Impact of Fintech on Financial Services in 2019

There is no question that the advent of Fintech has disrupted the financial industry as a whole and created a huge impact for the better. With the advancement of technology, services and products that were previously only accessible by individuals with a certain net-worth are now available to anyone with an Internet connection. Let’s take a look at some of the sectors that have been deeply impacted by the rise of Fintech.

Fintech's Impact on Banks

In a nutshell, Fintech has taken the power away from traditional banks and financial institutions, and democratised the industry. This puts power into the hands of consumers, allowing supply and demand to dictate a much wider mass market.

Take a look at the infographic below to see how these Fintech startups have unbundles services typically offered by banks.
Image
These Fintech startups highlight the disruption of traditional financial services offered by banks. Image from cbinsights.com (Full size image)

In the early days, banks and financial institutions viewed Fintech startups as a threat, but many have begun to collaborate with them to improve their services.

One such example is the trend of open banking, which sees data shared with third-party companies via open application programming interfaces (API) in order to further understand what customers want. Not only will this improve competition, it will also drive innovation and result in a better customer experience as they are able to choose products and services relevant to their needs.

Smaller or regional banks are also more likely to adopt Fintech in order to keep up with the competition. Without the resources to compete, these banks are open to Fintech as it is cheaper, more efficient, and more convenient which allows them to attract a whole new customer demographic.

Fintech's Impact on Financial Services

As mentioned earlier, during the infancy of Fintech, startups and banks and financial institutions found themselves competing for market share. The sheer amount of disruption in the finance industry forced incumbents to rethink their strategy, having seen their go-to practices for decades become obsolete almost overnight.
Image
This can be seen in the increase in the number of new entrants to the finance industry across the world. According to Accenture, the number of banks and payment institutions decreased by 20% in the 12-year period from 2005 to 2017. However, almost 17% of current institutions were considered new entrants to the market, highlighting the growth of the Fintech industry in this 12-year period.

As a result of this, incumbents and startups have begun to work together on partnerships that offer win-win situations for all parties. This ensures that banks continue to remain relevant, Fintech startups are able to grow faster, and most importantly, consumers will have access to better, and more efficient financial services. With global investment in Fintech hitting a record US$111.8 billion in 2018, it is safe to assume that there is still plenty of potential in what is still a growing market.

Fintech's Impact on Economy

The impact of Fintech on a country’s economy cannot be underestimated. According to Linda Yueh, an economist at Oxford and London Business Schools, Fintech can “directly impact the efficiency of the financial sector, which is how savings and investment are intermediated in an economy”.

Emerging markets offer a clear example of how Fintech innovations can contribute positively to a country’s economy. In Kenya, the emergence of mobile payment firm M-Pesa has been estimated to contribute 14% of the country’s total factor productivity (TFP) growth, a factor that impacts overall economic growth.

The company has also introduced basic financial services to millions of previously unbanked individuals, with their savings being brought into the country’s financial system. Not only has this increased the funding available for investment, M-Pesa has contributed to a high period of growth of startups in Kenya.

Other emerging markets such as Brazil (Nubank), India (PayTM) and China (AliPay, WeChat Pay) all have similar payment firms that have brought millions of previously unbanked individuals into the system. With it being easier to channel their savings into investment, infrastructure and human labour, it all points towards increasing growth in the economy, especially with an estimated 1.7 billion people globally that do not own bank accounts!

Fintech's Impact on Insurance

Fintech has had a profound impact on the insurance industry in recent years. Improvements have been made in terms of efficiency, costs, risk assessment, customer experience and financial inclusion. This has been made possible thanks to artificial intelligence, machine learning, big data and other technological advances.

According to an IBM report, 81% of outperforming insurance firms have already invested in or are working with Insurtech businesses, while 57% of insurance executives surveyed believe that insurtech firms are driving innovations across the industry. Such numbers indicate that Fintech’s impact on insurance is well-pronounced and shows no signs of abating any time soon.

Fintech's Impact on Asset Management

Fintech has had a big impact on the asset management industry, with innovations such as robo-advisors, portfolio management tools, and digital brokerage making it easier for individuals to monitor their own assets. This is a good example of how Fintech has helped to democratise the financial industry, making it more accessible and available to anyone with an internet connection.
Image
Over half of asset managers are wary of new entrants driven by technology. Image from statestreet.com (Full size image)
The impact of this can be seen in a State Street report, with 57% of asset managers fearing new entrants powered by technology, while a staggering 88% of them also believing that distribution-related data is a hurdle.

Fintech's Impact on Wealth Management

Although similar to asset management, the sector of Fintech that applies to wealth management is known as WealthTech. Many advances have been made in this vertical, which have opened up such services to the masses, reducing the barriers to entry that are usually reserved for high-net-worth individuals.

For example, micro-investments have been made possible in recent years, with various crowdfunding and peer-to-peer (P2P) investment platforms emerging. These are more attractive to the average person as the required funds to invest are significantly lower than traditional investment services. It also opens up the possibility of investing to people that do not typically qualify for such services offered by financial institutions.
Image
A 2016 survey conducted among chartered accountants showed that only 14% were very familiar with Fintech driven tools. Image from centricdigital.com (Full size image)

While WealthTech is still some way from completely managing portfolios of high-net-worth individuals, it is not impossible that such tools will replace financial advisors in the future. However, there are still more pressing issues that must be addressed before this becomes a reality, such as data security, improved predictive analysis, and efficient data processing to name three.

This sentiment is reflected in a CFA Institute survey of almost 4,000 chartered financial analysts worldwide, with 46% of respondents considering flaws in algorithms as the biggest risk of automated financial advice tools, while a misselling of financial advice (30%) and data protection (12%) were the next biggest concerns.

Fintech's Impact on Financial Inclusion

Perhaps the most important aspect of Fintech is its ability to include sectors of society that were previously marginalised by the financial system. According to the 2017 Global Findex Database, global the share of adults that own a bank account is now at 69%, up from 51% in 2011 when the first database was released.

In addition, the significant reduction in the cost of remittance and cross-border transfers in emerging market economies soared from $50 billion in 2002 to $250 billion in 2017. These amounts represent around 5-40% of national savings in emerging markets, highlighting how Fintech has improved the livelihoods of millions.
Image
Image from fintechnews.sg (Full-size image) - consider cropping the top and bottom

The image above highlights just how many Fintech startups there are that focus specifically on financial inclusion. In addition, this also showcases the large numbers of potential customers that banks and financial institutions have previously missed out on.

The Impact of 50 Fintech Startups

Recently, CFTE released an all-encompassing report that takes a look at how the top 50 Fintech firms back in 2014 have performed in the five years since. Collectively, the group has had a strong impact on the Fintech industry with highlights including:

A bankruptcy rate of just 4% among the Fintech 50, which is much lower than the expected failure rate of 17 out of 50 among US startups One in four of the Fintech 50 are worth at least US$1 billion today The Fintech 50 collectively have over 319 million clients between them, which is more than Citi, Bank of America and HSBC combined

As our most ambitious project to date, the report also analyses several factors of success as well as a general Fintech industry overview. This includes rapid user acquisition and client retention and monetisation, while also taking into account the impact the firms have had in the industry, including client growth, equity raised, employee growth, valuation, and more.

The Urgency of Upskilling within Finance

The emergence of various Fintech courses, both online and offline, serve to highlight both the growth and impact of the Fintech industry on the world. However, the raid growth of the industry has not been matched with the number of talents qualified to work in the field. Due to the relatively recency of the FIntech industry, there is currently a shortage of employees in the market with the relevant skill set. This lack of talent has created a gap in the market, and is an opportunity for new graduates or experienced finance professionals looking for a career boost.
"The Number of Fintech Jobs in the UK market increased by 61% in 2018"
According to global recruiter Robert Walters, the number of Fintech jobs in the UK market increased by 61% in 2018, while the high demand also increased average salaries by up to 25%. Fields that saw an increase in demand for Fintech knowledge included compliance (85%), marketing (63%), sales (23%) and development and engineering (16%), highlighting how Fintech has has a huge impact on the job market as a whole.

Online Fintech Courses

Offering an overview of Fintech in general, the CFTE Fintech course helps learners gain a foundational understanding of Fintech, what it encompasses and how it is impacting the world in a big way. It also covers all the aspects highlighting the importance of financial technology, and you will learn about the various technologies used by both startups and financial institutions to make financial services more accessible.

For those looking for a more niche sub-sector, the CFTE AI in Finance course offers a look at the impact of artificial intelligence on the finance industry. Senior figures and thought leaders in AI contribute modules to the course and you will gain an understanding of the various AI technologies and the challenges of merging them with existing services.
For more updates follow us on Twitter, LinkedIn and Facebook!

Leave a Reply

Your email address will not be published. Required fields are marked *