Almost 90% of payments firms fear fintech erosion

Vast majority of incumbents in PwC survey think fintechs will claim some of their business – but strategic partnerships are already under way

Fintechs have the scope to “significantly disrupt” the payments industry, says a new report from PwC, with 87% of incumbents fearing they will lose business to the wave of agile, new operators.

Published on 9 August, Payments in the Wild Tech World states that, by 2020, non-cash transactions will have grown by 69% over 2013 levels – with the EU in particular already stimulating that development via its Payment Services Directive 2 (PSD2) legislation.

Fintech companies, says the report, have already sprung up to leverage alternative business models that will complement existing payments practices. Meanwhile, mobile wallets are proliferating as solutions for the unbanked.

Those trends, the document points out, are driving the growth of value-added offerings and new revenue streams that are differentiating payments-focused fintechs from traditional competitors.

In terms of the tools that are assisting fintech’s movement into the payments arena, PwC notes:

• open-source software, cloud computing, developers on demand, open app stores for distribution and social media can enable fast technology deployment and adoption;
• new technology infrastructures, such as blockchain, could end up leapfrogging antiquated payments systems in areas such as cross-border payments; and
• contactless, merchant-based payments using Bluetooth, near-field communication or quick response codes are posing a significant threat to existing payments models.

PwC’s survey for the report covered 46 countries and received more than 500 responses, predominantly from Asia and Europe.

Some 28% of respondents said that they thought as much as a quarter of their business could be lost to fintechs by 2020, while 9% feared they would lose almost two-thirds (60%).

One key area of push-pull tension that emerged from the research was the need for service providers to enable frictionless transactions, while also preventing fraud and cybercrime – a convenience that nimble fintechs are well placed to offer.

As such, 35% of established providers are planning to launch their own fintech subsidiaries to embrace the disruption. A segment of the same size is already engaging with new entrants in strategic partnerships.

The report explains: “Peer-to-peer payments (including gifting and splitting bills), payments processing, cross-border payments, digital currency exchange and building payments technology standards are just some of the areas that are witnessing most of these partnerships between traditional players and fintechs.”

Reassuringly for payments firms, the figures show that they are meeting the fintech challenge with a high level of awareness.

“Only 4% of payments companies do not engage with fintech at all,” says the report – “a proportion substantially lower than the financial industry average (25% overall).”

Read the full report here.