The financial services industry is being “reshaped” by digital savvy fintechs and large tech companies, according to a report from Capgemini. But fintechs still need traditional financial firms to survive, the report said.
The Capgemini World FinTech Report 2018 found fintechs are redefining the customer journey by responding to customer expectations driven up by large tech companies including Google, Apple, Facebook, and Amazon. The large tech companies also loom as a potential future disruptor to the financial services industry due to their market position and digital expertise, according to the report.
“BigTechs have been successful within their sectors and are now looking to expand their footprint in the financial services market. Details of potential penetration are to be determined, but the possibility of rapid expansion cannot be ignored, given BigTech strengths,” the report said.
In the meantime fintechs are “bridging the gap” between what financial firms currently offer and what customers want.
“Financial services customers no longer rely on one or two firms. Instead—in pursuit of an efficient, portable, and delightful customer journey— they pick and choose from among traditional and not-so-traditional institutions to best meet their dynamic needs,” the report said.
Despite their impact, most fintechs still count collaboration with traditional firms as their primary business objective and only 18 per cent would prefer to compete with them, the report said.
Fintech Survival means collaboration
According to the report, partnering with incumbents often becomes a matter of survival. “Most [fintechs] will likely fail because: they could not find the right product-market fit, the high cost of scaling up, the inability to find the right partner, and the struggle to create, launch, and quickly gain market share for a differentiated product that cannot be replicated,” the report said.
However partnering with large traditional firms can create a catch 22 for fintechs, where the increased resources come with the traditional burdens of incumbency. Agile implementation and IT engagement ranked as the top two challenges for fintechs partnering with traditional firms.
“FinTech leaders have struggled with traditional institutions’ lack of agility, willingness to partner, and culture fit. However, FinTechs also need to be mindful of incumbents’ constraints and clearly articulate the value proposition they can achieve together to be a collaborative partner,” the authors said.
Successful collaboration is possible, according to fintech respondents, provided both traditional firms and fintechs commit to leadership at the executives level, common objectives and vision.