The majority of global banks, insurers and investment managers intend to increase their partnerships with financial technology (fintech) companies over the next three to five years as the financial industry is getting to grips with their innovation.
The sector is expecting an average return on investment of 20percent on their innovation projects by partnering with fintech companies. This is according to a new PriceWaterhouseCoopers (PwC) report, "Redrawing the lines: Fintech’s growing influence on Financial Services".
Fintech is an industry composed of companies that use new technology and innovation with available resources in order to compete in the market place of traditional financial institutions and intermediaries in the delivery of financial services.
The report is drawn from more than 1 300 respondents globally. It is said that one driving factor behind these partnerships is an increasing fear within the industry that revenue is at risk to standalone fintechs, with 88 percent of financial services respondents globally and also 88 percent in Africa, seeing it as a real threat. On average, up to 24 percent of revenue is thought to be at risk.
Read also: What is FinTech?
Manoj Kashyap, Global FinTech leader at PwC, said: “Fintech collaboration and innovation is not about jumping on the latest bandwagon, it is about finding the best, most efficient way to carry out your business strategy and ultimately better serve your customers. As financial institutions work ever more closely with innovators, consumers will begin to feel the benefits.”
He added that the costs and frustrations customers often encounter when interacting with their bank, insurer or fund manager will hopefully begin to subside as they feel the benefit of streamlined, efficient businesses producing more tailored, customer centric products.
Outsource
The report also shows that partnering with fintechs will be a key way for firms to outsource parts of their research and development (R&D) and bring their strategy to life, ultimately allowing them to offer new products to customers much more quickly.
Currently, 45 percent of participants are partnering with fintech companies, an increase from 32 percent last year.
In South Africa, more than half of respondents (63 percent) are presently engaging in partnerships with fintech companies, and 96 percent of those said they are expecting to increase partnerships over the next three to five years.
Paul Mitchell, fintech leader, PwC South Africa, said: “Financial institutions need to find the right combination of initiatives that allows them to learn about the impact fintech will have, while incorporating new ways of working and getting innovations to market.”
PwC predicts using mobile technology to help new customers gain access to finance could open up a demographic worth $3 trillion (R39.4 trillion) to the payments industry.