New collaborative efforts between mainstream financial institutions and financial technology start-ups, also known as fintechs, has taken cumulative investment in fintech startups to over $40 billion, a 41% annual growth rate, over the last four years.
PricewaterhouseCoopers (PwC) revealed this in the latest Global Fintech Report 2017 released in April. The report examines continued rise of new business models and emerging technologies in the financial services sector. The analysis is based on survey of 1,308 firms and executives in the sector and proprietary data from PwC’s DeNovo platform.
The growth of fintech which has become inevitable has, according to the report, turned fintech start-ups from one-street competitors to become businesses continually seeking opportunities for partnerships. Increasingly, partnerships are being forged because, while start-ups require capital as well as customers, traditional financial institutions are in urgent need of new approaches to drive change and deliver innovation.
Across the globe, big organisations are beginning to realize the threat they face in the digital age is real and should they fail to innovate, they may be facing extinction. As much as 88% of the report’s respondents stated they are worried about losing part of their business to standalone fintech companies. In 2016, 95% of African big organisations said they believe part of their business was at risk.
The respondents said they are already seeing consumers conducting transactions in services like e-payments (84%), fund transfer (68%), personal finance (60%), personal loans (56%) etc with fintechs. Just recently, Nigeria’s fintech company Paga, which is dominating e-payment, stated that their platform reaches more customers than all the banks in Nigeria combined. Riby, another online financial management start-up told BusinessDay it hit 100,000 users on its platform in April.
One of the many reasons customers give for the switch to fintechs, the report noted, is the fact that most financial institutions have been slow in adopting relevant technologies and fully embracing the digital era.
“For many customers and clients, basic products and services look and cost much the same as they did before. Many are therefore looking to embrace fintech as a way to break this cycle. This embrace is not just about the technology, it is about culture, ways of working, problem solving, customer engagement and new ideas of leadership,” the report stated.
Embracing technology has seen an immediate impact as number of respondents in Africa who believe part of their business is at risk fell from 95% to 88%. As a matter of fact, 89% of financial institutions on the continent expect an increase in their internal innovation efforts over the next three to five years. Only 11% think it will stay the same.
The report also noted that partnering with fintech is up from 32% in 2016 to 45% in the current year.
“Fintech companies create an ecosystem that fosters the collection of vast amounts of data and builds trusted relationships with clientele. Financial institutions have realised the importance of these ecosystems and are attempting to engage with and bring innovation inside their companies,” PwC stated.
