The Glooko app helps simplify diabetes management by making data more easily available to patients and their care providers.
FinTech means many things to many people. For some it’s about disintermediation, while for others it refers to startups involved in blockchain, marketplace lending or crowdfunding. The category reached an inflection point recently when it was profiled on a 60 Minutes segment hosted by Lesley Stahl.
FinTech is making headlines as venture capital continues to flow to startups, while incumbents focus on regaining the spotlight while learning from innovative financial service companies like Stripe, Square, SoFi, TransferWise, Blockchain and others.
According to “Blurred lines: How FinTech is shaping Financial Services,” a recent report by PwC, 83 percent of U.S. banking executives surveyed believe at least some portion of their business may be lost to stand-alone FinTech companies, with 80 percent of execs expecting consumer banking to be the financial sector most disrupted by FinTech in the next five years.
Disintermediation, Mobility and Blockchain
What are some of the factors driving this disruption? PwC calls disintermediation the “most powerful weapon” of FinTech startups in its 2016 report. To combat this, the consultancy is pushing for an “offense is the best defense” approach, citing that 60 percent of those surveyed put FinTech at the heart of their strategy, and 78 percent of CEOs agreed with this position. However, a discrepancy lies among insurance and asset and wealth management companies, with only 43 and 45 percent of those respective groups considering FinTech to be a core element of their strategy.
Given the proliferation of mobile devices and the growth of Android within the consumer and enterprise markets, it’s no surprise that many financial services executives support a mobile-first approach to reaching new consumers. Smartphones can almost entirely replace banks in some markets, especially in the developing world. In 2015, Bill Gates wrote that by the year 2030, two billion new customers will be able to use mobile phones to save, lend and make payments.
While FinTech is broad, closely examining certain segments, such as blockchain, helps illustrate how FinTech is impacting financial services. Blockchain, at a fundamental level, is a secure and distributed ledger, and it’s seen as a potential cost reduction for back-office operations. But PwC found in its recent survey that while 56 percent of executives see it as important, 57 percent say they are unlikely to take any action, reflecting the perception that blockchain isn’t a top threat to their existing businesses.
The Rise of Smart Contracts
Another popular topic lately is “smart contracts,” which are codified using software, and have the ability to be self-executing and self-maintaining. While NASDAQ is already using smart contracts to track the valuations of private companies using a secure, blockchain-based framework, the use cases are diverse.
One particularly interesting example is the concept of smart contracts in the Internet of Things (IoT). PwC’s report cites the case of a car insurance policy that’s embedded in the vehicle itself, with the changes in premium influenced by the driving habits of the owner, and the ability to notify the driver of the closest repair garage based upon pre-negotiated rates with the insurance company.
The takeaway from PwC’s FinTech report is simple: Banks and other firms must be aware of the industry changes brought about by FinTech startups and other advancements in technology and must adapt accordingly, or risk being left behind.
There’s no denying that new technology is changing the way we manage our finances. Learn more with this infographic.