The World Economic Forum has released a report entitled ‘Beyond Fintech: A Pragmatic Assessment of Disruptive Potential In Financial Services’ (Report). The Report considers the evolution and impact of fintech firms on financial services to date and examines the future of the industry. The Report found that fintech firms have shaped how financial services innovate and cater to user experience but have struggled to compete with large financial institutions. Regardless, fintech has the potential to disrupt competition in the financial system significantly in the future, with the Report identifying eight drivers of such change:
- Cost commoditisation: financial institutions are embracing new technologies to commoditise cost drivers that do not provide competitive differentiation. This makes the value chain less vertical, lowering barriers to entry for fintech businesses in cost-sharing utilities and B2B providers.
- Profit redistribution: organisations are bypassing traditional value chains through the use of new technology and partnership opportunities. These shifts in profit pools are likely to increase competitive pressures on intermediaries.
- Experience ownership: fintechs will find it increasingly difficult to enter the market as distributors, unless engaging with a niche sector. The ownership of customer relationships falls on distributors, pressuring manufacturers as distributors level control of customer experience.
- Platforms rising: multiple-provider platforms are becoming the dominant model for the delivery of financial services with the rise of customer choice impacting the design and distribution of products. Platforms provide fintechs with the opportunity to scale in a more timely fashion but the products on offer will need to be standalone profitable to be sustainable in a platform environment.
- Data monetisation: tech firms are leading the monetisation of data as they utilise new and engaging data collection strategies, but data ownership and control will be imperative issues to address from a regulatory perspective.
- Bionic workforce: technology such as artificial intelligence will drive the merge of employees and machine-enabled solutions in business and will require effective management for successful co-existence in the workplace.
- Systemically important technology firms: financial institutions are increasingly reliant on large tech firms for critical infrastructure and technology, which may impede incumbent fintechs from competing with new entrants.
- Financial regionalisation: financial globalisation is giving way to financial regionalisation as differing customer needs result in different financial models and solutions across the world. Fintechs therefore face increased barriers to success in multiple jurisdictions and will need to implement multiple strategies to ensure regional competitiveness as they expand.
The Report builds on other projects relevant to fintechs which the World Economic Forum is developing, for instance, its work in releasing a blockchain white paper (which we discussed previously).