UK financial services fear threat of fintech could cause 40% revenue loss

47% of UK financial firms are planning to make fintech acquisitions during the next three to five years

61% of the UK’s leading financial services firms fear they could lose up to 40% of their revenue to financial technology (fintech) start-ups, according to PwC’s Redrawing the lines: FinTech’s growing influence on Financial Services report.

The survey of 1,300 financial services industry leaders worldwide found that this is significantly higher than the 51% globally who fear revenue loss at the hands of fintech firms.

However, 47% of UK firms surveyed said they are planning to make fintech acquisitions over the course of the next three to five years, while 81% said they plan to explore strategic partnerships over the same period.

Consumer banking, funds transfer and payments are thought to be the main areas that will be affected by fintech innovation, resulting in price competition, loss of market share and threats to information security and privacy.

UK firms currently set aside 9% of their annual turnover to invest in fintech and IT projects – much lower than the global average of 15%. However, UK businesses have more realistic expectations of annual return on investment (13%), compared to the global average expectation of 20%.

92% of UK firms think consumers are now using fintech to conduct payments, 81% for personal finance and 72% for transferring funds. With this in mind, retaining customers through service improvement and innovation was a key priority of respondents. 77% said they plan to invest in data analytics over the coming year and 39% in cyber security.

Just 22% of those surveyed currently interact with customers using mobile applications compared to 28% globally. However, 89% of UK firms expect mobile channels to grow significantly over the next five years, while 50% say they plan to invest in mobile technology in the coming year.

One area UK financial firms lead is blockchain technology, with 35% of those surveyed saying they are now very or extremely familiar with the technology compared to 24% around the world.

Steve Davies, Europe, Middle East & Africa 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.”

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