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Technology Reshaping the Financial Services Industry

From the outside, financial services can appear to be a behemoth – enormously slow to change direction and cumbersome when it tries to do so. But over the last decade financial services firms have come under fire from fast moving, disruptive players – the “FinTechs” who bring narrow focus and a startup mindset to the challenge of financial services.

In the UK, FinTech has been on the rise – with more than US$5.5 billion of investments made across the industry between July 2015 and January 2016. In this infographic by the UK’s Choice Loans, it’s easy to see the spike in FinTech growth in 2012, but when we consider that a startup’s trajectory is relatively slow for the first five years, we could reasonably expect to see breakout growth in the FinTech space in the coming 12 months.

Here in Australia, we’ve seen an explosion of FinTech growth recently with Stone and Chalk and Tyro leading the charge, building out strong FinTech hubs. Stone and Chalk alone, is home to 70 startups and over 230 full time residents.

But it’s not just disruption from the outside that is reshaping the financial services industry. Most of the large and mid-tier banks have fully fledged innovation programs. The big four banks have dedicated innovation labs, working with both internal stakeholders and partnering with their client base. These laboratories provide the perfect opportunity to control and manage the wildfire of innovation in a highly regulated environment. In many ways, investing in an innovation lab structure is a smart move for banks who are well versed in managing portfolios – only now they’re managing portfolios of startup/innovation investments rather than traditional forms of financial assets. But in our mentoring sessions and conversations with FinTech startups, we still see many traditional financial services firms struggling to know how best to engage with the bright, shiny, FinTechs. Common challenges include:

  • Slow moving procurement sees FinTechs move on to more responsive business opportunities
  • New categories of specialisation means that finding competitive quotes can prove challenging, slowing procurement even further
  • Financial services firms prefer an end-to-end supplier/vendor relationship, whereas most FinTechs are narrowly focused around particular pain points.

If the local scene follows the UK trajectory, we may well expect a continued growth of FinTech startups over the next 2-3 years. Good news for FinTech hubs. Good news customers who work with FinTechs. But it’s likely to mean more indigestion for a still largely risk-averse financial services sector as it comes to grips with the technology that is shifting the ground beneath its feet.

 

fintech-infographic

 

https://www.valuewalk.com/2016/11/financial-technology-fintech/

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