Some of the world’s largest finance sector companies are reviewing their business models following the rapid growth of “fintech” newcomers – those offering financial technology services – in the sector, according to a new study from Deloitte.
Deloitte said there were global investments of $12.2 billion in 2014 in the fintech sector, more than threefold compared with 2013. As such, the company reported, “disruption in the financial sector is not a one-time event but rather a continuous pressure to innovate as new entrants lay claim to more and more of the estimated $6.6 trillion on revenues at stake in global retail financial services.”
“Innovation will shape customer behaviors, business models, and the long-term structure of the financial services industry,” said Chris Harvey, Deloitte global leader. “Financial services, banks and insurance firms are already starting to see the effect of disruptors, and we believe much more is to come”
Deloitte presented its findings via a recent report titled “The Future of Financial Services: How Disruptive Innovations are Reshaping the Way Financial Services are Structured, Provisioned and Consumed.” The report was developed in conjunction with Deloitte Consulting LLP in the U.S., an entity within the Deloitte network.
The report draws on more than 100 interviews with industry experts and a series of workshops that included input from companies including UBS, HSBC, Deutsche Bank, Barclays, Visa and MasterCard, plus global fintech innovators including Zopa, Funding Circle, Transferwise and Ripple.
“For decades, banks and insurers have employed similar, highly profitable business models. But they realize those models are coming under pressure due to fintech innovations” said R. Jesse McWaters, the study’s lead author. “Financial technology companies are deploying online platforms, have small capital bases and make strategic use of data to acquire customers and revenues at a fast pace. Banks and insurers noted that, and are contemplating their response.”
“When we look at the disruptive potential of innovation, we should not only consider the threats, but also the tremendous opportunities to reinvigorate our industry and become more relevant for our customers,” said Rob Galaski, banking and securities leader, Deloitte Canada. “Ultimately, the companies that emerge victorious will embrace innovation to build ecosystems, operationalize agility and ruthlessly attack sources of friction for their customers.”
The report points out key similarities in the strategies being employed by successful disruptors. Marketplace lending platforms like Lending Club – which captured markets’ attention with a $5.4 billion initial public offering – threaten banks core deposit and lending functions, Deloitte said, adding, “Automated wealth advisors like Future Advisor are contributing to the rapidly eroding margins on core wealth advisory services.”
This year, Deloitte consolidated its Connecticut offices into 120,000 square feet of the clock tower of the BLT Financial Centre at 695 E. Main St. in Stamford.
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