The financial services industry will be unrecognizable in the next ten years as winds of digital finance blow it’s face, a new study done by Price WaterhouseCoopers says the financial sector incumbents such as banks and insurance firms stand to lose upto 24 percent of revenues to Fintechs.
Many of the traditional banks fear losing business to innovators, starting with payments, fund transfer and personal finance sectors. At least 88pc of the respondents in Africa believe that their revenues are at risk.
“This business at risk is due to developments in FinTech and has grown to an estimated 24% of revenues,” PwC said adding that this revenue loss could happen in 3 to 5 years.
What Internet did to media
In the survey conducted in Africa and the rest of the world, banking executives were asked to name the activities consumers are already doing with FinTechs and they cited: Payments, Funds transfer, personal loans, insurance and many others. Researchers at the MIT reckon that Blockchain and digital finance will do to Banks what the Internet did to the media by removing or lowering barriers to entry and spurring competition against the incumbents.
As a response, mainstream Financial Institutions are rapidly embracing the disruptive nature of FinTech and forging partnerships in efforts to sharpen operational efficiency and respond to customer demands for more innovative services such as Equity Bank’s equitel and KCB M-Pesa but the entry of countless small startups will take away a huge chunk of revenue from the incumbents.
In fact, funding is moving from a venture capitalist dominated field towards more mainstream investments. According to research based on data from PwC’s DeNovo platform, funding of FinTech startups has increased at a compound annual growth rate (CAGR) of 41% over the last four years, with over US$40 billion in cumulative investment.
Redrawing the lines
Cutting-edge FinTech companies and financial innovation are changing the competitive landscape, and are redrawing the lines of the Financial Services industry. It is also expected that the open nature of fintech transaction may help reduce systemic risk.
More consumers will adopt nontraditional Financial Services providers. Early adopters will most often conduct payment and money transfer activities with nontraditional providers, and personal finance will emerge as the next most populous activity at risk.
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Financial Institutions will need to adapt their mindsets to be open to FinTech innovations in order to embrace these developments and keep their customers.
As younger generations enter the market they will expect the same level of service and innovation that they get from the American GAFA (Google, Apple, Facebook, and Amazon) or Asian BATX (Baidu, Alibaba, Tencent, or Xiaomi) companies. The question then that companies need to ask themselves is: what can I do to ensure that I am not caught at the back of the pack?