Advisers must not ignore technology

A Global FinTech report points to some interesting trends.
By Morningstar |  07-11-16 | 

The financial services industry has undergone a considerable shift since the financial crisis, as traditional firms, once central to all financial relationships, have seen their relevance diluted by FinTech firms. A perfect storm of factors, including complacency on the part of traditional firms, increased customer expectations, lower barriers to entry, increased access to VC funding, and accelerated technological advancements, have enabled FinTechs to quickly gain ground with solutions that cater to heightened customer preferences.

VC funding in FinTech has increased exponentially over the last few years with worldwide investment reaching close to $25 billion in 2015. This has provided a potent spark to the financial services industry as a whole, giving rise to FinTech innovation, while spurring traditional players to become more active in product development.

The inaugural World FinTech Report 2017 (WFTR), by Capgemini and LinkedIn in collaboration with Efma has come up with some interesting findings.

The findings are based on a survey of more than 8,000 customers in 15 countries, as well as over 100 interviews with senior-level executives, and a world-class Executive Steering Committee.

FinTech firms gain traction
  • Using unique value propositions, FinTech firms have already made significant inroads into customer relationships. Globally, half of customers (50.2%) say they use financial services from at least one non-traditional firm for banking, insurance, payments or investment management, with the percentage reaching the highest in Asia-Pacific (58.5%).
  • FinTechs have made the greatest inroads in investment management, where 17.4% of customers say they rely solely on them and an additional 27.4% use them in addition to their traditional providers. This incursion reflects the increased adoption of investment management by the affluent as well as the general population. With the advent of non-traditional players such as automated advisors, all customer segments, including those that never had access to affordable investment advice before, can take advantage of relatively low-priced automated investment services.
  • By country, customers turn the most to FinTech firms in China and India (both above 75%), followed by UAE, Hong Kong, and Spain. The lowest adoption rates were found in France (36.2%), Belgium (30.4%), and the Netherlands (29.8%). This pattern indicates that FinTech is following the trend of First the Rest then the West, as services from firms such as Ant Financial and Paytm first find wide adoption in China and India, then expand from there.
Observations with regards to key customer segments: Gen Y (ages 18 to 34) and tech-savvy individuals.
  • Mobile strikes a chord. For Gen Y (47.6%) and tech-savvy (56.5%) customers, mobile emerged as the second-most important channel (after the computer) for interacting with financial services firms.
  • These segments are widely regarded as influential customers of the future and offer higher revenue potential. They are more likely to buy additional products.
  • However, the above segments are less likely to stay with their firm, making it important to find better ways to meet their expectations – which revolve around digital transactions, transparency, convenience, and proactive updates.
  • These are the key customer segments of the future and they show a willingness to embrace innovation in their relationships with financial services firms.
Mobile is the way to go
  • Within only 10 years, an estimated 2 billion people will have had their first banking experience on a smart phone. This is almost as much as the number who are conventionally banking today. For these digitally literate customers, traditional bedrocks of banking, like the branch and the checkbook, simply have no place.
  • While the computer touchpoint has matured, mobile has still not met its full potential, with only 40.1% of customers ranking it as important, compared to the branch (43.4%), phone (45.4%) and computer (56.8%). At 48.3%, mobile is also providing the lowest levels of positive experience, compared to phone (49.2%), the branch (54.4%) and computer (56.1%).
  • To keep up with expected demand, as well as stay one step ahead of competitive offerings, firms must make development on the mobile channel a high priority.
  • Many leading traditional firms are directing their innovation efforts toward exploring new services through mobile. Banks are steadily leveraging mobile as an effective tool to differentiate their offerings.
You can access the report here.
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