The FinTech effect
This unprecedented level of disruption has forced industry professionals to reconsid...
The pace of change in the financial services sector is incredible.
This unprecedented level of disruption has forced industry professionals to reconsider virtually everything about the role of finance – from the way that mobile money services have tapped into a demographic that itself could turn into a $3-trillion opportunity, through to the prevalence of artificial intelligence, transaction and contextual data and more.
With its annual report named “Redrawing the Lines: FinTech’s Growing Influence on Financial Services,” PwC set out to examine both the continued rise and development of new business models and emerging technologies in the financial services sector across the globe.
The analysis, based on a global survey of 1,308 financial services and FinTech executives, includes a number of impressive insights relating to how we’ve gotten to this point and where we may be headed in the not-too-distant future.
FinTech and financial services: Partners in the future
One of the most interesting findings to come from the report relates to the evolving role of FinTech in financial services as a whole. Though FinTech may have begun life as a series of start-ups who were looking to disrupt the status quo, modern companies are instead looking for something different - partnerships.
In many ways, a partnership creates a mutually-beneficial situation for everyone involved. FinTech start-ups need customers, while financial services professionals will increasingly depend on new approaches to both drive change forwards while delivering innovation to their customers.
Feeding the innovation driven by FinTech in areas like e-retailers, social media platforms and similar sources back into financial services seems poised to be an efficient way to accomplish both of those goals.
Much of this change is in part due to one of the most important findings of the PwC report - more than 80 percent of those who responded believe that their entire business is at risk. 88 percent of established financial services professionals are growing increasingly concerned that they are losing revenue to more innovative competitors.
While 77 percent of financial institutions reported that they would increase their own internal efforts to innovate, this may not actually be enough to get the job done. Based on that, it should come as no surprise that 82 percent of those who responded said that they actually expect to significantly increase their FinTech partnerships at some point in the next three to five years alone.
Convergence through emerging technologies
In many ways, the goals of both FinTech companies and seasoned financial professionals are the same. They want to provide a renewed experience for their customers. Financial services incumbents, both through the aforementioned partnerships and through a market-driven sense of internal innovation, are therefore in a better position to quickly respond to the ever-changing environment and regulations in order to ultimately provide that better experience their customers both seek and deserve.
A large part of this has come about through a refocusing of which technological areas companies will be investing in over the next 12 months. According to the report, these are the most important areas to focus on during this time:
- Data analytics
- Artificial intelligence
- Robotics process automation
- Biometrics and identity management
- Distributed ledger technologies
- Public cloud infrastructure.
These priorities illustrate that financial institutions are actually beginning to follow the trends that FinTech companies are setting. At the same time, financial institutions are focusing on updating their legacy systems with a strong focus on these types of technologies.
The ripple effect of disruption
The PwC report also highlights the particular areas of the financial services industry that will see the highest levels of disruption over the next five years. Those seasoned veterans who are able to both embrace change and find the right partnerships with FinTech providers will no doubt be able to adapt and rise to the occasion. Those who aren’t will no doubt run into trouble in many of the following areas:
- Banking. Consumer banking, in particular, is expected to be the “epicenter of disruption” over the next five years, according to 80 percent of people who responded to the survey. Many seasoned veterans see personal loans and personal finance as two categories of products that are most at risk to moving to a FinTech company thanks to a focus on intuitive product design, ease-of-use, 24/7 accessibility and more. However, 63 percent of those veterans saw the rise of FinTech as an important opportunity to expand their own products and services.
- Insurance. 52 percent of people who responded to the survey said that both life and non-life insurance were the second most likely sector for disruption. 58 percent of respondents said that they currently make it a priority to monitor FinTech companies on a regular basis in order to respond as competitively as possible. This is a large part of the reason why FinTech partnerships are expected to increase 84 percent in these areas over the next five years.
- Transactions and payment services. Though 73 percent of people said they feared this part of their business was at risk to innovators, this number was actually down from 87 percent from the 2016 report. This in itself is proof that partnerships can and do work, with 35 percent of financial professionals partnered with FinTech companies on transactions and payment services recorded last year, increasing to 42 percent in the most recently available version of the report.
In the end, the PwC report made it clear that mainstream financial institutions have no other choice but to rapidly embrace the disruptive nature of Fintech in any way they can. Forging partnerships with these providers that are focused on long-term objectives not only puts both parties in a better position to sharpen operational efficiency, but it also allows them to respond head-on to customer demands for more innovative services sooner rather than later.
This is a large part of the reason why, according to data from PwC’s DeNovo platform, the funding of FinTech start-ups has increased at a compound annual growth rate of 41 percent over the last four years alone. That represents a cumulative investment in excess of $40 billion.
Thanks to the rate at which FinTech companies and financial innovation are changing the competitive landscape, the lines of the financial services industry are being redrawn right before our very eyes.
ServiceNow pumps millions into EU service compliance
ServiceNow, the digital workflow company, has announced a multimillion euro investment to help EU customers meet compliance requirements.
The legal, technical and organisational safeguards will help companies to comply with the the Schrems II judgment and European Data Protection Board (EDPB) Recommendations issued in June 2021.
ServiceNow’s investment means all EU-hosted data will be exclusively handled within the EU, and the cloud-hosted digital workflow provider claims its solution will come “without impact on current delivery and service”.
ServiceNow upgrade: free of charge
There will be no cost for current customers to opt in to the data compliance solution, even though ServiceNow is investing an unspecified multimillion euro sum and hiring more than 80 new staff across the bloc.
Mark Cockerill, vice president legal, EMEA and global head of privacy at ServiceNow, said: “With any regulation change, cloud services companies have a choice. They can adopt a ‘wait and see’ approach or get proactive and help customers and partners innovate. At ServiceNow we are on the front foot, continually investing in our customers, allowing them to operate with the highest level of choice and control over their EU data.
ServiceNow upgrade: ‘peace of mind’
“Our new EU-centric service delivery model will give our current customers and partners peace of mind. For customers and partners operating in highly regulated industries, or in the public sector, or those that have yet to make the switch to the cloud, this model gives them certainty and simplicity when selecting the cloud service that best suits their needs.”
Carla Arend, lead analyst, cloud in europe for IDC, said, “The Schrems II ruling has led European organizations to revisit their cloud-related data protection policies and processes when it comes to international data transfers through cloud services.
“Contractual, privacy, and security safeguards and the assurance that data will be kept and handled in the EU help European organizations to comply with European data protection laws while taking advantage of global cloud platforms. Vendors, such as ServiceNow, that invest to support their customers in response to this ruling are providing essential choice to their customers.”