To round off FinTech week 2019, Marcus Scott, Chief Operating Officer, TheCityUK, explains how innovation and disruption in financial services markets is coming not from start-ups, but largely from beneficial partnerships between established institutions and FinTechs.
Google, Apple, Airbnb, Uber...we have all become familiar with disrupters. They are companies, or products, which fundamentally change the way a market works – seemingly overnight and forever.
As new technology is applied, newer, better, or cheaper ways of doing things are found and generally, revenue per transaction goes down. eCommerce heralded the death of many of our household high-street brands. Physical music retailers never recovered from the advent of Apple Music and Spotify. Blockbuster could not compete with Netflix and Amazon Prime. For most companies there are only two broad responses in order to thrive in the long term: reduce cost per transaction or increase your total share of a customer’s spending. Business must apply four strategic themes to address market disruption: cost reduction, simplification, better customer experience and adaptability/new products.
The financial services sector is no different. It isn’t immune to the transformative power of new technology – and it must embrace it to ensure it remains competitive into the future. Much is already happening, but the process is far from complete. Firms continue to experiment with new products and services. They automate where it makes sense to do so, drive down costs, and make better use of the data available to draw new insights that will inform new and better services.
So, are established financial services businesses destined to lose ground, market share and customers to more nimble new tech businesses? Not necessarily. The industry is already focused on how it can adopt new technologies and digitise its products and services. However, so far much of the digital advancement in financial services has not come from radical start-up disruptors, but from a collaboration between established large institutions and newer FinTech companies.
Working together brings mutual benefits for the firms and for their customers. While nimble FinTech start-ups are great at developing cutting-edge innovations, the regulatory burden can be challenging, as can growing a broad, stable customer base. Research shows that customers continue to place more trust in their long-established bank than big tech firms or small, innovative start-ups. Partnering with existing financial institutions can enable access to capital for growth, provide the credibility needed to attract investors, and direct access to millions of existing customers.
For established institutions, partnering with FinTechs allows them to access innovative ideas, more specialised technical expertise, and a huge amount of experience of testing and trialling new developments. This allows them to rapidly bring new technology and developments to their customers and keeps them competitive and relevant to a fast-changing marketplace.
In financial services, it is the collaboration between these natural partners which will allow the sector to become stronger, more innovative and engaging. This is necessary if the industry is to avoid the fate of other sectors which have been quickly redefined and absorbed by the big tech giants.
Financial services firms cannot afford to be complacent. Competition from the tech giants will continue to grow. The industry must ensure it continues to be in a strong position to innovate and compete. The UK is already an international leader in FinTech and building on this will be critical to the success of the wider financial services ecosystem in the years ahead. It is an exciting time for the sector and its customers; FinTech Week is a great way to explore the opportunities for the future.
To find out more about how established institutions and FinTechs can successfully work together, check out: 'Transformation and innovation: a guide to partnerships between financial services institutions and FinTechs'