expected to use mobile wallets in the US alone. But with 112,000 wallets hacked in 2015, banks face considerable repetitional risk. Tokenisation and biometrics could be the weapon of choice in the quest for security.
Banks would be advised to acquire smaller FinTechs that can help them build a competitive edge and scale in niche product categories and market segments. All firms should be looking to align with technology vendors that support open API development to quickly build digital and mobile offerings. Big business can also leverage their existing customer and fraud analytics solutions to differentiate from startups who may not have these tools in their portfolio.
FinTech Benefits for Traditional Financial Services
From their research Deloitte concluded that FinTech disruption doesn’t have to spell doom for traditional firms. The influence of FinTechs can actually be a positive for the areas of services impacted, so long as firms understand the effects and manage the change with passion and urgency.
FinTech is bringing forth new levels of personalisation to retail financial services products. A move away from traditional stagnant, standardised products is a good thing for businesses and their customers. New markets are opening up, too. This brings with it opportunities to develop new profit pools. Companies who innovate with this change can move to serve these more sophisticated and profitable cohorts.
In many ways these developments level the playing field, allowing firms of all sizes to take advantage of emerging networks and platform-based services at lower cost, bringing true competitive advantage to the market. And though new sources of data constantly emerge and analytics get evermore sophisticated, the research suggests that the unique capabilities of humans won’t be lost. Businesses merely need to adjust their talent strategies to suit the new environments.
Download the report for free here: https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/financial-services/deloitte-uk-fsi-disaggregating-fintech.pdf