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Digital Pulse

in·no·va·tion – A creation resulting from study and/or experimentation. The act of starting something new.

dis·rup·tion – An act of delaying or interrupting continuity. An event that results in displacement or discontinuity. The act of causing disorder.

Digital change is a journey, not a destination.
It requires agility and flexibility to underpin a continually evolving business environment.

Industry Change – The ongoing economic, technological and social development of commercial business and market sectors.

Report: Fintech’s growing influence on financial services

Key takeaways

  • PwC’s fintech report charts the increasing influence of fintech on the financial services sector.
  • Traditional companies now appear more willing to innovate and collaborate with startups that were once deemed competitors.
  • Across the sector, investment is ramping up in emerging technologies such as blockchain and artificial intelligence.

The “staggering effect” of fintech on the financial services industry is driving incumbent institutions to show greater gumption towards pursuing innovation, says a new PwC report.

Building on last year’s Blurred Lines paper, which examined the acceleration of the fintech sector, Redrawing the lines looks at how financial technology startups and disruptors are now reshaping the activities of more traditional industry players.

With over 1,300 financial services and fintech executives surveyed globally, the report reveals an industry that’s ready to embrace the disruptive power of fintech, whether by innovation or collaboration (or both). In fact, very few remain of those that don’t recognise the oncoming signs of disruption.

Most incumbents believe their business is at risk to innovators

Globally, 88% of respondents from the financial services sector believe that parts of their business will be lost to standalone fintech companies. The fear is strong on this one: it’s up from 80% last year. Payments, fund transfer and personal finance are the sectors identified as most likely to be lost to innovators.

In what areas are consumers dealing with fintech companies the most? (Click to enlarge.)

Financial services and fintech are coming together

Fintech appears to have evolved from an arena of startups seeking to beat incumbents, to a broader ecosystem of businesses looking, in many cases, for partnerships.

The financial services industry now recognises the need to adopt the new approaches offered by fintechs in order to deliver innovative results faster and bring customer-centric strategies to life. Fintech companies benefit from such relationships through accessing the vast data sets and existing customer bases offered by more established organisations.

The report shows that partnering with fintech companies is up from 32% in 2016 to 45% in 2017 on average. Over the next three to five years, 82% of financial services companies intend to increase their partnerships with fintechs.

Entities driving such innovation also come from a variety of sources. The chart below shows where survey respondents think the most disruption will come from:

Disruption in the financial services industry could come from a number of sources. (Click to enlarge.)

Financial institutions are embracing the disruptive nature of fintech

Globally, 56% of respondents say they’re putting disruption at the heart of their strategy, which could mean responding in areas ranging from customer experience, to operating model or internal processes.

Efforts to stay at the cutting edge are also ramping up: in Oceania, 89% of respondents – the highest figure for any region – say they expect to see an increase in their internal innovation activities over the next three to five years. Globally, 77% said the same.

Financial institutions addressing customer retention expect to focus on developing intuitive product design, easy-to-use services, and round-the-clock accessibility.

Making products more intuitive and easy to use is seen as key to retaining customers of financial institutions.

Blockchain is emerging from the laboratory 

Almost a quarter of global financial institutions say they are now ‘extremely’ or ‘very’ familiar with blockchain technology. With greater understanding of its potential than ever before, blockchain is finally transitioning from hype to reality.

Widespread use of blockchain in business won’t happen overnight, yet more than three quarters of global financial services companies plan to adopt the technology in live production systems by 2020.

PwC’s DeNovo platform shows that funding for blockchain companies increased 79% year-on-year in 2016 to reach US$450 million globally.

The most likely business use cases for blockchain, say respondents, is in payments infrastructure, followed by fund transfer infrastructure and digital identity management.

Large fintechs see blockchain as their most apt investment in 2017, while incumbent financial institutions show greater interest in artificial intelligence capabilities.

The opportunities presented to the financial services industry by innovation are substantial. On average, financial institutions expect a 20% annual return on investment from fintech related projects. This makes a clear case for innovation to be embedded in the strategic agenda of those organisations wanting to remain at the forefront of the industry.

Although there may be much to be gained from investing in areas such as blockchain, artificial intelligence and identity management, for example, embracing innovation is not just about the technology. Truly transformative organisations will also re-examine their culture, ways of working, customer engagement, and approaches to problem solving and leadership.


For the full picture on how fintech is affecting the financial services industry in 2017, download a copy of PWC’s global report, Redrawing the lines: FinTech’s growing influence on Financial Services here.

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