A new report from PricewaterhouseCoopers (PwC) has found that a large majority of financial services firms intend to team up with fintech companies in the next three to five years in a bid to stem the flow of revenue loss to financial innovators.
The report, Global Fintech Report 2017 [PDF], found that 88 percent of global banks are increasingly concerned that they will lose revenue to fintech businesses. The areas major banks feel they will lose out on include payments, fund transfers and personal finance sectors. In response, 82 percent claim that they intend to increase partnerships with financial technology services over the next three to five years.
According to the report, more consumers will implement non-traditional financial service providers for their needs while early adopters will continue to undertake payment and money transfer services with non-traditional providers. Personal finance is expected to become the next most popular activity that banks risk losing out on.
However, while banks appear to be keen to collaborate more with fintech firms, integrating with them won’t be an easy task.
The survey found that difference in management and culture in addition to regulatory uncertainty and legacy technology limitations, are identified as being significant challenges for financial technology companies and banks. Not only that, but banks are restricted to a system of checks and balances that can hinder the innovation process while fintechs are able to adapt easily due to a lack of bureaucracy.
Manoj Kashyap, Global FinTech Leader and Partner at PwC US, said:
Innovation is happening outside of the organization, with emergent technologies being leveraged by startups, and if financial institutions want to speed up their innovation they need to significantly increase their collaboration with fintech companies.
While blockchain was initially explored by the financial services sector, the potential of this technology is now being realized by all sectors, including energy, telecoms, and pharmaceutical. The technology is moving from hype to reality and as it does so funding in the sector increased 79 percent year-over-year in 2016 to $450 million.
Despite this, though, the survey found that while blockchain is high on the list of priorities for investment, in the next twelve months only 19 percent of large financial institutions identified the distributed ledger as the most relevant to invest in. This is compared to 50 percent of large fintech firms.
On a brighter note, though, the report found that 55 percent of respondents are planning to adopt the blockchain as part of a production system or process by 2018 and 77 percent by 2020, by which time it will become a common feature in the business processes.
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