World Economic Forum: Fintechs have “failed to disrupt”, but there is hope
A new report from the organisation says fintechs have not established themselves as dominant players.
While fintechs have changed how financial services are offered and consumed, they have failed to disrupt the competitive landscape or position themselves as dominant players, according to a new World Economic Forum report. The report, Beyond Fintech: A pragmatic assessment of disruptive potential in financial services, aims to examine the impact of innovation on the financial ecosystem.
“Fintechs have changed the basis of competition in financial services, but not the competitive landscape,” said Rob Galaski, Americas FSI regional leader at Deloitte Canada and co-author of the report.
“Fintechs now define the tempo and direction of innovation in financial services, but high customer switching costs and the rapid response of incumbents has challenged their ability to scale.”
According to the report, many fintechs entered financial services with the goal of overtaking incumbents as the new dominant players. This strategy has now shifted to partnerships due to fintechs encountering issues with scale and customer adoption.
“The ability to be a fast follower has proven more important than being first for large financial institutions,” said Galaski. “Agile incumbents have used the fintech ecosystem as a supermarket for capabilities, making the ability to nurture and rapidly form partnerships a critical ingredient to banks’ competitive success.”
However, while fintech has fallen short in certain areas, the report outlines the notable changes it has effected in financial services.
"Fintechs have seized the initiative – defining the direction, shape and pace of innovation across almost every sub-sector of financial services – and have succeeded as both standalone businesses and crucial parts of financial value chains," the report says.
The report also states that fintechs have "reshaped customer expectations, setting new and higher bars for user experience."
The report also warns about the "coming collision" between large financial institutions and tech giants such as Facebook and Amazon.
"All financial institutions will need to find ways to partner with large techs without losing their core value proposition," the report says.
"Incumbents will have to compete with large techs for talent, driving up the cost of technology talent...(and) risk falling far behind on technological offerings if they minimise engagement with large techs to protect independence."