A leading expert in the financial technology – or ‘fintech’ – arena has said that emerging boutique lenders who are exploiting online tools to reach borrowers could significantly erode traditional banks’ market share over the next two decades.
In an interview with website thestreet.com, Frank Schwab – founder of German growth-acceleration hub FinTech Forum – warned that banks must either react appropriately to the challenge, or vanish.
Schwab said: “If fintech does it well, financial services will become much more invisible, convenient and cheaper, and finally embedded in people’s daily life – without even thinking about it.
“The payment process of Uber is a good example. It just happens.”
As a result of that rising convenience, Schwab said, “alternative banking services that do not involve banks will gain a significant share of the overall… market. Though we need to accept that this will take another 10 to 20 years.”
Consolidation of the banking industry, he added, will naturally accelerate as customer behaviour changes. With that in mind, “some banks will benefit [from fintech], some will be pushed to the back end and some will disappear.”
He also had subtle words of caution for the emerging players, hinting that those who focus on providing excellent customer service will be best placed to succeed. “People should not worry about fintech [firms],” he said. “But fintechs should worry a lot about people.”
Schwab’s comments chime with the findings of ‘Big Four’ auditor EY’s first-ever FinTech Adoption Index, published in December. The watershed report predicted that use of fintech services among the general public could double over the next 12 months.
In a survey of more than 10,000 digitally active consumers in Australia, Canada, Hong Kong, Singapore, the UK and the US, the auditor found that 15.5% had used at least two fintech services during a six-month period last year.
Among the products explored in the survey, fintech payment services were found to have the highest adoption rate, at 17.6%. Such offerings included forex transactions and overseas remittances.
Savings and investments had the second-highest (16.7%), with services in that category including stockbroking, spread betting, budgeting and planning, equity and rewards crowdfunding, and peer-to-peer or marketplace lending.
Fintech usage, the report showed, is at its highest among consumers with incomes greater than $150,000 (44.1%). Usage declines to 24% among consumers with incomes between $70,001 and $150,000, and for those with incomes from $30,001 to $70,000 (14.7%).
EY global lead banking analyst Steven Lewis said: “Higher-income individuals are some of the most economically valuable customers for banks and insurers.
“These organisations will have to review how their offerings, such as their own multi-channel strategies or partnerships with fintech providers, meet their customers’ needs. Otherwise, they may have difficulty stemming the flight to fintech.”
EY global fintech leader Imran Gulamhuseinwala added: “The adoption of fintech products is relatively high for such a new sector, so the risk of disruption is real. As fintech continues to catch on among consumers, traditional financial services companies will have to reassess their view of which customers are most at risk from the new competition, and step up their efforts to serve them effectively.”