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Fintechs want to take one-third of traditional banks’ business

Banks know they could lose large chunks of business to fintech firms, but if the challengers have their way, it will be more than expected

Almost all traditional banks (95%) think they could lose part of their business to fintech companies, according to research from PwC.

In the traditional financial services sector as a whole, the survey of 544 CEOs, CIOs and innovation heads in 46 countries found that existing providers think they could lose almost a quarter (23%) of their business to fintech firms.

But the fintech firms are more confident than that – they think a third (33%) of traditional financial services business is up for grabs. These companies are offering the same financial products as traditional providers but in a digital format that is quick and easy for customers to access.

The PwC report, Blurred lines: How fintech is shaping financial services, said banking and payments suppliers are the hardest hit.

Traditional suppliers of fund transfers and payments fear they could lose 28% of their business in the next five years, while bankers think they are likely to lose 24% in the same period.

Two-thirds of companies said pressure on profit margins was the top fintech-related threat, followed by loss of market share (59%).

PwC said traditional financial firms are working with fintech companies, but face challenges around IT security, regulatory uncertainty and differences in business models.

More than $150bn could be invested in fintech globally within the next five years, it said. “Financial institutions and tech companies are stepping over one another for a chance to get into the game,” said Steve Davies, EMEA fintech leader at PwC.

“Fintech is shifting the paradigm of traditional intermediary roles by making them obsolete.”

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Manoj Kashyap, global financial services fintech leader at PwC, said financial services firms have traditionally acted as intermediaries by providing services to clients, but this functions is being taken over by new technology-driven business models.

“Given how rapidly technology is developing, incumbents cannot afford to ignore fintech,” he said. “Nevertheless, our survey has shown that 25% of firms do not deal with fintech companies at all. With the pace of change now occurring at increasingly faster intervals, no financial services business can rest on its laurels.”

According to a study by EY, high-income young people are the biggest group of early adopters of fintechs’ products and services.

The study, of more than 10,000 digitally active consumers in Australia, Canada, Hong Kong, Singapore, the UK and the US, found that about 3,000 had used fintech. Among the fintech users, just over 25% of 25 to 34-year-olds used two or more fintech services – a figure that is expected to reach nearly 50% in the foreseeable future.

A further 21% of users of two or more fintech services were in the 34 to 44 age group, 17% were aged 18 to 24, 12% were aged 45 to 54, 7% were aged 55 to 63, and 5% were over 65.

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