Fintech is alive and well all over the world doing its best to disrupt existing financial relationships by using technology. In Canada, fintech has been a lesser factor, in part because the local banks emerged in better shape following the global financial crisis and since the banks have a higher-level of satisfaction with their customers compared to other markets.
Those, in a nutshell, were the key suggests emerge from a current report made by analysts at Canaccord Genuity, which, because of where it operates was able to bring a global perspective to fintech. With offices in Canada, U.S., the U.K. and Australia, Canaccord was in a favourable position to comment on new entrants to everything about emerging financial technology – and the results which have been achieved.
“The U.K. appears to have seen probably the most disruption given a higher proportion of GDP associated with the industry, growing government support for financial technology and higher customer dissatisfaction with incumbents,” said the 34-page report that drew around the input of 11 from the firm’s analysts.
The report added the U.S. market – due to entities such as PayPal and Apple C is “highly disrupted” while the Canadian and Australian markets, fintech has already established a “relatively low impact as yet and would prosper to see the U.K. market.”
One way of measuring those regional differences: Research by Ernst & Young, established that while 15.5 per cent of “digitally active consumers” had used at least two fintech products over the previous 6 months, the comparable figure for Hong Kong and Canada was 29 per cent and eight per cent respectively.
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Of course what will emerge from the meeting of traditional banking institutions (which spend more than US$200 billion a year) and the digital competitors (just who have few problems in attracting investors including US$14 billion within the last Twelve months) is difficult to predict: as the newcomers are a threat, banks may choose to “cherry pick” the successful companies “as an alternative for internal R&D in the same way they adapted to phone and online banking.”
In Canada examples of that trend include: Scotiabank’s acquisition of the internet bank ING Bank; VanCity Savings’ purchase of Citizens Bank; and CIBC’s purchase of First Line Trust.
And whether or not the fintech companies don’t win the war the battle could be bruising for that banks. “We believe [the new entrants] are likely to selectively concentrate on the most profitable and least regulated bits of the company where the customer experience is the most challenged,” states the report, noting that such competition “will lower profitability for all players, such as the banks.”
How could that work? The report argues the newcomers, will “unbundle the more profitable, underserved, or less regulated pieces of the company and skim the cream,” with payments, online lending, and cross-border transactions “being probably the most exposed.”
As well, the report notes fintech companies “will be able to weather failure easier without string brands to safeguard,” simply because they can “pivot quickly.” Finally the new entrants “will offer freemium items that will make it hard for banks to charge fees for plain vanilla products.”
The report draws on surveys that show customers “are increasingly unhappy using their bank,” since the providers’ focus – increased fees and reduced core services – was a sign that they were losing touch.
bcritchley@nationalpost.com
