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Payments & FinTech Lawyer

Report finds FinTechs have not yet changed the competitive landscape

A Report published on 22 August 2017 assessing the impact of FinTech firms on financial services, which is the culmination of three years’ research prepared by the World Economic Forum in collaboration with Deloitte, has found that FinTechs have materially changed the basis of competition in financial services, but they have not yet materially changed the competitive landscape. The Report entitled ‘Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services,’ states that although FinTechs have defined the direction, shape and pace of innovation across almost every subsector of financial services and have reshaped customer expectations, FinTechs have fallen short when it comes to customer willingness to switch from using incumbent services and that FinTechs have struggled to create new infrastructure and establish new financial services ecosystems.

The Report focuses on the evolution and impact of FinTech firms on financial services around the world to date and presents a series of different outlooks for the future of the industry. The main findings of the Report include eight forces that have the potential to shift the competitive landscape of the financial ecosystem in the future, which includes that platforms that offer the ability to engage with different financial institutions from a single channel will become the dominant model for the delivery of financial services and that large technology firms are becoming systemically important due to financial institutions being increasingly dependent on them to acquire critical infrastructure and to provide differentiating technologies. The Report goes on to state that the imminent collision between financial institutions and large techs will lead to tough choices for incumbents as to whether to become dependent on large techs or risk falling behind.

“Given the current focus on the role FinTechs play in financial services it is interesting to note that it is the technology giants like Amazon, Google and Facebook that are dominant in advancements that are becoming critical,” said Kate Johnson, Partner at Osborne Clarke. “Cloud computing, customer facing artificial intelligence and Big Data customer analytics are three capabilities to name but a few. As highlighted by the Report, were these large technology companies to enter the market in direct competition for retail banking and insurance, the incumbent financial institutions would need to prove themselves more agile and adaptable to changing business models than has historically been the case.”

Another key finding of the Report relates to the differing regulatory priorities, technological capabilities, and customer needs that are challenging the narrative of increasing financial globalisation, instead making way for the emergence of regional models of financial services suited to local conditions. The Report analyses the archetypes in Europe, China and the US, and states that increasingly divergent regional financial systems mean that local players could quickly gain marketshare, but international growth is difficult.

The Report focuses on specific ‘sector deep dives,’ one of which focuses on the payments industry. A number of key uncertainties are set out which include the question of whether the payments industry will divide into retail and online, and who is likely to benefit from the monetisation of payments data. As a result of these uncertainties, three possible suggestions for the future of the payments industry are put forward in the Report.

“What is clear from this Report is that the rate of change the financial services industry continues to face continues apace and whilst new regulation drives a large percentage of that change, evolving technology and innovations are just as disruptive, both positively and negatively,” concludes Johnson. “Whatever the business model, firms will need to assess the needs of their target markets continually and keep abreast of any and all innovations that will allow them to keep ahead of competitors, whether new challengers or incumbent market players.”

Johnson also comments that to the extent to which such disruption continues, it will be interesting to see how policymakers deal with the potential for inappropriate use of personal data in decision-making where a technology company has access to both financial and non-financial data in a way that existing financial services companies have not done historically.

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