FinTech: financial technology explained –

including impact, technologies, evolutions and

forecasts
Banks are going through significant changes. In consumer/retail banking,
customers want multiple interaction and banking possibilities with a clear
focus on digital and mobile banking services.

We’ve mentioned the many transformational challenges for banks, from among others
the customer perspective, previously. They are joined by an increase of both usage of
FinTech products and consumer trust regarding the providers of such FinTech solutions
and services. No wonder that FinTech is among the hottest ‘terms’ in banking but also
in insurance and financial services overall.
FinTech – the bank and consumer level
FinTech, short for financial technology, is not just about innovative or so-
called disruptive startups, even if today they are really a key part of it. FinTech
is a broader category that is clearly shaping the future of financial services,
beyond the bank customer level.

Having said that, the 2016 edition of the World Retail Banking Report, an annual must-
read by the EFMA and Capgemini is clear about the impact of FinTech firms, among
others from a banking customer perspective.

80% of bank customers feel FinTechs are providing a good

experience.
The 2016 World Retail Banking report states that bankers underestimate the impact of
FinTech firms on their customers and shows how these customers feel about FinTech
services.

Some findings of the report:

 Almost two-thirds of customers across the globe are already using FinTech
products or services.
 81 percent of FinTechs offer faster services in the perception of customers.
Illustrating the underestimations of bankers: only 36 percent of bankers feel
the same.
 A large majority of customers feel FinTechs are providing a good experience
(80 percent). Only 40 percent of bankers believes the same.
Some attititudes regarding FinTech according to The FinTech Revolution
infographic by the World Retail Banking Report 2016 – source and more formats
in press release
Note that in the context of the World Retail Banking Report 2016 we talk about
FinTechs as these disruptive newcomers, which in reality are a significant part of
FinTech overall as mentioned. The challenges are clear. Banks are not only confronted
with changing customer expectations as tackled earlier. They are not just challenged by
changing regulations, cost and risk issues and legacy IT and back-office challenges.
They are confronted with a myriad of changes and evolutions with FinTech and FinTech
firms becoming increasingly important.
And they do know it and adapt accordingly as you can, among others read, in our
analysis of the World Retail Banking Report 2016.

Analysis of the FinTech findings of the World Retail Banking Report 2016

The accelerating and diverse FinTech landscape

The evolutions regarding the technologies, companies (start-ups and
incumbent initiatives), market dynamics and overall FinTech picture move so
fast that keeping up with them is almost a full-time job.

Fortunately there are several excellent sources and there is a strong FinTech and
InsurTech (short for insurance technology, indeed) community on Twitter and
elsewhere in case you want to really remain fully up-to-date on all evolutions (just see
what happens when you use the hashtag #fintech nowadays).

What’s for sure is that, despite the reported underestimation from the World
Banking Report, things are changing fast.

The attention for FinTechhas reached a tipping point in 2016 and the banking industry
is clearly starting to take FinTech companies seriously, while they also invest more in
financial technology as such and in several cases have developed innovative services
themselves or started collaborations with FinTech providers and even started acquiring
and investing in FinTech startups or innovation hubs. However, they are not the only
ones. Also the moguls of the online world know what’s at stake.

FinTech, as said, covers a broad range of technologies and financial

functions/domains/activities/sectors. You might have seen one of those many
FinTech landscape, ecosystem or scene infographics, mentioning several start-ups in
diverse activities, ranging from good old e-commerce, payments and consumer banking
to lending, crowdfunding, blockchain, financial security and much much more, such as
the one below from Venture Scanner.
 A
small snapshot of the Fintech scene by Venture Scanner
By the way: Venture Scanner is one of these many resources (paying) in case you’re
interested in the FinTech scene, with reports on 1826 fintech startups last time we
checked (indeed a lot) in 16 categories which are often used: Banking Infrastructure,
Business Lending, Consumer and Commercial Banking, Consumer Lending, Consumer
Payments, Crowdfunding, Equity Financing, Financial Research and Data, Financial
Transaction Security, Institutional Investing, International Money Transfer, Payments
Backend and Infrastructure, Personal Finance Point of Sale Payments, Retail Investing
and Small and Medium Business Tools.
FinTech in practice and evolution: from robo-
advisers and blockchain to P2P lending and
crowdfunding
On the technology/evolution front we’ll start more modest by focusing on four
areas: robo-advisers, blockchain, crowdfunding and marketplace/peer-to-peer
lending.

In April 2016 the CFA Institute (the global association of investment professionals)
released the result of a survey (PDF opens) conducted among its members across the
globe.

Although there are significant challenges in several FinTech areas, depending on

country and region, the research showed a focus on these four major
technologies/approaches in the FinTech scene which are expected to have the greatest
impact on the financial services industry, according to its members. However, there are
some remarkable differences between the four if we compare the reported impact
expectation 1 year from now and 5 years from now (with now being the time of the
survey). Two technologies are expected to have a greater impact 5 years from now
than 1 year from now.
Technologies with the greatest impact on financial services – source Fintech
Survey Report CFA Institute 2016 (PDF opens)

Automated financial advice tools a.k.a. robo-advisers

The absolute leading position is for robo-advisers. The majority of respondents
picked robo-advisers as having the greatest impact on financial services industry one
year from now (37 percent of respondents) and 40 percent expects the same five years
from now, making robo-advisers the leading technology by then too in the eyes of
respondents.

The four financial services industry sectors that are expected to be impacted most by
robo-advisers or automated financial advice tools are asset management (obviously by
far with 54 percent), banking (16%), securities (12%) and insurance (8%).
Financial services sector most affected by automated finance tools or robo-
advisors – source Fintech Survey Report CFA Institute 2016 (PDF opens)
The relatively small growth in the perceived importance of robo-advisers
between 1 year and 5 years from now might be related with fears for
risks regarding, among others, technical mistakes (flaws in the artificial
intelligence algorithms driving financial advice algorithms), mis-selling of financial
advice and, remember that we are in the financial industry, obviously privacy and data
protection concerns.

Another explanation for this small growth, however, is related with divided
opinions on the impact of financial advice tools on market fraud / mis-selling
and quality of service.The latter is very important, certainly in an industry where
excellence of service is, well, the essential basis anyone expects nowadays. Also note
that opinions on the impact of robo-advisers on several financial service sectors are
quite different, depending on region.

The most reported benefit of automated financial advice? Indeed, cost

reduction as in most forms of automation, with a whopping 89 percent or
respondents saying robo-advisers positively affect costs. Also access to advice
(remember the channel-agnostic and demanding consumer) is a big positive with 62%,
followed by product choice.

The challenges for anyone looking at/working with/selling automated financial advice
tools are clear: make sure perceived risks are addressed and make sure that robo-
advisers lead to a clear and proven improvement of quality of service, customer
experience and satisfaction, costs and business growth. Why else use them anyway?

The market of robo-adviser fintech startups is challenged by an ability to scale

and a rapid rise of robo-advisory services by incumbents. Moreover, wealth
managers are not just disrupted, they’re also innovating and there is an increasing
agreement that hybrid human-robo advisory services will prevail, at least in the near
future. The rest is yet to be seen.

More about robo-advisers with market evolutions

Blockchain technology: are you ready for huge growth (and

some concerns, confusions and hype)?
The biggest grower is – how else could it be – blockchain technology. You
can’t escape it: wherever you start looking at information regarding financial
technologies, blockchain technology is there.

Although blockchain ranks fourth with 11 percent of respondents in the list of

technologies expected to have the greatest impact on the financial services industry in
1 year from now, respondents clearly expect the impact of blockhain technology to
boom the years after. No wonder with so much talk, confusion, uncertainty and, yes,
hype, about blockhain technology.

The thing is that, while the attention and initiatives regarding blockchain in
finance (and elsewhere) are booming, it is very hard to really understand,
especially in the longer run. Sure, everyone more or less knows Bitcoin and how
that works (blockhain technology enables it), but that is not what the financial industry
and others are looking at. While virtual currencies do matter (some banks and
institutions take initiatives), the real power is in how the underlying technology and
mechanisms, the blockchain distributed database with its ledger, can and will change
financial services. And the truth is that no one really knows for sure as we’re just at the
verge of a blockhain ‘revolution’ as some call it.

30 percent of respondents expect blockchain technology, also known as Distributed

Ledger Technology or DLT, to have the greatest impact in five years from now.
Although that’s lower than robo-advisers it puts blockchain at the top of the expected
importance growth curve and makes it the second most often reported technology in 5
years from now. If you ask us it will continue to boom and is at the beginning of the
hype cycle so make sure you take a look at it, now and in the coming years.
Blockchain in the Investment Bank by Accenture via FINTECH Singapore
The expected huge growth of blockchain, so TODAY essentially the distributed
database technology which drives cryptocurrency Bitcoin’s public transaction ledger and
is seen as an enabler of many changes in financial technologies and far beyond, is
related with the benefits and expected potential in many areas it offers. Blockchain, for
instance, could totally disrupt clearing and settlement processes as we know them
today in finance. Everyone agrees that blockhain will be big but there are as many
questions as there are possible usages of it. Note that blockchain technology is not the
sames as cryptocurrencies such as Bitcoin.

More about blockchain technology

Marketplace lending, peer-to-peer lending and crowdfunding:

for the shorter term?
Next on the list are crowdfunding and peer-to-peer lending. Virtually everyone is
familiar with the concepts of crowdfunding (raising money from the ‘crowd’) and peer-
to-peer (remember those old peer-to-peer LAN network technologies where two
computers connect and “talk” without a server, well, here the peer is you and me and
all of us with some peer-to-peer technology too)in general.

In the FinTech Survey Report 2016 from the CFA Institute, 23 percent of
respondents see marketplace/peer-to-peer lending as having the greatest
impact on the financial services industry in one year from now.

However, in five years from now that number drops significantly to 13 percent. Also
crowdfunding is dropping: from 15 percent to 11 percent. In other words: crowdfunding
and marketplace or peer-to-peer lending seem to be more or less important for the
shorter term and both will be far less important than blockchain technology while they
are still seen as more important in that short term.
Peer-to-peer and marketplace lending visualized by Data & Society – source
FinTech: why now – and how do/will financial
service firms react?
Obviously, these four technologies/evolutions are far from the only ones as you could
read before. FinTech is a lot and it’s hot. In April, Accenture found that in the first
quarter of 2016 global investment in financial technology ventures reached 5.3 billion
USD – a whopping increase of 67 percent compared with the same period the year
before.

FinTech is gaining attention for many reasons. It’s not exactly as if several forms
of it are new (think digital and mobile payments, for instance). As mentioned there is
the increasing adoption and trust regarding FinTech from consumers, in the end the
ultimate disrupters. Second and as a consequence, there is a very active startup and
investment scene with FinTech hubs across the globe and incumbents and other firms
taking initiatives to react in various forms and shapes. Next there are the many third
platform innovation accelerators with technologies that enable newcomers to drive
business models and approaches which are clearly pleasing an increasing number of
‘mobile and digital first’ consumers in ways they are getting used to and offering
experiences and convenience that they didn’t see in finance for a long time. And of
course there is the changing consumer as such, combined with business solutions that
make lives of businesses offering or wanting to offer specific services or reengineering
processes, cheaper, faster and better too.

There are more reasons, some related with the specific financial service
challenges in certain emerging regions (think mobile banking which is
extremely hot in large parts of Africa). The main point, however, is that the
attention for FinTech, as well as the scene, is growing fast for a number of concurring
reasons, leading to a perfect storm and interesting reactions from banks and other
financial service providers. While in some areas we see banks partnering with eachother
to ‘fight off’ fintech start-ups or innovate themselves, others clearly chose the
collaboration path and partner with FinTech start-ups.
Accenture compares collaborative Fintech investments with competitive Fintech
investments – read more
The best solution obviously is contextual: there is no one-size-fits-all. But one
thing is for sure: you can’t be everything at the same time and in several areas
collaboration and/or integration will be key and a way for several startups in the
scene to survive those critical first years in an industry on fire.

Banks and financial institutions, on the other hand will have to chose and think about
both their core business and the partnerships/integrations they need to have in order to
not be left behind.

In the end, partnerships and integrations are inherent in today’s hyper-

connected technology reality, business ecosystem environment, connected
user and the digital transformation economy as such.

FinTech technologies, adoption and evolutions:

what’s next?
Previously we offered a categorization of FinTech as it’s often used and looked
at four technologies/evolutions, based upon the report of the CFA
Institute. However, as mentioned, the CFA Institute is an associaton of investment
professionals and obviously there is much more in the world of finance than investment
management. So, while the four technologies/evolutions in FinTech we focused upun
thus far by definition are deemed important by, among others, investment pros
(certainly robo-advisers, designed for asset management), we need to look at other
financial technologies.

Global investment in financial technology ventures tripled to $12.21 billion in

2014, clearly signifying that the digital revolution has arrived in the financial
services sector. More.
Accenture

We won’t always follow the often used categorizations as that would make us
focus to much at the technologies and fintech firms, which is not our
purpose. Our goal is to tackle an increasing list of technologies which are used in
financial services in order to achieve a clear business goal, starting with those that de
facto respond most to current challenges, opportunities and evolutions, mainly from the
consumer and thus consumer/retail banking and insurance side (some links regarding
these challenges below this page). So we will indeed be covering things that might
sound less techhy than, for instance virtual currencies or robots sitting behind a bank’s
counter as happens here and there. Think about mobile wallets, personal finance tools,
digital payment systems and mobile banking platforms, to name a few.

On top of that we’ll tackle some key technologies which are essential outside of finance
too and focus how they are used in financial services, including cloud computing,
the IoT and artificial intelligence. Welcome to a hyper-connected world. After all, those
technologies are not just used by consumers but also by financial services firms and
obviously the real FinTech companies who built their solutions upon these and other
technologies.

The deep tech pockets of the financial services industry and the
wealthy fintech user base
Financial services IT spending will reach almost $480 billion
worldwide in 2016 with a five-year compound annual growth rate
(CAGR) of 4.2% (IDC)
Moreover, it’s safe to say that there will be more overlaps and collaborations
between traditional financial service providers and FinTech.

If we look at financial services IT spending, poised to reach $480 Billion worldwide in

2016, according to IDC Financial Insights, we see that a huge portion goes to the so-
called 3rd Platform technologies (cloud, big data/analytics, mobile etc.) in the context
of digital transformation.

As IDC stated end of August 2016, financial services, along with

manufacturing and healthcare, is driving worldwide IT spending, which is
forecasted to reach $2.7 Trillion in 2020 according to the research firm. The
momentum is huge in the industry. The question is how that will translate into fintech
investments, whether it’s through ‘own’ initiatives, Mergers and Acquisitions,
investments in technologies of fintechs which decided to sell their services to financial
institutions instead of to consumers, sometimes in whitelabel formulas, etc.

While banks are not exactly known – in general – for rapid innovation it’s interesting to
see which ones are moving fastest and taking initiatives to tap into the rather wealthy
user base of FinTech lovers and how they will do it.

The increasing collaboration between FinTechs and banks

Reality shows an increasing collaboration and digital banking ecosystem with
partnerships, white label FinTech strategies, technological collaboration (this
is the API economy) and more.

If we look at retail banking, de facto the number one financial services segment where
FinTech players today are most active, we see that according to the beforementioned
Global Retail Banking Report 2016, 65 percent of responding retail bank executives see
FinTechs as partners, rather than competitors (28 percent).

According to the report, which we covered in depth here, banks strategies to

“compete” with Fintechs today are:

 Collaboration (46 percent)

 Investment (44 percent)
 Competition (43 percent)
 Acquisition (18 percent)
Best retail banking FinTech strategies according to the World Retail Banking
Report 2016 – click for source and full infographic

Financial services firms invest in IT to compete with fintech

market entrants
Several other reports state that financial services firms are investing more in
technologies to invest in the types of services FinTech offer or to be able to
compete with them (although, again, collaboration will be key too).

Online investment firms and challenger banks seen as most market

disruptive (Robert Half)
A UK survey from recruitment consultancy Robert Half Financial Services, published on
August 31st, for instance states that 54 percent of surveyed financial service firm
executives plan to increase, quote “investment in disruptive and innovative
technologies over the next 12 months to meet the challenge of new market entrants”.

In order to compete with FinTech pureplayers, these companies intend to

boost their IT spend with 15 percent in the next 12 months (!). The reason
Robert Half conducted the research obviously also has to do with a second “war” that is
inevitably linked with the FinTech phenomenon. Quite some execs of financial services
firms (85%) fear their ability to retain top performers. The FinTech industry indeed is
attractive to many who have spent time in traditional financial service firms.

Below is a list with the types of FinTech which are seen as new entrants most likely to
cause disruption to traditional financial services companies in the next 12 months,
according to the press release. The top 4 consists of online investment firms (26%),
challenger banks (24%), peer-to-peer lenders (16%), online traders (13%).
New FinTech entrants most likely to cause disruption to traditional financial
services firms in the UK – Robert Half research 2016 – source press release

The adoption of FinTech: which technologies consumers

embrace most
In this vast space which we call finance and the also vast space which we call
financial technology, it’s important to see the full picture and connect the dots.

Early FinTech adopters tend to be younger, higher-income

customers (EY PR)
Through all the FinTech noise it is hard for many to see what is important
now and what might become important later or is less relevant for current and short-
term innovation, transformation, business and of course the consumer/customer and
how he is changing his behavior. Obviously, there will be differences, depending on, for
instance, demographics, geographics and many other contextual factors. To stay tuned,
sign up for our newsletter.

If we look at the FinTech services which are embraced most we see that,
according to the EY FinTech Adoption Index (conducted end 2015) the most
used FinTech services respectively are money transfer/payment,
savings/investment, insurance (for instance, telematics, often in the context
of new pricing models) and borrowing.

The same report by EY, offers quite some insights into the adoption of FinTech among
consumers, the types of consumers which are more interested in which services, the
drivers of FinTech adoption and the reasons why consumers DON’T adopt FinTech
services yet.

In the press release EY sent out to announce the FinTech Adoption Index, the company
stated that 15.5% of digitally active consumers used at least two FinTech products
within the last six months and expects it to double by the approaching end of 2016.
Note: with FinTech products or services EY means service products which are not
developed by a bank or insurance firm but by an online firm, indeed FinTech as the
online startup and less startup scene.

Fintech products with the highest consumer adoption rate according to EY

– source EY FinTech Adoption Index