Scottish financial services firms fear up to 40 per cent of revenue at risk from FinTech

A new PwC report has revealed that 61 per cent of UK financial services industry leaders believe they could lose as much as 40 per cent of their revenue to standalone FinTech firms, compared to 51 per cent of financial services leaders globally.

However, the report, entitled Redrawing the lines: FinTech’s growing influence on Financial Services, also found that almost half of UK firms (47 per cent) say they plan FinTech acquisitions over the next 3-5 years. 81 per cent say they plan to initiate strategic partnerships with FinTechs over the same period, according to the survey of more than 1,300 financial services industry leaders worldwide.

Startups, large technology companies and social media/ internet platforms are expected to be the top FinTech disruptors in the UK financial services sector over the next five years, with consumer banking, funds transfer and payments the top three areas of business likely to be impacted.

The key challenges to the sector from FinTechs are expected to come from increased price competition, loss of market share and threats to information security and privacy.

The PwC survey finds that UK financial services firms currently dedicate 9 per cent of their annual turnover to FinTech and IT projects - well below the global average of 15 per cent. UK firms are, however, more realistic in their expectations of return on investment (ROI) with FinTech, with respondents saying they expect an annual ROI of 13 per cent, while firms in the rest of the world expect an average ROI of 20 per cent.

Commenting on the report and its findings, Steve Davies, Edinburgh-based EMEA FinTech leader at PwC, said: “The financial services industry has embraced FinTech to help drive change and innovation. FinTech collaboration, and innovation more widely, is not about jumping on the latest bandwagon - it’s about finding the best, most efficient way to deliver your business strategy and ultimately better serve your customers.

“The UK’s financial sector seems to have a more realistic understanding of the long term returns on targeted investments. Managing expectations around returns is important, particularly for firms facing significant cost pressures.

“Embracing FinTech is as much about different ways of working and problem solving as it is about deploying new technology. A sustained focus on innovation is much needed and can only be a good thing for customers, and the firms themselves.

“Activity in the UK ranges from partnering with FinTechs startups, financing in-house incubators, and deploying new solutions, to testing use cases in areas like blockchain. There are few overnight successes and, unsurprisingly, as much perspiration as inspiration. There is a tension between the time needed for new ideas to mature and the expectations of firms seeking to collaborate with FinTech startups.”

UK financial firms believe the top three opportunities brought about by FinTech are expansion of products and services, leveraging existing data sets and increasing their customer base.

Retaining customers in light of the rise of FinTech is a key priority and UK firms say the main issues they need to address in order to keep hold of their customers are intuitive product designs, faster services and lower costs.

Over three quarters (77 per cent) of UK financial services firms say they plan to invest in data analytics in the coming year and more than a third (39 per cent) plan to invest in cyber security.

UK financial services leaders believe many of their customers are already switching to FinTech in some areas. 92 per cent think consumers use FinTech to conduct payments, 81 per cent say it is already used for personal finance and 72 per cent for funds transfers.

Under a quarter (22 per cent) of UK banks, insurers and asset managers say they currently interact with their customers using mobile applications, compared to 28% globally. They clearly believe mobile is the future, though, as 89 per cent of UK firms expect mobile channels to grow significantly over the next five years. As a result, 50 per cent of UK firms say they plan to invest in mobile technology in the coming year.

The UK stands ahead of most of the rest of the world in its understanding of blockchain technology, with over a third (35 per cent) of UK financial services firms saying they are now ‘very’ or ’extremely’ familiar with the technology compared to 24 per cent of respondents globally.

UK finance firms believe the most useful business use cases for blockchain will be digital identity management, payment infrastructure and post trade settlement.