Investment in the financial technology (FinTech) sector worldwide grew by 75%, or $9.6 billion, in 2015 according to a recent report by Accenture.
The growth was driven primarily by a 445% increase in Chinese FinTech investment to nearly $2 billion, as well as investment in India ($1.65 billion), Germany ($770 million) and Ireland ($631 million). Growth in the largest FinTech market — the US — slowed to 44% or $4.5 billion of new funding last year.
Question to consumers: What are the primary reasons for using products/ services from FinTech firms? (ranked 1-7)
Question to banks: What do you think is the value proposition of FinTech firms? What are the strengths of FinTech firms vis-à-vis banks?
Source: World Retail Banking Report 2016, Capgemini, 2016
DISRUPTIVE VERSUS COLLABORATIVE
Collaborative FinTech ventures, targeting financial institutions as customers, are gaining ground over disruptive market entrants, which compete against those institutions, according to the Accenture report.
Funding for collaborative ventures grew from 38% in 2010 to 44% in 2015. The percentage of funding for collaborative ventures grew even more markedly in North America, from 4% to 60%. In Europe the reverse was true, with funding for disruptors rising from 62% of all FinTech investment in 2010 to 86% in 2015. These trends reflect market maturity and regulatory attitudes.
While a growing proportion of collaborative FinTech ventures has emerged, comparatively little investment has come from banks. In 2015 banks invested around $5 billion of the $22.3 billion of reported investment, compared to the $50-70 billion spent internally on FinTech each year. However, collaboration and partnerships between banks and FinTech firms, even if this is through acquisition and alliances, will shape the long-term future of the space. This is already being seen in Santander’s recent investment in the small business lending platform Kabbage, and BBVA’s stake in the UK digital-only lender Atom Bank.
CONSUMER ATTITUDES TO FINTECH
But what do consumers actually think of FinTech providers? The World Retail Banking Report 2016 published by Capgemini in association with Efma surveyed more than 16,000 customers in 32 countries, as well as 140 industry executives. Nearly two-thirds of customers worldwide said they were using products or services from FinTech firms, emphasising the disintermediation threat for traditional banks.
In Latin America, around three-quarters of banking customers (77.4%) use FinTech products or services, followed by central Europe at 68.9% and Middle East and Africa at 63.6%. The relative lack of banking infrastructure in emerging markets is creating a fertile environment for FinTech firms to provide basic banking services, but also to leapfrog the standards of developed markets.
When it comes to trust, banks have an advantage although FinTech firms are catching up. In Latin America, nearly half of customers (48.2%) said they completely trusted FinTech firms, only 11.8% behind the 60% who completely trusted banks. Across all regions, the survey found that the percentage of customers who completely or somewhat trusted FinTech firms exceeded 80%. This trend is expected to rise as regulators increasingly turn their attention to FinTech, harmonising customer protection and addressing privacy and data security concerns.
The perceived advantages of FinTech firms extend beyond their ability to innovate and move quickly. From the customers’ perspective, FinTech firms have value in being easy to use (81.9%), offering faster service (81.4%) and providing a good experience (79.6%). From the banks’ perspective, there was a slight mis-match in perception. They agreed that FinTech firms offered ease of use (89.1%), yet did not perceive them as providing a good experience (39.6%) or fast turnaround (35.6%).
Another factor which banks must take note of is the FinTech referral rate. In every region, customers are more likely to refer their FinTech service provider to a friend (54.9%) than their bank (38.4%). FinTech firms leveraging the social media and word-of-mouth effect can build critical mass and scale quickly. This enables them to boost adoption rates, lower acquisition costs and run better test and learn exercises across a wider customer base to innovate their offerings.
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